The duration extraction effect
Under non-conventional monetary policy central banks influence financial markets through the “portfolio rebalancing channel”. The purchase of assets changes the structure of prices. A...
Tiered reserve systems
Negative monetary policy rates can undermine financial transmission, because they encourage cash hoarding and reduce the profitability of traditional banking. This danger increases with...
Signaling systemic risk
Systemic financial crises arise when vulnerable financial systems meet adverse shocks. A systemic risk indicator tracks the vulnerability rather than the shocks (which are...
How to estimate risk in extreme market situations
Estimating portfolio risk in extreme situations means answering two questions: First, has the market entered an extreme state? Second, how are returns likely to...
Understanding China’s “financial policy”
In most developed countries macroeconomic management is the domain of separate fiscal and monetary policies. In China, the focus is on “financial policy”, a...
ECB policy framework in six basic points
The European Central Bank is one of the most powerful institutions in the world and is running a particularly complex policy framework. For macro...
How systemic financial risk is measured
Public institutions have developed a wide range of methods to track systemic financial risk. What most of them have in common is reliance on...
How convenience yields have compressed real interest rates
Real interest rates on ‘safe’ assets such as high-quality government bonds had been stationary around 2% for more than a century until the 1980s....
How regulatory reform shapes the financial cycle
Ambitious regulatory reform has changed the dynamics of the global financial system. Capital ratios of banks have increased significantly, reining in bank credit. Counter-cyclical...
Predicting equity volatility with return dispersion
Equity return dispersion is measured as the standard deviation of returns across different stocks or portfolios. Unlike volatility it can be measured even for...
RECENT ARTICLES
The power of R for trading (part 2)
The R environment makes statistical estimation and learning accessible to portfolio management beyond the traditional quant space. Overcoming technicalities and jargon, managers can operate...
The power of R for trading (part 1)
R is an object-oriented programming language and work environment for statistical analysis. It is not just for programmers, but for everyone conducting data analysis,...
Retail investor beliefs
Survey evidence suggests that retail investors adjust positions rather sluggishly to changing beliefs and the beliefs themselves contradict classic rationality. Sluggishness arises from two...