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...

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...

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...

Commodity exchange prices: The curious case of aluminum

Goldman Sachs Research takes another look at soaring warehouse queues and fears of price distortions in the aluminum market (see previous post here). A...

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...

The “reach for yield” bias of institutional investors

'Reach for yield' describes regulated investors' preference for high-risk assets within the confines of a rule-based risk metric (such as credit ratings or VaR)....

Using VIX for forecasting equity and bond returns

Over the past 25 years the relation between implied equity volatility (VIX) and market returns has been non-linear. When VIX was low there was no meaningful relation....

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How salience theory explains the mispricing of risk

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