Summer vacations linked to last week's market crash

Home
»
Stories
»
2024
»
August

GLOBAL INDUSTRY NEWS

Global Industry News

Summer vacations linked to last week's market crash

Research

View from the Wing | View from the Wing

By Sky Industry News

Aug 12, 2024

Last week’s stock market plunge has been attributed to a combination of factors, including the Bank of Japan's modest rise in interest rates and fears of an impending US recession. However, a significant influence on the crisis was a seasonal workplace quirk: summer holidays.

Market convulsions briefly wiped more than $1 trillion from Japan’s main stock index and sent shares in megacap tech groups plummeting. The crisis was exacerbated by a lack of liquidity due to thin staffing over the holidays.

“It was a perfect volatility event at the worst possible time ... If everyone’s away for the summer and you don’t have enough liquidity when something like that happens, you’ve got a big problem,” said Dan Scott, head of the multi-asset boutique at Vontobel. “Everyone was stuck in the same trades and then suddenly we had a change in the paradigm.”

Get the Newsletter

Sign-up to receive weekly round up of news from Sky Industry News

By submitting, you agree to our Privacy Policy and Terms of Service. By providing your phone number you are opting in and consenting to receive recurring SMS/MMS messages, including automated texts, to that number from our short code. Msg & data rates may apply. Reply HELP for help, STOP to end. SMS opt-in will not be sold, rented, or shared.

A merger arbitrage trader, who requested anonymity, recounted an incident where "One guy I know was going to see the field hockey at the Olympics, on the Eurostar. He went into the tunnel and he had no connection right when contagion was spreading. Eurostar’s WiFi or lack of it probably cost him millions of dollars.”

Matt Levine remarked on this phenomenon: “In August, every trading desk is staffed by junior people who don’t know what they’re doing” seems to be a reasonably robust fact of behavioral finance.”

The consensus suggests that while travel is important, staying reachable during vacations is crucial for those managing significant financial responsibilities.

The case of Archegos Capital's collapse further illustrates this point. Their counterparties were left holding substantial losses, with Credit Suisse losing $5.5 billion while Jefferies managed to contain their losses. During this period, Jefferies' CEO was vacationing in Turks and Caicos and reportedly issued directives from a swim-up bar.

Summer vacations also impact healthcare negatively; mortality rates rise when experienced medical staff are replaced by less experienced personnel during holiday periods.

---