SPECIAL: Price bubbles
Identifying asset price bubbles
A new paper proposes a practical method for identifying asset price bubbles. First, one estimates deviations of prices from fundamentals based on three different...
Why financial markets misprice fundamental value
Experimental research has produced robust evidence for mispricing of assets relative to their fundamental values even with active trading and sufficient information. Academic studies...
Explosive dynamics in exchange rates
Explosiveness in financial markets means that prices display exponential growth. In recent years statistical tests have been developed to locate mildly explosive bubble periods...
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...
Inflation as equity trading signal:
Analysis of 17 markets since 2000 confirms pervasive negative relation between CPI dynamics and subsequent equity returns. Portfolios that consider inflation dynamics of major currency areas significantly outperform. https://t.co/issmcZHP1q 🇺🇦 https://t.co/hvc0jy38zs
Analysis of 17 markets since 2000 confirms pervasive negative relation between CPI dynamics and subsequent equity returns. Portfolios that consider inflation dynamics of major currency areas significantly outperform. https://t.co/issmcZHP1q 🇺🇦 https://t.co/hvc0jy38zs
"[We] forecast near-term changes of equity indices...using variational inference..machine learning which uses...complex probability densities...Clusters of explanatory variables are identified and...forecasts [are] based on cluster-specific regression." https://t.co/uGMg1blwyS 🇺🇦 https://t.co/cGZa4rW080
Paper "presents...the intrinsic entropy model for volatility estimation of stock market indices. Diverging from the widely used volatility models [it] takes into account the traded volumes during the considered time frame." https://t.co/DiriFXeLet 🇺🇦 https://t.co/hEWNLBkTJG
TAGS
asset management Asset Purchase Program banks bond returns bond yields bubbles capital regulation China collateral commodities credit returns default ECB economic data EM equity returns euro area crisis Fed financial crisis FX FX interventions FX returns government debt government deficits herding inflation information leverage liquidity market turmoil price factors regulation risk management shadow banking statistical methods term structure trend following variance risk premium volatility ZLB
SYSTEMIC RISK
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...
Market dynamics: belief, risk, and ambiguity effects
To understand financial market dynamics, it is helpful to distinguish beliefs, attitudes towards risk, and...
Building a real-time market distress index
A new Fed paper explains how to construct a real-time distress index, using the case...
SYSTEMATIC VALUE
Inflation as equity trading signal
Academic research suggests that high and rising consumer price inflation puts upward pressure on real...
Economic growth and FX forward returns
Economic growth differentials are plausible predictors of foreign exchange return trends because they are related...
How to use FX carry in trading strategies
FX forward-implied carry is a valid basis for trading strategies because it is related to...
Equity convexity and gamma strategies
Equity convexity means that a stock outperforms in times of large upward or downward movements...
Predicting volatility with neural networks
Predicting realized volatility is critical for trading signals and position calibration. Econometric models, such as...
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...
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....
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....
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...