How privileged information can lead to systematic crash: August 4, 2011 Demystified

Written by: Shoaib Zaman
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Systematic equity crash of August 4, 2011: Demystified
On Thursday August 4, 2011, it was carnage in the equity market all over the world, it seemed like a run-off. The immediate reason given was lack of confidence and it was said that jobless data would be disappointing. But alas, when the data was revealed, it was actually better than expected!

This led to the initial understanding that the crash was just a panic-run.

Now we are being told that 'US has lost its AAA credit rating by Standard & Poors'. This leads to a new conclusion that this was a case of information advantage.

(Read earlier analysis in the aftermath of the global equity fall)

If there is ever a serious investigation, chances for which is less there would only be a smoke-screen investigation at best. Then it will come to light that someone had got the information before everyone else. And that someone had dumped their investments. Leakage of this vital information resulted in panic sell.

But considering that politics is going to get messy in United States and the stock market along with bond market will see a flurry of panic-runs, plus international market will also go through jitters and shocks, chances of a full-fledged investigation is less. 

GoodReturns.in DISCLAIMER: The views expressed in this article are the views of the author and do not reflect the views of our company.

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