Fundamentally unrelated market phenomena can suddenly move in lock-step within a global microstructure

Evidence

What happened in August and September 1998 was not simply that international markets fell in concert (that would have had little effect on LTCM), but that very particular phenomena, which at the level of economic “fundamentals” had seemed quite unrelated, suddenly started to move in close to lock-step: swap spreads, the precise shape of yield curves, the behavior of equity pairs such as Royal Dutch/Shell, and so on. — Donald MacKenzie, An Engine, Not a Camera, 1088

Categorization

• XREF: This empirical collapse of fundamental-decorrelation is a concrete instance of the performativity/embeddedness thesis — correlation produced by imitation, not fundamentals. — connects to: Efficient market theory could not imagine internally-generated systemic crisis — Mark Blyth, Austerity: The History of a Dangerous…, 130; Security design boosted cross-market correlation and turned local losses into systemic collapse. — Mark Blyth, Austerity: The History of a Dangerous…, 96; Market microstructure shapes whether arbitrage opportunities persist or vanish — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 94 (+9 more)

Broader Connections

• Global markets are assembled through microsocial patterns of relatedness and coordination #expands (0.82) — Donald MacKenzie, An Engine, Not a Camera, 1086