The correlation risk premium

The correlation risk premium is a premium for uncertainty of future correlation of securities among each other or with a benchmark. A rise in...

The passive investment boom and its consequences

Passive investment vehicles have been expanding rapidly over the past 10 years, with assets reaching about USD8 trillion or 20% of aggregate investment funds...

Interest rate swap returns: empirical lessons

Interest rate swaps trade duration risk across developed and emerging markets. Since 2000 fixed rate receivers have posted positive returns in 26 of 27...

Directional predictability of daily equity returns

A new empirical paper provides evidence that the direction of daily equity returns in the Dow Jones has been predictable over the past 15...

Information inefficiency in market experiments

Experimental research illustrates the mechanics of market inefficiency. If information is costly traders will only procure it to the extent that markets are seen...

Clues for estimating market beta

A new empirical paper compares methods for estimating “beta”, i.e. the sensitivity of individual asset prices to changes in a broad market benchmark. It...

Gold: risk premium and expected return

An empirical paper suggests that the risk premium and excess return on gold have been time-varying and predictable, also out-of-sample. The key predictors have...

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...

Financial econometrics and machine learning

Supervised machine learning enhances the econometric toolbox by methods that find functional forms of prediction models in a manner that optimizes out-of-sample forecasting. It...

Predicting asset price correlation for dynamic hedging

Dynamic hedging requires prediction of correlations and “betas” across asset classes and contracts. A new paper on dynamic currency hedging proposes two enhancements of...

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