GM101: When Passive Breaks the Market ft. Hari Krishnan & Cem Karsan
Top Traders Unplugged
Niels Kaastrup-Larsen
4.8 • 712 Ratings
🗓️ 20 May 2026
⏱️ 74 minutes
🧾️ Download transcript
Summary
Hari Krishnan joins Niels and Cem for a deep exploration of what happens when markets become dominated by flows rather than fundamentals. Drawing on his new paper with Mike Green and Stefan Sturm, Hari explains why rising passive ownership may weaken price discovery, amplify concentration in mega-cap stocks and create conditions for reflexive instability. The conversation expands far beyond indexing, touching on volatility targeting, leverage, dispersion, inflation, government intervention and the growing dependence of the global economy on rising asset prices. Along the way, Cem and Hari debate whether policymakers can continue stabilizing an increasingly fragile system, what could trigger a structural break, and how investors should think about positioning in a world where flows may matter more than fundamentals.
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Episode TimeStamps:
00:00 - Hari warns about a fragile financial system dependent on a handful of decision-makers
01:06 - Niels introduces Hari’s new paper with Mike Green and Stefan Sturm
03:00 - Why passive investing may weaken the link between fundamentals and prices
08:40 - The key assumptions behind the model
12:49 - How passive adoption accelerated structural market changes
15:11 - Cem explains why markets may now drive the economy rather than reflect it
23:38 - Can policymakers control a complex financial system?
27:03 - How passive flows amplify mega-cap concentration
31:22 - The changing role of dispersion, volatility and positioning
41:04 - What the model suggests about instability at high passive ownership levels
46:21 - Why 2022 may have been a warning sign
51:55 - Inflation, government intervention and the limits of market control
55:33 - What could trigger a systemic break?
01:07:28 - Political and demographic pressures beneath the system
01:10:43 - Hari’s portfolio implications: stay long, hedge smartly and own inflation sensitivity
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Transcript
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| 0:00.0 | I feel worried about all this though because I don't like an economy putting my free market cap on. |
| 0:07.0 | I don't like an economy that is reliant on a small number of people to act as the watchdogs for a system that is bloated and fragile. |
| 0:18.0 | They're very well qualified to deal with this. |
| 0:20.0 | But still, it's dependence on a small |
| 0:22.5 | number of people to support a global financial system that impinges upon everything in society. |
| 0:32.6 | Welcome to Top Traders Unplugged. In markets, success doesn't come from predicting what happens next. |
| 0:39.5 | It comes from being prepared for what you can't predict. |
| 0:43.2 | In each episode, we go deep with some of the world's most thoughtful minds in investing, |
| 0:48.2 | economics, and beyond to understand how they think, how they prepare, and how they decide, |
| 0:53.5 | and the experiences that shaped how they see, and how they decide, and the experiences that |
| 0:55.0 | shaped how they see the world. |
| 0:57.0 | No noise, no shortcuts, just real conversations to help you think better and invest with confidence. |
| 1:06.6 | Harry, welcome back to the show. |
| 1:08.6 | Jim and I have been looking forward to this conversation. |
| 1:10.9 | It's been a few months since you were last on the show. How have you been? |
| 1:14.4 | I've been well, and it's a pleasure to be back. I hope to be. I hope this will be the first of many occasions in the future. |
| 1:21.3 | Yeah, so do we. Now, the reason why we're here today is to talk about a new paper that you wrote with Mike Green, |
| 1:28.4 | Stefan Sturm, called a model for passive that breaks the market. |
| 1:32.8 | And I actually think our conversation today is perfectly timed. |
| 1:37.7 | As we've just witnessed, equity markets around the world have an exceptionally strong performance |
| 1:42.7 | the last month with double-digit gains |
| 1:45.1 | in the S&P 500 and the NASDAQ. Whilst at the same time, we have two wars going on, no clarity on |
... |
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