Relative price confirmations depend on arbitrageur positioning, not just quality flight.

Evidence

The overall pattern in table 8.3 seems clear. In all the cases for which data are available, the relative price movements of the crisis are consistent with the “superportfolio” explanation, while in five cases they are inconsistent (and in a further four, possibly inconsistent) with the flight-to-quality explanation. … A simpler piece of evidence consistent with the superportfolio hypothesis is the contrast between the market reaction to the August 1998 Russian default and to the attacks of September 11, 2001, which also sparked a flight to quality. LTCM’s successor fund, JWM Partners, was active then too, but its capital base was smaller and its leverage levels lower, so its arbitrage positions were considerably smaller (Silverman and Chaffin 2000). The amount of capital devoted to convergence and relative value arbitrage by other market participants such as investment banks was also much smaller (interviewees estimate possibly only a tenth as large in total). — Donald MacKenzie, An Engine, Not a Camera, 1083

Categorization

• SEED: Alternative explanation: what distinguishes cases where a ‘crisis’ propagates globally vs ones that stay contained? The Russian default vs 9/11 contrast is a ready-made quasi-natural experiment.
• XREF: connects to: Traders’ arbitrage activity made the pricing model appear empirically true — Donald MacKenzie & Yuval Millo, Constructing a Market, Performing Theory, 126; Flight-to-quality and superportfolio unwinding produce indistinguishable price movements in most cases. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1076; Even certain knowledge of a future crash does not guarantee arbitrage profit. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1215