Satyajit Das at Domainfax:
Several factors could lead to a dangerous shortage of liquidity in the event of a crisis. First, since 2009, low interest rates have driven investors into riskier, less liquid assets in search of return. These include longer-dated securities, corporate bonds and emerging-market issues — frequently of low credit quality — as well as mid-cap shares or investments in smaller and often less-developed equity markets.
…Second, concentration is high, with large funds, exchange-traded funds (ETFs) and specialised investors, such as high-frequency traders, dominating investments. Algorithmic traders and quantitative investors exhibit herding behaviour, following near-identical strategies and holding similar portfolios.
