The low-risk effect: evidence and reason

The low-risk effect refers to the empirical finding that within an asset classes higher-beta securities fail to outperform lower-beta securities. As a result, “betting...

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....

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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...

Unproductive debt

Credit and related interest income have historically been viewed as service and related payment for lending productively. However, in a highly collateralized and risk-averse...

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