Equity index futures returns: lessons of 2000-2018

The average annualized return of local-currency index futures for 25 international markets has been 6% with a standard deviation of just under 20%. All...

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...

How systemic financial risk is measured

Public institutions have developed a wide range of methods to track systemic financial risk. What most of them have in common is reliance on...

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...

Equity alpha through volatility targeting

Volatility targeting has historically enhanced the statistical alpha of standard equity strategies. That is because volatility is more predictable in the short-term than returns....

Understanding collateral runs

In normal financial runs lenders want their money back. In collateral runs borrowers want their collateral back. In today’s highly collateralized financial system the...

Drawdown control

Containment of drawdowns and optimization of performance ratios for multi-asset portfolios is critical for trading strategies. Alas, short data series or structural changes often...

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Drawdown control

Containment of drawdowns and optimization of performance ratios for multi-asset portfolios is critical for trading strategies. Alas, short data series or structural changes often...

Liquidity yields and FX

Liquidity yields are convenience yields of financial securities that typically arise from high liquidity, suitability as collateral or preferred regulatory status. New research argues...

The fundamental value trap

Fundamental value seems like a straightforward investment approach. One simply looks for assets that are “cheap” or “expensive” relative to their rationally expected risk-adjusted...

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