Ep. 32: Corey Hoffstein On How The Fed, Passive Investors And HFT Create Liquidity Cascades

Corey recently wrote an excellent piece on market liquidity and I had to have him as a guest. For background, he is co-founder and Chief Investment Officer of Newfound Research, a quantitative tactical asset management firm. At Newfound, he is responsible for portfolio management, investment research, strategy development, and communication of the firm’s views to clients. He holds a Master of Science in Computational Finance from Carnegie Mellon University. In this podcast we discuss:

1. How central banks have pushed investors up the risk curve

2. How central banks have introduced moral hazard to investors

3. The importance of passive investing as marginal flow into assets

4. The impact of passive on how trades are executed

5. The procyclicality of HFT liquidity provision

6. How dealers hedging magnifies volatility shifts

7. The prevalence of volatility contingent strategies in markets

8. When do liquidity cascades end

9. How to position for liquidity cascades

10. Books that influenced Corey: Fooled by Randomness (Nassim Taleb) and Red-Blooded Risk (Aaron Brown)

Corey’s paper Liquidity Cascades and supplemental work can be found here. For his broader research, you can find it here. You can also follow Corey on Twitter

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(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)