The Risk of a Greek Tragedy

drachmaRather than duplicate the entire article here, I’ll simply point you to the Investor Analytics Blog, where I posted my article about the Grexit.

Risk Management on Wall Street and at the Supreme Court

pink-dress-shirt-black-striped-tie-black-belt-black-pantsOne of the first things I noticed as I started my early morning commute today was the number of men wearing pink shirts. On the train, on the ferry from Hoboken to Wall Street and on the streets of lower Manhattan pink shirts seemed to be everywhere. The gym was packed with guys wearing pink shirts too — and when I commented to one of them that we were both wearing pink shirts, he opined that “it’s a low risk choice: it’s a Friday in the summer.” Doing something ‘daring’ becomes easier the more people who accept the behavior. And if a slight majority is ok with it, it ceases to be daring at all. It becomes a low-risk choice.

Gay marraige graph

Click to Enlarge

Which brings me to today’s Supreme Court decision.  Without commenting on my reaction to the decision, it seems to be a low-risk option for the Justices: US opinion polls shows a slight majority of people across the country supporting marriage equality for the first time about 3 years ago. Among 18 to 29 year old voters, the trend is much stronger with 78% of them in favor of equality according to Gallup. While I don’t pretend to know what goes on inside a Supreme Court Justice’s head (I simply do not think like a lawyer does), each one of them must be fully cognizant that the tide of history is clearly on the side of equality. It had became the low-risk decision.

I think I may start to wear pink shirts to work more often.


This article originally appeared in, co-authored with my good friend Ken Akoundi, President of ASPN Solutions. Ken and I will be speaking at the RiskHedge conference in NYC on July 8 on the topic of Liquidity Risk.

Market liquidity, when not taken for granted, is a complex topic that has no quick and easy explanation, measure or analysis. Without liquidity, a market cannot really exist, so most economic, valuation and risk models assume a high level of liquidity. Any other assumption is just too messy: how exactly does one go about modelling a market when one of its required characteristics – liquidity – is in short supply or non-existent?

Both the Wall Street Journal and Investopedia define liquidity similarly: the degree to which a security can be easily bought or sold without materially changing its price. Liquidity is not just the ability to buy or sell – liquidity is about the ability to do so without moving the market. That last bit means that to be truly liquid, a security needs plentiful buyers and sellers so anyone can transact at nearby prices, leading to one of the most common measures of liquidity: volume. But high volume alone does not mean you can always transact without moving the market: what if all that volume is dominated by buyers when there are few sellers – a strategy used by some hedge funds in frontier markets. Without plentiful sellers, just one buyer can and will move the market. The mirror image is also true. Size matters: small quantities can often be easily bought or sold and therefore some would describe the security as ‘liquid’, but the same security at larger quantities may not find a market at all.

Read more of this post