Directional predictability of daily equity returns

A new empirical paper provides evidence that the direction of daily equity returns in the Dow Jones has been predictable over the past 15...

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....

Information inefficiency in market experiments

Experimental research illustrates the mechanics of market inefficiency. If information is costly traders will only procure it to the extent that markets are seen...

Basic theory of momentum strategies

Systematic momentum trading is a major alternative risk premium strategy across asset classes. Time series momentum motivates trend following; cross section momentum gives rise...

Clues for estimating market beta

A new empirical paper compares methods for estimating “beta”, i.e. the sensitivity of individual asset prices to changes in a broad market benchmark. It...

The point of volatility targeting

Volatility targeting adjusts the leverage of a portfolio inversely to predicted volatility. Since market volatility is predictable in the short run and returns are...

The correlation of equity and bond returns

History shows that the correlation of equity and bond returns has been either positive or negative for prolonged periods of time. Monetary policy has...

The downside variance risk premium

The variance risk premium of an asset is the difference between options-implied and actual expected return variation. It can be viewed as a price...

The 1×1 of risk perception measures

There are two reasons why macro traders watch risk perceptions. First, sudden spikes often trigger subsequent flows and macroeconomic change. Second, implausibly high or...

The predictability of relative asset returns

Empirical research suggests that it is easier to predict relative returns within an asset class than to predict absolute returns. Also, out-of-sample value generation...

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