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...

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...

FX strategies based on real exchange rates

New empirical research provides guidance as to how to use real exchange rates for currency strategies. First, real exchange rates can serve as a...

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...

The relation between value and momentum strategies

Simple value and momentum strategies often end up with opposite market positions. One strategy succeeds when the other fails. There are two plausible reasons...

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...

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...

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...

The fundamental value trap

Fundamental value seems like a straightforward investment approach. One simply looks for assets that are “cheap” or “expensive” relative to their rationally expected risk-adjusted...

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...

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