Factor timing

Factors beyond aggregate market risk are sources of alternative risk premia. Factor timing addresses the question when to receive and when to pay such...

The basics of low-risk strategies

Low-risk investment strategies prefer leveraged low-risk assets over high-risk assets. The measure of risk can be based on price statistics, such as volatility and...

The q-factor model for equity returns

Investment-based capital asset pricing looks at equity returns from the angle of issuers, rather than investors. It is based on the cost of capital...

The price effects of order flow

Order flow means buyer- or seller-initiated transactions at electronic exchanges. Order flow consumes liquidity provided by market makers and drives a wedge between transacted...

Dealer capital ratios and FX carry returns

When financial market intermediaries warehouse net risk positions of other market participants the marginal value of their capital should affect the expected and actual...

The low-risk effect: evidence and reason

The low-risk effect refers to the empirical finding that within an asset classes higher-beta securities fail to outperform lower-beta securities. As a result, “betting...

The mighty “long-long” trade

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...

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...

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...

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Classifying market states

Typically, we cannot predict a meaningful portion of daily or higher-frequency market returns. A more realistic approach is classifying the state of the market...

What traders should know about seasonal adjustment

The purpose of seasonal adjustment is to remove seasonal and calendar effects from economic time series. It is a common procedure but also a...

Inflation and precious metal prices

Theory and plausibility suggest that precious metal prices benefit from inflation and negative real interest rates. This makes gold, silver, platinum, and palladium natural...

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