The superportfolio effect predicts price declines in assets believed to be held by LTCM.

Evidence

If the “superportfolio” explanation advanced in this chapter is correct, then superimposed on the flight to quality should be distinctive price movements reflecting the unraveling of the positions held by LTCM’s conscious and unconscious imitators. The composition of the superportfolio is not known with any precision, but if the imitation-based explanation is correct, LTCM’s portfolio should be a reasonable proxy, and its main components are known from Perold 1999 and from the testimony of interviewees. The hypothesized specific characteristic of September 1998-”run-on-the -bank” declines in the prices of assets believed to be held by LTCM-is identical in its predicted consequences to the “unraveling superportfolio” explanation. — Donald MacKenzie, An Engine, Not a Camera, 1075

Categorization

• DEFINE: Clarifies the “superportfolio” concept and how it differs from the simpler flight-to-quality explanation.
• 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; Other traders imitated LTCM’s successful arbitrage models and strategy — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 155; Imitation of LTCM created new correlations between unrelated arbitrage positions in 1998. — Donald MacKenzie, An Engine, Not a Camera: How Financial…, 1228 (+1 more)

Broader Connections

• LTCM’s superportfolio unraveling, not just flight to quality, drove 1998 price movements. #corroborates (0.90) — Donald MacKenzie, An Engine, Not a Camera, 1080
• Imitation of LTCM created new correlations between unrelated arbitrage positions in 1998. #expands (0.85) — Donald MacKenzie, An Engine, Not a Camera, 1228
• Arbitrage strategies became consensus trades as hedge funds imitated LTCM #expands (0.78) — Donald MacKenzie, An Engine, Not a Camera, 1029
• Other traders imitated LTCM’s successful arbitrage models and strategy #expands (0.72) — Donald MacKenzie, An Engine, Not a Camera, 155