Flight-to-quality and superportfolio unwinding produce indistinguishable price movements in most cases.

Evidence

Convergence and relative value arbitrage as conducted by LTCM and its imitators typically involves short-selling an asset with low default risk and/or high liquidity while holding a similar asset with higher default risk and/or lower liquidity. In many cases, therefore, price movements caused by a flight to quality and by the forced sales of components of an arbitrage superportfolio cannot be distinguished. — Donald MacKenzie, An Engine, Not a Camera, 1076

Categorization

• XREF: connects to: LTCM’s superportfolio unraveling, not just flight to quality, drove 1998 price movements. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1080; Relative price confirmations depend on arbitrageur positioning, not just quality flight. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1083; Widely adopted portfolio insurance would amplify market price movements — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 809

Broader Connections

• LTCM’s superportfolio unraveling, not just flight to quality, drove 1998 price movements. #qualifies (0.95) — Donald MacKenzie, An Engine, Not a Camera, 1080
• Relative price confirmations depend on arbitrageur positioning, not just quality flight. #expands (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1083
• Widely adopted portfolio insurance would amplify market price movements #expands (0.72) — Donald MacKenzie, An Engine, Not a Camera, 809