Cross Asset Dislocations and Market Signals Presentation at RMC

Rebecca Cheong from UBS led a discussion titled Cross Asset Dislocations and Market Signals.  She also was the first of our presenters to utilize our instant poll app during her presentation.  More on that in a moment…

Rebecca’s presentation was divided into three sections.  She initially covered market dislocations noting that some are temporary and others are structural, with the latter often lasting longer.  An example that we are probably all familiar with is the increase in SPX put skew that has accompanied the implementation of Dodd-Frank.

The presentation then moved on to discuss these dislocations and the use of them as market signals.  Specifically, she noted disconnections between top down and bottom up risk drivers.  For example, the cost of hedging an S&P 500 portfolio may be cheap while individual stock hedging costs may be expensive or EEM options may be cheap and options on individual emerging markets may be expensive.  Eventually these dislocations should come back in line.

Finally, Rebecca asked several polling questions that the audience was able to answer using an app that conference participants were using.  Her final question was which of the following has experienced the most growth over the last 5 years.  Note the results in the graphic below.

RC Poll 5

Neither the average height of a six-year old boy or the growth of hedge fund assets under management were near the top.  However, attendees were wrong to assume the growth of VIX ETPs or VIX Futures volume experienced higher growth than the assets under management in in Managed Risk Funds over the past five years.