Here’s one view of what the next financial crisis could be like. It’s from the chief quantitative investor at J.P. Morgan and is part of a series of essays the bank is putting out to mark the 10th anniversary of the financial crisis. He forecasts the crisis is likely to be more volatile and worse in many ways because of changes that have occurred in the markets and economy.
Kolanovic, a 43-year-old analyst with a Ph.D. in theoretical physics, has risen in prominence for explaining, and occasionally predicting, how the new, algorithm-dominated stock market will behave. The current bull rally, the longest in modern history by some measures, has been characterized by extended periods of calm punctuated with spasms of selling known as flash crashes. Recent examples include a nearly 1,600 point intraday drop in February and a 1,100 point decline in August 2015.
“They are very rapid, sharp declines in asset values with sharp increases in market volatility,” Kolanovic, the bank’s global head of macro quantitative and derivatives research, said in a recent interview. But those flash crashes occurred during a backdrop of a U.S. economic expansion; the new market hasn’t been tested in the throes of a recession, he said.