LTCM’s disclosed strategy led rivals to take similar arbitrage positions

Evidence

Even if the details of LTCM’s trading could not be discovered, its basic strategy convergence and relative-value arbitrage had to be disclosed to potential investors, and others seeking to follow that strategy would often be led to take positions similar to LTCM’s. It “[didn’t] take a rocket scientist” to discover the kinds of arbitrage opportunities being pursued by LTCM (Rosenfeld interview), especially when discovering one leg of an LTCM trade through being a counterparty to it would greatly narrow the range of likely other legs. — Donald MacKenzie, An Engine, Not a Camera, 1027

Categorization

• XREF: The disclosure-necessity mechanism feeds into counterperformativity: a successful strategy is also the one most likely to be crowded and collapse, which this book connects to LTCM’s eventual failure. — connects to: Other traders imitated LTCM’s successful arbitrage models and strategy — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 155; LTCM’s visible profits pulled other funds into the same strategies, crowding the trades. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1022; LTCM’s trades were largely familiar plays already identified by academics — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1028 (+3 more)

Broader Connections

• Arbitrage strategies became consensus trades as hedge funds imitated LTCM #corroborates (0.95) — Donald MacKenzie, An Engine, Not a Camera, 1029
• Imitation of LTCM created new correlations between unrelated arbitrage positions in 1998. #expands (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1228