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Fast Money Is Stuck On Sidelines Thanks to VaR Aftershocks

  • Rules-based traders are in no position to ramp up bullish bets
  • Models like value-at-risk seen fueling excessive risk-taking
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Downside to Market Coming in Near-Term, Says Curnutt
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Market tremors from this once-in-a-generation volatility shock are whipsawing risk models across Wall Street, suppressing the appetite of fast-money investors to buy the dip for potentially months to come.

The coronavirus crisis is spurring an epic spree of deleveraging among those wedded to a stable value-at-risk measure, a model pioneered by JPMorgan Chase & Co. which projects the vulnerability of a portfolio by estimating trading losses based on historical data. While the formulas vary, in general the models require investment firms to rein in risk when market turbulence increases.