Prospect theory value as investment factor
Prospect theory value as investment factor
Prospect theory value is a valid investment factor, particularly in episodes of apparent market inefficiency. Prospect theory is a...
How banks’ dollar holdings drive exchange rate dynamics
Non-U.S. financial institutions hold precautionary positions in U.S. dollar assets as protection against financial shocks. This gives rise to a safety premium on the...
Factor timing
Factors beyond aggregate market risk are sources of alternative risk premia. Factor timing addresses the question when to receive and when to pay such...
The basics of low-risk strategies
Low-risk investment strategies prefer leveraged low-risk assets over high-risk assets. The measure of risk can be based on price statistics, such as volatility and...
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...
The price effects of order flow
Order flow means buyer- or seller-initiated transactions at electronic exchanges. Order flow consumes liquidity provided by market makers and drives a wedge between transacted...
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...
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...
RECENT ARTICLES
Accounting data as investment factors
Corporate balance sheet data are important building blocks of quantitative-fundamental (“quantamental”) investment factors. However, accounting terms are easily misunderstood and confused with economic concepts....
Diversified reward-risk parity
Risk parity is a portfolio construction technique that seeks to equalize risk contributions from the different components of the portfolio. Risk parity with respect...
A market-to-book formula for equity strategies
A new proxy formula for equity market-to-book ratios suggests that (the logarithm of) such a ratio is equal to the discounted expected value of...