Statistical remedies against macro information overload

"Dimension reduction" condenses the information content of a multitude of data series into small manageable set of factors or functions. This reduction is important...

Survival in the trading factor zoo

The algorithmic strategy business likes quoting academic research to support specific trading factors, particularly in the equity space. Unfortunately, the rules of conventional academic...

Herding in financial markets

Herding is a deliberate decision to imitate the actions of others. In financial markets with private information herding can be efficient for an individual...

High-speed trading: lessons from quantum physics

Modern physics teaches that objects behave differently as they reach the speed of light. This has become relevant for financial market execution. While prices...

The concept of “real financial exchange rates”

A Bundesbank paper proposes a new type of real exchange rate index. Rather than measuring the competitiveness of goods markets, this “real financial exchange...

The importance of differentiating types of oil price shocks

To assess the consequences of an oil price shock for markets it is important to identify its type. A new method separates oil supply...

Macroeconomic news and bond price trends

A new paper estimates that U.S. economic data explain more than a third of bond price fluctuations on a quarterly basis. The economic data impact...

How equity return expectations contribute to bubbles

An updated paper by Adam, Beutel, and Marcet claims that booms and busts in U.S. stock prices can be explained by investors’ subjective capital...

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...

Using yield curve information for FX trading

FX carry trading strategies only use short-term interest rates (and forward basis) as signal. Yet both theoretical and empirical research suggests that the whole...

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The R environment makes statistical estimation and learning accessible to portfolio management beyond the traditional quant space. Overcoming technicalities and jargon, managers can operate...

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R is an object-oriented programming language and work environment for statistical analysis. It is not just for programmers, but for everyone conducting data analysis,...

Retail investor beliefs

Survey evidence suggests that retail investors adjust positions rather sluggishly to changing beliefs and the beliefs themselves contradict classic rationality. Sluggishness arises from two...

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