Bad and good beta in FX strategies

Bad beta means market exposure that is expensive to hedge. Good beta is market exposure that is cheap to hedge. Distinguishing between these is...

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...

Market noise

The term “market noise” refers to transactions that are erratic and unrelated to fundamental value. Theory suggests that without market noise profitable trading would...

U.S. Treasuries: decomposing the yield curve and predicting returns

A new paper proposes to decompose the U.S. government bond yield curve by applying a ‘bootstrapping method’ that resamples observed return differences across maturities....

Systematic trading strategies: fooled by live records

Allocators to systematic strategies usually trust live records far more than backtests. Given the moral hazard issues of backtesting in the financial industry, this...

The implicit subsidies behind simple trading rules

Implicit subsidies are premia paid by large financial markets participants for reasons other than risk-return optimization (view post here). Their estimation requires skill and...

Implicit subsidies paid in financial markets: updated primer

Implicit subsidies in financial markets are premia paid through transactions that have motives other than conventional risk-return optimization. They manifest as expected returns over...

Survival in the trading factor zoo

The algorithmic strategy business likes quoting academic research to support specific trading factors, particularly in the equity space. Unfortunately, the rules of conventional academic...

The dollar as barometer for credit market risk

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...

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One of the most successful investment strategies since the turn of the century has been the risk-parity “long-long” of combined equity, credit and duration...

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A risk spread is a premium for bearing economic risk of an investment, paid over and above the short-term real interest rate. Over the...

Bad and good beta in FX strategies

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