#### SPECIAL: Market 'bubbles'

### Why financial markets misprice fundamental value

Experimental research has produced robust evidence for mispricing of assets relative to their fundamental values even with active trading and sufficient information. Academic studies...

### Explosive dynamics in exchange rates

Explosiveness in financial markets means that prices display exponential growth. In recent years statistical tests have been developed to locate mildly explosive bubble periods...

### Pension funds and herding

Pension funds have three types of motivations for herding: rebalancing rules, the effects of regulatory changes and peer pressure of senior executives. A new...

#### SYSTEMIC RISK

### How central banks can take nominal rates deeply negative

The popular view that nominal interest rates have a natural zero lower bound has become...

### Bayesian Risk Forecasting

Portfolio risk forecasting is subject to great parameter uncertainty, particularly for longer forward horizons. This...

### The duration extraction effect

Under non-conventional monetary policy central banks influence financial markets through the “portfolio rebalancing channel”. The...

### Tiered reserve systems

Negative monetary policy rates can undermine financial transmission, because they encourage cash hoarding and reduce...

### Signaling systemic risk

Systemic financial crises arise when vulnerable financial systems meet adverse shocks. A systemic risk indicator...

#### SYSTEMATIC VALUE

### Analyzing global fixed income markets with tensors

Roughly speaking, a tensor is an array (generalization of a matrix) of numbers that transform...

### The power of R for trading (part 2)

The R environment makes statistical estimation and learning accessible to portfolio management beyond the traditional...

### Retail investor beliefs

Survey evidence suggests that retail investors adjust positions rather sluggishly to changing beliefs and the...

### Commodity trends as predictors of bond returns

Simple commodity price changes may reflect either supply or demand shocks. However, filtered commodity price...

### The relation between value and momentum strategies

Simple value and momentum strategies often end up with opposite market positions. One strategy succeeds...

#### POPULAR POSTS

### Leverage in asset management

Asset managers can use leverage to enhance returns. Outside hedge funds, such leverage is modest as share of assets under management. However, considering the huge...

### VIX term structure as a trading signal

The VIX futures curve reflects expectations of future implied volatility of S&P500 index options. The slope of the curve is indicative of expected volatility...

### The four components of long-term bond yields

A BOJ paper proposes an affine terms structure model for bond yields under consideration of the zero lower bound. It estimates the contribution of...

### Basic theory of momentum strategies

Systematic momentum trading is a major alternative risk premium strategy across asset classes. Time series momentum motivates trend following; cross section momentum gives rise...

### Understanding market beta in FX

The beta of an investment measures its sensitivity to “market returns”. Unlike in equity, in FX the relevant benchmark for a beta cannot be a...

### Understanding the correlation of equity and bond returns

The correlation of equity and high grade sovereign bond returns is a powerful driver of portfolio construction and the term premia of interest rates....