The Yield podcast

The Consequences of Financial Market Innovation

20/10/2021
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If your knee jerk reaction to every dip in the market is to sell, this episode of The Yield has some advice that you need to hear.  Join Peter Kerr, CFA, and Michael Ehrlich for a discussion about the resulting changes caused by innovation within financial markets. Michael is an Associate Professor of Finance at New Jersey Institute of Technology and focuses on financial markets and  institutions with an emphasis on market failures. He has written about the consequences of financial market innovation and is Associate Director of the Leir Center for Financial Bubble Research. In this discussion they examine the opportunities of a loose monetary policy backdrop as well as the risks that are bubbling under the surface. 

Key Takeaways:

[2:00] Michael highlights his journey of academic entrepreneurship and his involvement in cutting edge trading moves. 

[6:48] The definition, consequences and risks of arbitration. 

[11:06] Current innovations have the potential to present risk to today’s financial market. 

[17:10] The mistakes that led to the fall of Long Term Management Capital. 

[19:35] Common reactions that inexperienced investors have to unexpected dips in the market. 

[21:40] Some of the risks that are bubbling up now, and how investors should think about them.

[26:09] A more strategic approach to weathering the next market downturn. 

[31:40] Common mistakes that are unique to retail investors. 

[34:08] The impact that the news should have (or not have) on your perception of risk. 

[37:05] It’s not a bad thing to take a risk- when you know you’re taking a risk. 

[39:20] The structural inefficiencies of ETFs, SIVs and other financial innovations during periods of market stress. 

[47:52] Michael’s take on how to approach the market with long and short views. 

Mentioned in This Episode:

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