Markets’ neglect of macro news

Empirical evidence suggests that investors pay less attention to macroeconomic news when market sentiment is positive. Market responses to economic data surprises have historically...

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...

Predicting equity market corrections

Assessing the risk of equity market “crashes”, academic work has focused on price-earnings ratios and bond-stock earnings yield differentials. A recent paper by Lleo...

Origins of financial market trends

A working paper explores sources of market price trends. It suggests that small trend changes in perceptions about “fundamentals” can set in motion a persistent...

Crowded trades: measure and effect

One measure of the crowdedness of trades in a portfolio is centrality. Centrality is a concept of network analysis that measures how similar one...

The difference between volatility and risk

Financial markets often disregard the fundamental difference between volatility (the magnitude of price fluctuations) and risk (the probability and scope of permanent losses). Standard...

Asset overvaluation and bubbles

Ever wondered why an asset or asset class maintains an implausibly high price? A new IMF paper summarizes research on “bubbles”, the phenomenon of...

Liquidity events

A recent speech by Fed governor Jerome Powell highlights recurrent episodes of short-term distress and vanishing liquidity in large developed markets. Increases in trading...

Commodity carry

Across assets, carry is defined as return for unchanged prices and is calculated based on the difference between spot and futures prices (view post...

Fixed income carry as trading signal

Empirical evidence for 27 markets suggests that carry on interest rate swaps has been positively correlated with subsequent returns for the past two decades....

RECENT ARTICLES

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...

POPULAR ARTICLES