Are Markets Becoming Living Systems? | Systematic Investor | Ep. 402

Summary

Richard Brennan and Niels Kaastrup-Larsen discuss markets as complex adaptive systems, arguing that the rise of passive investing has made price discovery weaker and trends more persistent. They present empirical evidence from agent-based models showing feedback loops produce the statistical signatures of real markets. The conversation suggests trend following is structurally aligned with modern market architecture.

• Markets are complex adaptive systems, not equilibrium-seeking machines.
• Passive investing dilutes price-sensitive agents, reducing balancing feedback.
• Reinforcing feedback loops now dominate, making trends run further and overshoot more.
• Agent-based models with just 25% chartists reproduce real market statistics (fat tails, memory).
• Cross-market coupling shows global futures markets share a single feedback engine.
• Trend following harvests a structural feature of markets, not a temporary inefficiency.
• Structured products and volatility suppression can build fragility and lead to explosive moves.
• The TTU Trend Barometer is a leading indicator for trend-following performance.