On “institutional herding”

Herding denotes broad uniformity of buying and selling across investors. If the transactions of one institution encourage or reinforce those of another, escalatory dynamics,...

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...

Rebalancing and market price distortions

Price distortions are an important source of short-term trading profits, particularly in turbulent markets. Here price distortions mean apparent price-value gaps that arise from...

How EM bond funds exaggerate market volatility

A new BIS paper provides evidence that since 2013 fluctuations in EM fund flows and EM bond prices have reinforced each other. Both redemptions...

The growing concerns over market liquidity

Market liquidity accommodates securities transactions in size and at low cost. When it fails the information value of market quotes is compromised, potentially triggering...

China’s “double impact” on commodity prices

China consumes about one third of the world's commodities. However, its influence on commodity prices goes beyond that. Chinese institutions are also major users...

How equity return expectations contribute to bubbles

An updated paper by Adam, Beutel, and Marcet claims that booms and busts in U.S. stock prices can be explained by investors’ subjective capital...

How U.S. mutual funds reallocate assets

An empirical study shows that U.S. mutual funds take two major allocation decisions: bonds versus equity and U.S. versus non-U.S. assets. Federal Reserve policy...

The ECB’s quantitative and qualititative easing

The ECB has introduced a set of new policies that emulate quantitative and qualitative easing. Key measures are targeted long-term repo operations, asset-backed securities purchases,...

Herding in financial markets

Herding is a deliberate decision to imitate the actions of others. In financial markets with private information herding can be efficient for an individual...

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Transaction costs and portfolio strategies

Transaction costs are a key consideration for the development of trading strategies; and not just in final profitability checks. Indeed, disregard for trading costs...

Intervention liquidity

Unsterilized central bank interventions in foreign exchange and securities markets increase base money liquidity independently from demand. Thus, they principally affect the money price...

Trading strategies based on implicit subsidies

Detecting implicit subsidies is one of the most effective principles of building macro trading strategies. Implicit subsidies manifest as expected excess returns over and...

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