How salience theory explains the mispricing of risk
Salience theory suggests that decision makers exaggerate the probability of extreme events if they are aware of their possibility. This gives rise to subjective...
Multiple risk-free interest rates
Financial markets produce more than one risk-free interest rate. This is because there are several separate market segments where structured trades replicate such a...
A brief history of quantitative equity strategies
Understanding quantitative equity investments means understanding a significant portion of market positions. Motivated by the apparent failure of the capital asset pricing model and...
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...
RECENT ARTICLES
The quantitative path to macro information efficiency
Financial markets are not information efficient with respect to macroeconomic information because data are notoriously ‘dirty’, relevant economic research is expensive, and establishing stable...
Reinforcement learning and its potential for trading systems
In general, machine learning is a form of artificial intelligence that allows computers to improve the performance of a task through data, without being...
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...