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...

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...

Improving the information value of dividend yields

Marco Dion, Viquar Shaikh and colleagues at J.P. Morgan Cazenove illustrate how the information value of equity dividend yield can be enhanced. Their measure...

How current accounts mislead FX markets

A common fallacy is that current account deficits measure dependence on external financing. In reality, external balances and cross border financing are only vaguely...

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...

Predicting bond returns

Simple regression is inadequate for predicting bond returns, as the character of rates markets changes fundamentally with economic conditions. In financial modelling terms this...

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...

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...

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...

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...

RECENT ARTICLES

The q-factor model for equity returns

Investment-based capital asset pricing looks at equity returns from the angle of issuers, rather than investors. It is based on the cost of capital...

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...

POPULAR ARTICLES