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
Classifying market states
Typically, we cannot predict a meaningful portion of daily or higher-frequency market returns. A more realistic approach is classifying the state of the market...
What traders should know about seasonal adjustment
The purpose of seasonal adjustment is to remove seasonal and calendar effects from economic time series. It is a common procedure but also a...
Inflation and precious metal prices
Theory and plausibility suggest that precious metal prices benefit from inflation and negative real interest rates. This makes gold, silver, platinum, and palladium natural...