Overconfidence and inattention as asset return factors

Overconfidence in personal beliefs and inattention to new trends are widespread in financial markets. If specific behavioural biases become common across investors they constitute...

Understanding duration feedback loops

When long-term government bond yields are low enough, further declines can ‘feed on themselves’. European insurance companies and pension funds are plausible catalysts. The...

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...

Commodity exchange prices: The curious case of aluminum

Goldman Sachs Research takes another look at soaring warehouse queues and fears of price distortions in the aluminum market (see previous post here). A...

Trend following in U.S. equities

Trend following is a systematic investment style that takes directional positions in accordance with the difference between the current price and a moving average. For...

How statistical risk models increase financial crisis risk

Regulators and financial institutions rely on statistical models to assess market risk. Alas, a new Federal Reserve paper shows that risk models are prone...

How human stress increases financial crisis risk

John Coates gives a neuroscience view on how human "stress response" can aggravate financial crises. Rising market volatility causes a bodily response in form...

Why and when financial markets are herding

Herding arises from deliberate decisions of informed traders to follow others. It can create inefficiency, dislocations and, hence, profit opportunities. A paper by German...

Basics of market liquidity risk

Market liquidity measures the cost efficiency of trading. Liquidity risk refers to the probability that these costs surge when trading is required. Liquidity and...

The risks in statistical risk measures

A DNB paper warns that financial market risk models (such as value-at-risk or expected shortfall) are unreliable. Small variations in assumptions cause large differences...

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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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