August 17, 2021
Dealer, or market maker, hedging flows have become an extremely hot topic in financial media over the last two years. An exotic variety of equity market phenomena are attributed to “gamma imbalances” ranging from the March 2020 coronavirus-induced volatility to various meme stock manias. Our research indicates that gamma is only the tip of the iceberg when it comes to explaining market returns and volatility. A far lesser known greek, vanna, is responsible for a significant portion of non-fundamental daily market behavior.