Global market portfolio: construction and performance
A representative market portfolio can be built as the capitalization-weighted average of global equity, real estate and bonds. From 1960 to 2015 such a...
Cross-asset carry: an introduction
Carry can be defined as return for unchanged market prices and is easy to calculate in real time across assets. Carry strategies often reap...
Explaining FX forward bias
Forward bias in foreign exchange markets means that a positive interest rate differential precedes currency appreciation. It has been an empirical regularity in developed...
FX strategies based on quanto contract information
Quantos are derivatives that settle in currencies different from the denomination of the underlying contract. Therefore, quanto index contracts for the S&P 500 provide...
The “low risk effect” in financial markets
Low-beta and low-volatility securities can produce superior risk-adjusted returns. Thus, portfolios of calibrated low- versus high-vol stock positions have historically generated significant alpha. Other asset...
Volatility risk premia in the commodity space
Volatility risk premia – differences between options-implied and actual volatility – are valid predictors for risky asset returns. High premia typically indicate high surcharges...
Fake alpha
Statistical alpha can be divided into fake alpha, which is a premium for non-directional systematic risk, and true alpha, which reflects the quality of the...
Volatility risk premia and FX returns
Volatility risk premia – differences between implied and realized volatility – are plausible and empirically validated predictors of directional foreign exchange returns, particularly for...
RECENT ARTICLES
Fear of drawdown
Experimental research suggests that probability of outright loss rather than volatility is the key driver of investor risk perceptions. Moreover, fear of drawdown causes...
Covered interest parity: breakdowns and opportunities
Since the great financial crisis conventional measures of the covered interest parity across currencies have regularly broken down. Two developments seem to explain this....
The demographic compression of interest rates
Declining population growth and rising dependency ratios in the developed world have been one key factor behind the decline in nominal and real interest...