Asset overvaluation and bubbles

Ever wondered why an asset or asset class maintains an implausibly high price? A new IMF paper summarizes research on “bubbles”, the phenomenon of...

Overshooting of U.S. Treasury yields

The U.S. rates research team of Bank of America/Merrill Lynch reasons that fears of less accommodative monetary policy can trigger a rise in U.S. Treasury...

Liquidity events

A recent speech by Fed governor Jerome Powell highlights recurrent episodes of short-term distress and vanishing liquidity in large developed markets. Increases in trading...

Why and when financial markets are herding

Herding arises from deliberate decisions of informed traders to follow others. It can create inefficiency, dislocations and, hence, profit opportunities. A paper by German...

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...

How real money funds could destabilize bond markets

A paper by Feroli, Kashyap, Schoneholtz and Shin illustrates how unlevered funds can become a source of asset price momentum due to peer pressure...

The risk-adjusted covered interest parity

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...

Central clearing and systemic risk

The expansion of central clearing has created a greater interconnectedness of financial markets and new systemic risks. Large losses of some of clearing members...

The dangers of leveraged ETFs

Leveraged Exchange Traded Funds have become a significant factor in the U.S. equity market. According to a new Federal Reserve discussion paper their mechanical rebalancing...

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Natural language processing for financial markets

News and comments are major drivers for asset prices, maybe more so than conventional price and economic data. Yet it is impossible for any...

A theory of hedge fund runs

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