Kocic: Complacency Has Declined Sharply – But You Probably Didn’t Realize It
Back in June, Deutsche Bank's Aleksandar Kocic set out to quantify complacency.
While there's certainly been no shortage of commentary containing the term "complacency" from analysts and pundits, the idea of putting a number on it was new.
Kocic's approach was relatively straightforward and his note (which you can read in the linked post above) explaining the rationale and method was characteristically brilliant. Here's an excerpt:
We approach the problem of quantifying complacency ... by com
And a liquidity metric, along with a measure of defensive tactics like stops, mental and entered should be implemented. Then you need a measure of robotic participation, which is fairly easy to surmise. These players would be reactionary and independent of a complacency construct. Then you need a measure of players that “follow” technical signals, along with a compliance model estimating probability that they follow their system under various scenarios. Also, leverage usually gives a model for unwinding based on margin calls and feeds back into your liquidity metric.
So maybe we just stick with the Yardini regression since overspecification is a quantitative morass.