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...

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...

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...

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 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...

Predicting equity market corrections

Assessing the risk of equity market “crashes”, academic work has focused on price-earnings ratios and bond-stock earnings yield differentials. A recent paper by Lleo...

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Drawdown control

Containment of drawdowns and optimization of performance ratios for multi-asset portfolios is critical for trading strategies. Alas, short data series or structural changes often...

Liquidity yields and FX

Liquidity yields are convenience yields of financial securities that typically arise from high liquidity, suitability as collateral or preferred regulatory status. New research argues...

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...

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