The nature and risks of EM FX carry trades

A new BIS paper provides important lessons for EMFX carry trades, using Latin America as a case study. First, FX carry opportunities depend on market...

Why decision makers are unprepared for crises

An ECB working paper explains formally why senior decision makers are unprepared for crises: they can only process limited quantities of information and rationally...

Volatility markets: a practitioner’s view

Christopher Cole argues that volatility markets are about trading both known and unknown risks. These risks require different pricing and cause different "crashes". Most...

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...

How to recognize an asset price bubble

A new paper from the ETH Zurich defines bubbles as episodes of unsustainable and quickening asset price growth with accelerating corrections and rebounds. In...

Updated summary: Shadow banking and asset management

Easy monetary conditions and tighter regulation for banks naturally encourage risk transformation and liquidity creation outside the banking system. Institutional asset managers are key agents of that...

How human stress increases financial crisis risk

John Coates gives a neuroscience view on how human "stress response" can aggravate financial crises. Rising market volatility causes a bodily response in form...

Mutual fund flows and fire sale risk

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...

The rise of asset management

Bank of England's Andrew Haldane has summarized the rise and risks of asset management in a recent speech. As demographics and economic development propel...

Credit market herding and price distortions

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

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Commodity carry

Across assets, carry is defined as return for unchanged prices and is calculated based on the difference between spot and futures prices (view post...

Understanding the correlation of equity and bond returns

The correlation of equity and high grade sovereign bond returns is a powerful driver of portfolio construction and the term premia of interest rates....

CDS term premia and exchange rates

The term structure of sovereign credit default swaps (CDS) is indicative of country-specific financial shocks because rising country risk affects short-dated maturities more than...

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