Why and when “equity duration” matters
A new HSBC report suggests that if and when Quantitative Easing is being reversed it could be a watershed event for sectoral equity performance....
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...
Why and when central banks intervene in FX markets
A new BIS paper summarizes motives and impact of FX interventions. Most importantly it looks at the conditions under which such interventions are effective...
Why the covered interest parity is breaking down
Deviations in the covered interest parity have become a regular phenomenon even in developed markets. Persistent gaps between on-shore and FX-implied interest rate differentials (“cross-currency...
How salience theory explains the mispricing of risk
Salience theory suggests that decision makers exaggerate the probability of extreme events if they are aware of their possibility. This gives rise to subjective...
A brief history of quantitative equity strategies
Understanding quantitative equity investments means understanding a significant portion of market positions. Motivated by the apparent failure of the capital asset pricing model and...
Explaining FX forward bias
Forward bias in foreign exchange markets means that a positive interest rate differential precedes currency appreciation. It has been an empirical regularity in developed...
The world’s negative term premium
The term premium on the “world government bond yield” has turned decisively negative, according to BIS research. Investors have since 2014 accepted a long-term...
Beta herding
Beta herding means convergence of market betas of individual stocks that arises from investors’ biased perceptions. Adverse beta herding denotes the dispersion of such...
Risk premia strategies
Risk premia strategies can be defined as diversifiable investment styles with fundamental value and positive historic returns. Their main types are (i) absolute value...
RECENT ARTICLES
The power of macro trends in rates markets
Broad macroeconomic trends, such as inflation, economic growth, and credit creation are critical factors of shifts in monetary policy. Above-target trends support monetary tightening....
Six ways to estimate realized volatility
Asset return volatility is typically calculated as (annualized) standard deviation of returns over a sequence of periods, usually daily from close to close. However,...
Duration volatility risk premia
Duration volatility risk premium means compensation for bearing return volatility risk of an interest rate swap (IRS) contract. It is the scaled difference between...