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...

Financialization of commodity markets: the basics

An academic summary paper shows how the structure of commodity markets has changed, most notably through the growth of commodity index investors. This has...

A primer on benchmark index effects

An HKMIR paper explains benchmark index changes and shows their significant effects on mutual fund flows and international capital flows. Importantly, there is evidence...

Origins of financial market trends

A working paper explores sources of market price trends. It suggests that small trend changes in perceptions about “fundamentals” can set in motion a persistent...

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...

The danger of volatility feedback loops

There is evidence that the financial system has adapted to low fixed income yields through an expansion of explicit and implicit short volatility strategies....

How nominal interest rates can become deeply negative

A recent IMF paper suggests that sizeable negative policy rates could be implemented in developed economies. The key would be a variable deposit fee...

China’s “double impact” on commodity prices

China consumes about one third of the world's commodities. However, its influence on commodity prices goes beyond that. Chinese institutions are also major users...

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...

Pension funds and herding

Pension funds have three types of motivations for herding: rebalancing rules, the effects of regulatory changes and peer pressure of senior executives. A new...

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The external value of the USD has become a key factor of U.S. and global credit conditions. This reflects the surge in global USD-denominated...

How salience theory explains the mispricing of risk

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