Paper: "The Rise of Global Stock Market Crash Probabilities"

"This paper examines the effects of increased interdependence between international stock markets on the probability of global crashes. [W]e find that the probability of observing a global crash in a given week has increased fifteen times. This significantly and dramatically increased global crash probability shows the decrease in diversification opportunities in global stock markets."

I've written a couple times about a concept of investing monoculture. First, during the bull market (1982-2000) within a bull market (1932-2000), any style that stopped to consider the possibility of a bear market would have been maladaptive. If you think about it in terms of expected value, for any value of caution regarding a bear market, such a framework would only have lowered expected value and could only have been maladaptive. As a result, this "genotype" has largely been purged from investing. If you were cautious, this means your boss took you aside and explained that you just didn't "get it" about how the new economy worked and maybe managing money wasn't for you. It also took the form of investing tropes about "stocks for the long run", "buy the dips", and the equity risk premium.

Second, the HFM book talks about this monoculture effect among funds: "if you're trained the same way as everybody else, in general you're all going to behave the same," and also "the DNA of a lot of these [quantitative trading] models is very, very similar it's like an ecosystem with no biodiversity..."