How EM bond funds exaggerate market volatility

A new BIS paper provides evidence that since 2013 fluctuations in EM fund flows and EM bond prices have reinforced each other. Both redemptions...

Dealer balance sheets and market liquidity

Even in a huge market like U.S. fixed income, dealer balance sheet management these days can impair liquidity. New Federal Reserve research suggests that...

Corporate bond market momentum: a model

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

Inefficient benchmarking and trading opportunities

Academic research explains how benchmarking induces investment managers to buy overvalued highly volatile assets. This makes markets inefficient and may even lead to a negative relation between...

Herding in financial markets

Herding is a deliberate decision to imitate the actions of others. In financial markets with private information herding can be efficient for an individual...

The structural vulnerability of local EM assets

The rapid growth in local-currency bond markets in emerging countries has transferred foreign exchange risk from local borrowers to global institutional investors and mutual...

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...

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...

The impact of regulatory reform on money markets

A new CGFS paper suggests that bank regulatory capital and liquidity changes may reduce liquidity in money markets, create steeper short-term yield...

The asymmetry of government bond returns

Developed market government bonds are viewed as “safe havens”, but in reality they have been prone to sudden outsized price declines, similar to FX...

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