The mighty “long-long” trade
One of the most successful investment strategies since the turn of the century has been the risk-parity “long-long” of combined equity, credit and duration...
Active fund risk premia in emerging markets
Security returns, adjusted for market risk, contain risk premia that compensate for the exposure to active fund risk. The active fund risk premium of...
The implicit subsidies behind simple trading rules
Implicit subsidies are premia paid by large financial markets participants for reasons other than risk-return optimization (view post here). Their estimation requires skill and...
Implicit subsidies paid in financial markets: updated primer
Implicit subsidies in financial markets are premia paid through transactions that have motives other than conventional risk-return optimization. They manifest as expected returns over...
How salience theory explains the mispricing of risk
Salience theory suggests that decision makers exaggerate the probability of extreme events if they are aware of their possibility. This gives rise to subjective...
Commodity carry
Across assets, carry is defined as return for unchanged prices and is calculated based on the difference between spot and futures prices (view post...
Understanding the correlation of equity and bond returns
The correlation of equity and high grade sovereign bond returns is a powerful driver of portfolio construction and the term premia of interest rates....
Realistic volatility risk premia
The volatility risk premium compensates investors for taking volatility risk. Conceptually it is based on the difference between options-implied and expected realized volatility. In...
Variance term premia
Variance term premia are surcharges on traded volatility that compensate for bearing volatility risk in respect to underlying asset prices over different forward horizons....
Multiple risk-free interest rates
Financial markets produce more than one risk-free interest rate. This is because there are several separate market segments where structured trades replicate such a...
RECENT ARTICLES
Dealer capital ratios and FX carry returns
When financial market intermediaries warehouse net risk positions of other market participants the marginal value of their capital should affect the expected and actual...
A method for de-trending asset prices
Financial market prices and return indices are non-stationary time series, even in logarithmic form. This means not only that they are drifting, but also...
Tradable economics
Tradable economics is a technology for building systematic trading strategies based on economic data. Economic data are statistics that - unlike market prices -...