Goldman reports that short sellers are contributing less to vol (and vol of vol, I assume) than are passive funds, especially the big index-hugging ETFs. That’s worrying. From Goldman, via Heisenberg:
Heavily shorted names showing lower than expected volatility. For the first time in 6 years, the volatility of the S&P 500 has been greater than the volatility of the most shorted stocks. This suggests investors that short stocks (i.e. Hedge Funds) are not making big changes to their positions on a daily basis, while investors that trade at the index level are rapidly changing their positioning. We believe it is increasingly important for portfolio managers to know how much of their stocks are owned by passive funds as that appears to be one of the primary sources of the recent volatility. It may be less important than normal to track the institutional investor ownership of stocks as that is not the primary source of recent volatility.