Equity values and credit spreads: the inflation effect
A theoretical paper shows that a downward shift in expected inflation increases equity valuations and credit default risk at the same time. The reason...
The predictability of market-wide earnings revisions
Forward earnings yields are a key metric for the valuation of an equity market. Helpfully, I/B/E/S and DataStream publish forward earnings forecasts of analysts...
Earnings yields, equity carry and risk premia
Forward earnings yields and equity carry are plausible indicators of risk premia embedded in equity index futures prices. Data for a panel of 25...
Seasonal effects in commodity futures curves
Seasonal fluctuations are evident for many commodity prices. However, their exact size can be quite uncertain. Hence, seasons affect commodity futures curves in two...
Term premia and macro factors
The fixed income term premium is the difference between the yield of a longer-maturity bond and the average expected risk-free short-term rate for that...
The predictability of relative asset returns
Empirical research suggests that it is easier to predict relative returns within an asset class than to predict absolute returns. Also, out-of-sample value generation...
Critical transitions in financial markets
Critical transitions in financial markets are shifts in prices and operational structure to a new equilibrium after reaching a tipping point. “Complexity theory” helps...
FX forward returns: basic empirical lessons
FX forward returns for 29 floating and convertible currencies since 1999 provide important empirical lessons. First, the long-term performance of FX returns has been...
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...
Understanding negative inflation risk premia
Inflation risk premia in the U.S. and the euro area have disappeared or even turned negative since the great financial crisis, according to various...
RECENT ARTICLES
Risk management shocks and price distortions
Risk management relies on statistical metrics that converge on common standards. These metrics can change drastically alongside market conditions. A risk management shock is...
The predictive superiority of ensemble methods for CDS spreads
Through 'R' and 'Python' one can apply a wide range of methods for predicting financial market variables. Key concepts include penalized regression, such as...
Unproductive debt
Credit and related interest income have historically been viewed as service and related payment for lending productively. However, in a highly collateralized and risk-averse...