HedgeCo.Net Columnists
Aaron Wormus is the managing director of HedgeCo Networks, and part-time financial and technology blogger for Wormus.com.
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Alex Akesson is the author of Hedgefunds-Weblog.com, providing breaking news and interviews for the hedge fund industry.
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Peter J. de Marigny is Portfolio Manager of DITMo® Strategies, an Equity Hedge, Aggressive-Income Objective, Buy/Write Portfolio for an Aggressive-Income Objective used as an Enhanced Cash investment vehicle. Pj is also Head of Risk Alternative Strategies for Newport Beach, CA advisor Renovatio Asset Management. » View Peter J. de Marigny
Ryan Conner is Principal at HedgeCo Securities. As an experienced industry veteran, Ryan Conner offers his opinions on the hedge fund industry and hedge fund strategies.
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Rashida Fleet is involved with consulting and working with managers during the fund launch phase. Her work includes; interviewing managers, collecting information for the HedgeCo database and contributing to the HedgeCo News feed.
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Tim Seymour is co-founder and managing partner of Red Star Asset Management, as well as Chief Operating Officer of the $116 million Red Star Double Alpha Fund.
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Richard Heller Richard Heller is a partner at the New York City law firm of Thompson Hine LLP. His experience is in the formation of private offerings for hedge funds as well as the formation of registered broker-dealers and RIAs.
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Bret Rosenthal Principal of RCM, LLC, and founding partner of the Fortune's Favor Family of Funds.
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Cameron Hight, CFA, is an investment industry veteran with experience from both buy and sell-side firms, including CIBC, DLJ, Lehman Brothers and Afton Capital. He is currently the Founder and President of Alpha Theory™, a Portfolio Management Platform designed to give fundamental money managers the ability to create their own repeatable discipline to organize the complex process of portfolio management.
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    Does Mimicking behavior lead to market crashes?

    Posted By Seth Berlin, August 21st, 2008 : Permalink

    In this model by Capital Fund Management (www.cfm.fr), high levels of copying behavior leads to bubbles and then crashes.  This is regardless of positive or negative news stories.

    Graph of mimicking research

    Although only a mathematical model, this is interesting to me.  The key here is the definition of low vs high level of copying behavior.  If an inflection points exists for copying behavior, then what is that inflection point and how does it reflect itself in the market.  For example, can large changes in volume or open interest reflect mimicking behavior? Or do you need to look at  bid volume on the upside or short lending on the downside?

    Again, just a mathematical model, but another sign that clustering behavior is an important aspect of modeling.

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