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...

Relative value can be defined as expected price convergence of contracts or portfolios with similar risk profiles. For fixed income this means similar exposure...

Explosiveness in financial markets means that prices display exponential growth. In recent years statistical tests have been developed to locate mildly explosive bubble periods...

Institutional asset managers can aggravate market swings due to the pro-cyclicality of redemptions, internal leverage and cash positions. A new empirical analysis shows that...

The Volcker Rule has banned proprietary trading of banks with access to official backstops. Also, market making has become more onerous as restrictions and...

Corporate credit markets have historically been especially prone to herding. The main drivers of herding have been past returns, rating changes and liquidity. Sell...

The conventional covered interest rate parity has failed in modern FX markets. A new HKIMR paper suggests that this is not a failure of markets...

A new empirical paper looks at the drivers of U.S. mutual funds flows across asset classes. An important finding is that changes of monetary...

An increase in expected default ratios naturally reduces prices for corporate bonds. However, it also triggers feedback loops. First, it reduces funds’ wealth and...

The term premium on the “world government bond yield” has turned decisively negative, according to BIS research. Investors have since 2014 accepted a long-term...