Trend following in U.S. equities

Trend following is a systematic investment style that takes directional positions in accordance with the difference between the current price and a moving average. For...

Leverage in asset management

Asset managers can use leverage to enhance returns. Outside hedge funds, such leverage is modest as share of assets under management. However, considering the huge...

The world’s negative term premium

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...

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...

Mutual funds and market dislocations

The IMF Financial Stability Report highlights two systemic weaknesses of plain-vanilla mutual funds: incentives for end investors to rush for the exit in distress...

Broker-Dealer leverage drives credit and equity prices

A new New York Fed paper shows that financial intermediary leverage is one of the best performing explanatory factors for future credit and equity...

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...

How statistical risk models increase financial crisis risk

Regulators and financial institutions rely on statistical models to assess market risk. Alas, a new Federal Reserve paper shows that risk models are prone...

How the Fed has reduced the risk of “convexity events”

A New York Fed blog post revisits the self-reinforcing dynamics in long-term U.S. interest rates, resulting from the dynamic hedging of MBS positions (see...

The global systemic consequences of Solvency II

The new European insurance regulation will be introduced in 2016 with important consequences for the global financial system. A paper by Avinash Persaud argues...

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Active fund risk premia in emerging markets

Security returns, adjusted for market risk, contain risk premia that compensate for the exposure to active fund risk. The active fund risk premium of...

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

Hedge funds’ capital structure is vulnerable to market shocks because most of them offer high liquidity to loss-sensitive investors. Moreover, hedge fund managers form...

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