Beta herding
Beta herding means convergence of market betas of individual stocks that arises from investors’ biased perceptions. Adverse beta herding denotes the dispersion of such...
U.S. dollar exchange rate before FOMC decisions
Since the mid-1990s the dollar exchange rate has mostly anticipated the outcome of FOMC meetings: it appreciated in the days before a rate hike...
Identifying asset price bubbles
A new paper proposes a practical method for identifying asset price bubbles. First, one estimates deviations of prices from fundamentals based on three different...
The danger of volatility feedback loops
There is evidence that the financial system has adapted to low fixed income yields through an expansion of explicit and implicit short volatility strategies....
Overconfidence and inattention as asset return factors
Overconfidence in personal beliefs and inattention to new trends are widespread in financial markets. If specific behavioural biases become common across investors they constitute...
Passive investment vehicles and price distortions
The share of passive investment vehicles in financial markets has soared over the past 20 years. In the U.S. equity market it has risen...
Fixed income relative value
Relative value can be defined as expected price convergence of contracts or portfolios with similar risk profiles. For fixed income this means similar exposure...
Covered interest parity: breakdowns and opportunities
Since the great financial crisis conventional measures of the covered interest parity across currencies have regularly broken down. Two developments seem to explain this....
Explaining FX forward bias
Forward bias in foreign exchange markets means that a positive interest rate differential precedes currency appreciation. It has been an empirical regularity in developed...
Why financial markets misprice fundamental value
Experimental research has produced robust evidence for mispricing of assets relative to their fundamental values even with active trading and sufficient information. Academic studies...
RECENT ARTICLES
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...