SPECIAL: Asset management
Crowded trades: measure and effect
One measure of the crowdedness of trades in a portfolio is centrality. Centrality is a concept of network analysis that measures how similar one...
The passive investment boom and its consequences
Passive investment vehicles have been expanding rapidly over the past 10 years, with assets reaching about USD8 trillion or 20% of aggregate investment funds...
Trend following and the headwinds of rising yields
The decline in bond yields over the past decades has supported profitability and diversification value of trend followers. Returns have been boosted by a...
Cash hoarding and market dynamics
Institutional asset managers can aggravate market swings due to the pro-cyclicality of redemptions, internal leverage and cash positions. A new empirical analysis shows that...
Paper investigates "various deep learning methods for asset pricing, especially for risk premia measurement...Recursive neural networks with memory mechanism and attention have the best performance." https://t.co/wWbTkALqP6 🇺🇦 https://t.co/0Oxct6vXEl
"We use gradient boosting machines to create predictive models of...long-horizon...expected [equity] returns...The drivers...are dominated by size, industry, equity issuance, and fundamental predictors." https://t.co/GOEcEcJ51J 🇺🇦 https://t.co/PkESjfgAoc
Transaction costs and portfolio strategies:
The development of trading strategies can greatly benefit from integrating transaction costs into the learning process. A recent paper proposes a “portfolio machine learning method” to that end. https://t.co/Le6I0OPvTK 🇺🇦 https://t.co/cvq2Q9oeen
The development of trading strategies can greatly benefit from integrating transaction costs into the learning process. A recent paper proposes a “portfolio machine learning method” to that end. https://t.co/Le6I0OPvTK 🇺🇦 https://t.co/cvq2Q9oeen
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SYSTEMIC RISK
Crashes in safe asset markets
A new theoretical paper illustrates the logic behind runs and crashes in modern safe asset...
Copulas and trading strategies
Reliance on linear correlation coefficients and joint normal distribution of returns in multi-asset trading strategies...
How to manage systemic risk in asset management
Systemic crises are rare but critical for long-term performance records. When the financial system fails,...
Classifying market regimes
Market regimes are clusters of persistent market conditions. They affect the relevance of investment factors...
How to construct a bond volatility index and extract market information
Volatility indices, based upon the methodology of the Cboe volatility index (VIX), serve as measures...
SYSTEMATIC VALUE
Transaction costs and portfolio strategies
Transaction costs are a key consideration for the development of trading strategies; and not just...
Intervention liquidity
Unsterilized central bank interventions in foreign exchange and securities markets increase base money liquidity independently...
Trading strategies based on implicit subsidies
Detecting implicit subsidies is one of the most effective principles of building macro trading strategies....
Inflation expectations and interest rate swap returns
Inflation expectations wield great influence over fixed income returns. They determine the nominal yield required...
Trend following: combining market and macro information
Classic trend following is based on market prices or returns. Market trends are relatively cheap...
POPULAR POSTS
The dangerous disregard for fat tails in quantitative finance
The statistical term ‘fat tails’ refers to probability distributions with relatively high probability of extreme outcomes. Fat tails also imply strong influence of extreme...
Understanding dollar cross-currency basis
Covered interest parity is an arbitrage condition that equalizes costs of direct USD funding and of synthetic USD funding through FX swaps. Deviations are...
VIX term structure as a trading signal
The VIX futures curve reflects expectations of future implied volatility of S&P500 index options. The slope of the curve is indicative of expected volatility...
The importance of volatility of volatility
Options-implied volatility of U.S. equity prices is measured by the volatility index, VIX. Options-implied volatility of volatility is measured by the volatility-of-volatility index, VVIX....
Understanding the correlation of equity and bond returns
The correlation of equity and high grade sovereign bond returns is a powerful driver of portfolio construction and the term premia of interest rates....
Leverage in asset management
Asset managers can use leverage to enhance returns. Outside hedge funds, such leverage is modest as share of assets under management. However, considering the huge...