Corporate bond market momentum: a model

An increase in expected default ratios naturally reduces prices for corporate bonds. However, it also triggers feedback loops. First, it reduces funds’ wealth and...

Metals price distortions and the warehouse system

In a short note Macquarie’s commodity research reviews price distortions and prospective changes related to the warehouse system of the London Metals Exchange (LME). Since...

The idea of uncovered equity parity

Uncovered equity parity explains how equity portfolio rebalancing affects exchange rates. Outperformance of foreign stock markets, whether through the exchange rate or stock prices,...

The pitfalls of emerging markets asset management

Dedicated EM exposure has surged by over 55% since 2007, with assets concentrated on few managers. A new BIS article points out that trading...

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...

Market noise

The term “market noise” refers to transactions that are erratic and unrelated to fundamental value. Theory suggests that without market noise profitable trading would...

Fixed income relative value

Relative value can be defined as expected price convergence of contracts or portfolios with similar risk profiles. For fixed income this means similar exposure...

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...

How growing assets-under-management can compromise investment strategies

If investment funds maximize assets-under-management and end-investors allocate to outperforming funds, the investment process is compromised. A new theoretical paper suggests that asset managers...

Europe’s financial transaction tax and the consequences

A recent HSBC report argues that the planned financial transaction tax in the Eurozone will have a profound negative impact on investment returns, as well as...

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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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