All entries by this author

Intraday Momentum Confirmed: Day Traders Credited

Mar 24th, 2015 | Filed under: Academic Research, Behavioral finance, CAPM / Alpha Theory, Derivatives, ETFs, Today's Post

The first half-hour return of the S&P 500 ETF predicts the last half-hour return of the same trading day rather well. Why isn't this effect arbitraged away and a random walk restored?


More Global Mandates, Fewer EM Mandates, and Other Changes

Mar 23rd, 2015 | Filed under: CTA, Institutional Investing, Performance, Analytics & Metrics, Risk management, Today's Post

Eurekahedge's latest report gives a number of timelines for grappling with changes in the hedge fund world: since 2007; since January 2013; YTD January 2015. In any frame, you don't have to be a meteorologist....


Most Investors Sanguine About Central Clearing Mandates

Mar 22nd, 2015 | Filed under: Best Practices, Derivatives, Hedge Fund Industry Trends, Regulatory, Today's Post

The international push to mandate central clearing has expanded the clearinghouses "well beyond levels the market has ever seen," Greenwich Associates reminds us in a new report. This is an experiment, and there remains some grounds for uncertainty about the outcome.


KPMG, MFA & AIMA: Institutional Investors & Customization

Mar 19th, 2015 | Filed under: Alternative Mutual Funds, Asset allocation, Hedge Fund Industry Trends, Hedge Fund Strategies, Institutional Investing, Investment Management Fees, Liability Driven Investing, Regulatory, Today's Post

Surveys suggest that certain conspicuous ongoing trends will continue. For example, the classic 20 + 2 fee structure will continue to crumble, replaced by "customized" structures. A full 91% of the small hedge fund managers who filled out a survey agreed with this. A mere 76% of large hedge fund managers did likewise.


ESMA to Member States: You’re Not Doing Enough Re: MiFiD

Mar 18th, 2015 | Filed under: Institutional Investing, Regulatory, Retail Investing, Today's Post

A newly released report tells us that ESMA is unhappy with the national "competent authorities" as to how they've enforced MiFiD. the report implies that the adjective in the phrase "competent authorities" is to be understood as a courtesy rather than a description.


A Defeat, but Not a Rout, for Appraisal Arb

Mar 17th, 2015 | Filed under: Alpha Strategies, Asset pricing, Hedge Fund Strategies, Legislation/Court rulings, Today's Post

The Delaware Chancery Court would apparently have preferred to stay out of the issue of valuation as it played itself out in the 2012 acquisition of Ancestry.com by Permira. But it couldn't: the statute encouraging appraisal fights was too clearly worded for that.


Women in Senior Roles in Alternative Finance: The Marathon Continues

Mar 16th, 2015 | Filed under: Alpha Hunters, Alpha Seekers, Alpha Strategies, Hedge Fund Industry Trends, Today's Post

Funds of funds are quite different entities from single-manager funds from the point of view of the number of women in senior C-suite roles. Different in what direction? That depends upon the country under consideration.


Gazelles, Exports, and Infrastructure: A View from the UK

Mar 11th, 2015 | Filed under: Conference report, Infrastructure, Today's Post

The Confederation of British Industry has taken a look at some of the issues that do and should concern investors in the industries of those islands. Among much else, the CBI wants the government to kick-start the private placement market. And to worry more about infrastructure.


Alpha, Love, and Marriage

Mar 10th, 2015 | Filed under: Academic Research, Alpha Hunters, Behavioral finance, Risk management, Today's Post

The most important turning points of our lives tend to have consequences for our alpha seeking. A new paper gives us some insight into what those consequences are, and how they vary as to strategies.


After the Balkan Adventure: A Bad Bank Gets Worse

Mar 9th, 2015 | Filed under: Frontier markets, Private Equity, Today's Post

Over the weekend that began March, auditors in Austria found that the billions already invested in the wind-down of Heta, part of the nationalized Hypo Group, would not suffice for the orderly wind down of this "bad bank." A worse-and-worse bank, it appears.


AIMA Reports: Activist Hedge Funds are the Good Guys

Mar 3rd, 2015 | Filed under: Best Practices, Hedge Fund Strategies, Private Equity, Regulatory, Today's Post

Activist investors usually aren't trying to take control of a company. And when they are, managers have strong existing tools to foil them. What activist investors can do is increase share value, over sustained periods.


The Next Big Thing: A Robotic ‘Nexus’ of Contracts

Mar 2nd, 2015 | Filed under: Currencies, Digital currencies, Regulatory, Technology, Today's Post

In some fairly routine middle-critter corporate roles, there may no longer be much need for human managerial involvement. Enter the self-running business entity: another big step toward the obsolescence of human beings some of whom, nonetheless, will get wealthy in the process.


Long-Term Infrastructure Debt: The Valuation Issue

Feb 26th, 2015 | Filed under: Alpha Strategies, Asset pricing, Infrastructure, Insolvency, Today's Post

Three authors at EDHEC propose a two-step modeling process for the valuation of certain infrastructure debt. One of the key ideas they incorporate is the value of the step-in rights that come when the issuers violate a covenant or otherwise find themselves in technical default.


Macroeconomics: The Mainstream and the … Banks

Feb 25th, 2015 | Filed under: Currencies, Macroeconomics, Today's Post

The trade cycle is not a central concern of the reigning general-equilibrium models in macroeconomics. To the extent such models do consider booms and busts, they largely reject money or credit based explanations.


Tsipras Marched Bravely Forward And … Surrendered

Feb 24th, 2015 | Filed under: Alpha Strategies, Currencies, Today's Post

The Greek prime minister's surrender to Germany and the troika has alienated much of his own base in Syriza. You can bet on it. Indeed, finding creative ways to bet on it looks like a sound alpha strategy now.


On First Looking Into SEC’s Homer: A Final Rule on Swaps Reporting

Feb 23rd, 2015 | Filed under: Derivatives, Regulatory, Today's Post

Commenters successful pressed for certain changes in this massive new rule during its years of gestation. For example, the rule incorporates a T + 24 approach for the reporting of block trades. But warned, though, blizzards in NYC don't stop the ticking of that 24 hour clock.


Down Memory Lane: That WTI-Brent Divergence

Feb 18th, 2015 | Filed under: Academic Research, Asset pricing, Commodities, Infrastructure, oil, Today's Post

For one professor, the surprising divergence in the prices of WTI/Brent crude in the period 2010-2012 was a case study in how commodity prices can teach us about supply chain conditions. Faille looks back at his article, and forward past today's calmer but still-fluctuating spread.


A Basis for Pursuing the Pursuers? Sonar-based Whale Hunts

Feb 17th, 2015 | Filed under: Algorithmic and high-frequency trading, Alpha Hunters, Derivatives, Institutional Investing, Regulatory, Today's Post

To the extent that high-frequency trading is analogized to 'insider trading,' it may be in trouble with securities regulators but still in the clear with commodities regulators. After all, the latter do allow hedgers to use non-public material information to protect themselves. But Gregory Scopino doesn't believe pinging and related HFT practices should be in the clear with the CFTC at all.


Eurekahedge Airs Wide Range of Views on Indian Hedge Funds

Feb 16th, 2015 | Filed under: Alpha Seekers, Alpha Strategies, Emerging markets, Indexes, Today's Post

A new report from Eurekahedge tries to go beyond some obvious observations about the performance of hedge funds there in 2014, or about the performance of that country's broad economy last year. Eurekahedge talked to seven experts in the field. They took quite different views on the most basic of questions. So different that a contrarian would have a tough time finding the consensus to counter.


A Metaphorical Map that Proposes an Unbound Barbell

Feb 12th, 2015 | Filed under: Alpha Hunters, Alpha Strategies, Alternative Beta & Hedge Fund Replication, Alternative Mutual Funds, Asset allocation, Hedge Fund Strategies, Liquid Alts, Risk management, Today's Post

The hedge fund universe has become a much more complicated place since 2008. The old-school hedge funds offering only quarterly redemptions with at least one month notice are no longer the only option for those seeking alternatives plays. And those who are seeking such plays may be somewhat confused by the proliferation of possibilities.


Arbitrage 101: When Voting Has Negative Value

Feb 11th, 2015 | Filed under: Asset pricing, Hedge Fund Strategies, Performance, Analytics & Metrics, Today's Post

Reuters is now reporting that major investors seek the opportunity to convert their voting shares of Twenty-First Century Fox into non-voting shares, because the voting shares are trading at a discount. Faille takes Reuters' anonymous sources at their words for the purposes of discussion. He doesn't think these investors will get their convertibility.


Debates Over Bayesianism Take Cartoon Form

Feb 10th, 2015 | Filed under: CAPM / Alpha Theory, Risk management, Technology, Today's Post

Regular readers of AllAboutAlpha know that Bayesianism, a movement with the world of probability and statistics, has a good deal to do with contemporary pricing models and portfolio theory. It also has foes in that world, the frequentists, and a 2012 cartoon, recently raised to salience again by a Facebook post, has given those frequentists reason to gripe about Bayesian smugness.


Meditations on the Eurozone and Secession

Feb 9th, 2015 | Filed under: Currencies, Macroeconomics, Today's Post

Is it possible for a country (let us not name names) currently employing the euro to introduce or re-introduce a fiat national currency with a variable exchange rate vis-à-vis the euro and without either a forced conversion of savings or catastrophe? Faille speculates on an approach.


Recent Russian Investment History: Misty Water-Colored Memories

Feb 8th, 2015 | Filed under: Book review, Emerging markets, Frontier markets, Hedge Fund Strategies

William Browder's new book, Red Notice, is a fascinating window into the recent history of Russia, both when Yeltsin (and at first Putin) welcomed foreign investment and then when things turned very ugly for those investors.


Should Governments Slow Trading Down by Taxing It?

Feb 5th, 2015 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Strategies, Regulatory, Technology, Today's Post

A physicist recently suggested that exchanges might do well to change the nature of the trading they host, holding batch auctions every one-hundredth of a second to better serve their real economic functions. Then a commenter proposed that taxation could achieve the same effect. Our physicist went back to the drawing board to consider this.


Basel Committee’s Latest Progress Report: Buy IT

Feb 4th, 2015 | Filed under: Best Practices, Regulatory, Today's Post

Out of the 31 banks surveyed by the Basel Committee for its latest progress report on risk data aggregation, 45% reported that they will not be in compliance with the Basel demands by the deadline, a year from now. But surely there is a profit opportunity in here for someone.


Crowdfunding: In the Gun Sights of Patent Plaintiffs

Feb 3rd, 2015 | Filed under: Crowdfunding, Intellectual Property, Legislation/Court rulings, Regulatory, Today's Post

The first of the three patents cited by the plaintiffs was filed at a time when the crowdfunding exemption movement was making a fair amount of noise on Capitol Hill, though it had not yet had tangible success. One might already entertain certain suspicions.


Stifling Debate on Classified Boards: Je Suis Charlie!

Feb 2nd, 2015 | Filed under: Best Practices, Hedge Fund Strategies, Regulatory, Today's Post

Unfortunately, Gallagher and Grundfest aren't simply contributing to the on-going debate over shareholder activism, classified boards, etc. They're trying to stifle it by suggesting a litigation campaign against the side they oppose. Shame on them.


Financing For Knights in Shining, or in Sooty, Armor

Jan 29th, 2015 | Filed under: Private Equity, Regulatory, Risk management, Today's Post

There are certain deals that banks don't want to touch with the longest lance in a joust. That doesn't mean the deals don't get done: it means they go by default to the non-bank financiers. We look at the divide.


Pension Funds as Alternative Investors Get Some Advice

Jan 28th, 2015 | Filed under: Alpha Hunters, Alpha Strategies, Asset allocation, Institutional Investing, Today's Post

As the CEO of AIMA, Jack Inglis, said: Many pension-fund trustees "are asking questions about their existing or prospective hedge fund allocations. Rarely has there been such demand for a realistic assessment of the benefits – and also the risks – associated with hedge fund investing.” The AIMA and CAIA are working together to meet that demand in a series of papers.


Who Is Yanis Varoufakis? And Does it Matter?

Jan 27th, 2015 | Filed under: Academic Research, Currencies, Today's Post

Varoufakis believes in the single Eurozone currency. It is unlikely that the government that just appointed him Finance Minister plans to pull out of that zone and bring back the drachma.


Prize to Sannikov: Scholar of Friction and Moral Hazard

Jan 26th, 2015 | Filed under: Academic Research, Alpha Hunters, Alpha Strategies, Today's Post

In a fascinating review article, Sannikov and his co-authors distinguished among the sorts of liquidity, and thus identified the precise sort of liquidity mismatch likely to lead to market shocks. In a working paper last year, Sannikov took on the issue of executive pay, incentives, and claw-backs.


Competing Bankruptcy Filings for Caesar’s: Third-Party Releases

Jan 25th, 2015 | Filed under: Insolvency, Legislation/Court rulings, Private Equity, Today's Post

A legal donnybrook has begun for control of Caesar's assets. An important side issue involves bankruptcy court treatment of non-debtors seeking release from alleged liabilities of their own, and a split amongst the appeals court circuits over such treatment.


Low Energy Prices: Crude and Refined Consequences

Jan 21st, 2015 | Filed under: Currencies, Hedge Fund Industry Trends, Hedge Fund Strategies, Indexes, Today's Post

Eurekahedge tells us that hedge funds were in the black 4.57% in 2014. That's hardly cause for celebration, since the MSCI World Index returned 6.79% over the same year. But all eyes now turn to the still-sliding price of oil.


Explaining Why the Portfolio-Barbell Works

Jan 20th, 2015 | Filed under: Academic Research, Emerging markets, Liability Driven Investing, Risk management, Today's Post

Most efforts to introduce "entropy" into finance have seen it as a quantity to be minimized. A new paper, which begins as an effort to explain barbell portfolios, uses entropy in a different manner. Unfortunately, it doesn't really end up clarifying those barbells.


ECB Beats SNB in race for the Bottom

Jan 19th, 2015 | Filed under: Algorithmic and high-frequency trading, Commodities, Currencies, Today's Post

An SNB announcement caused wild market moves Jan. 15th, not only in Forex but in commodity and equity prices as well. In the wake of the commotion, one key question has to be: why the announcement? Why this sudden change in the policy of Switzerland's central bankers?


If You’re So Smart, Why Aren’t You Rich?

Jan 14th, 2015 | Filed under: Academic Research, Algorithmic and high-frequency trading, CAPM / Alpha Theory, Today's Post

A new paper by a senior market economist at BNP Paribas celebrates the invention of Learning Vector Quantization (LVQ), a machine-learning algorithm that could enable some smart economists to get very rich indeed.


Let’s Hope Nothing Comes of Sprecher’s Grand Bargain

Jan 13th, 2015 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

Sprecher proposes that the exchanges and the investment banks enter into a deal, and that regulators confirm it by various tweaks in the NMS. The whole dynamic that the "grand bargain" represents is a disturing one, old-fashioned smoke-filled-room cronyism.


The State of Alternative Currencies: Tokyo Police and Future Retailers

Jan 12th, 2015 | Filed under: Currencies, Digital currencies, Today's Post

The publisher of Laissez-Faire Books has made some news in the alternative-currency world, declaring that there is a “silver lining” to the various scams associated with such currencies, because cons tend to develop around industries with a bright future. That sounds like a bit of a stretch.


Low-Vol Anomaly Provokes Reflections on an Old Adage

Jan 11th, 2015 | Filed under: CAPM / Alpha Theory, Indexes, Risk management, Today's Post

A new paper by Eric Falkenstein discusses an old question: the reason for the high risk-adjusted return in low-risk equities, and the adjustments it requires in CAPM. This is no fleeting oddity, but a lasting characteristic of markets. In econo-speak, not only the existence but the persistence of the anomaly requires explanation.


New Greek Political Crisis Looks Like the Old Greek Crises

Jan 7th, 2015 | Filed under: Alpha Strategies, Currencies, Indexes, Today's Post

The newly called snap elections in Greece will serve as a contest between pro-austerity and anti-austerity forces. Anti-austerity means abandoning the bail-out deal, and that position now seems the likely victor.


Thoughts on Futurology and its Perils

Jan 6th, 2015 | Filed under: Algorithmic and high-frequency trading, Hedge Fund Strategies, Technology, Today's Post

The Permal Group takes a refreshingly modest view of the eventual impact of Big Data on the business model of hedge fund managers. The better the data about a corporation, the more accurate the stress testing. Yes, that seems reasonable.


Top 5 Alpha Stories of 2014

Dec 30th, 2014 | Filed under: Alpha Hunters, Commodities, Emerging markets, Today's Post

In the middle of the year now ending, the U.S. Supreme Court delivered as complete a victory as it could manage to the hold-out bondholders in the Argentine-default dispute. Enforcement efforts plod on, and it seems likely a related story could make our top five list next year, too.


The SEC Takes a Limited View of Janus’ Limited View

Dec 29th, 2014 | Filed under: Derivatives, Legislation/Court rulings, Regulatory, Today's Post

A December 15 opinion by the SEC limits the significance of a Supreme Court decision of three years ago, and so at least pending appeal it broadens the applicability of the basic anti-fraud rule 10b-5 to the employees of an investment adviser.


The Magnetism of Insider Trading: Part Two

Dec 28th, 2014 | Filed under: Alpha Hunters, Hedge Fund Strategies, Legislation/Court rulings, Today's Post

In Part One Faille discussed the Newman/Chiasson decision of a three-judge panel of the appeals court. In this follow-up, he discussed consequences, starting (but not ending) with the good news this offers Michael Steinberg.


Yes, Speech is Free for Short Sellers, Too

Dec 23rd, 2014 | Filed under: Hedge Fund Strategies, Legislation/Court rulings, Media Coverage of Hedge Funds, Today's Post

The success of Wynn's lawsuit would have chilled free speech by short sellers. So let us take a moment to celebrate its quick demise at the hands of Judge Orrick. As a general rule, though, when a plaintiff quotes an expression from a transcript that, in fact, is immediately preceded by the word "not," and the plaintiff leaves the "not" out of the quote ... things are knotty.


Money Markets: The Cure to What Ails the Sukuk Space

Dec 22nd, 2014 | Filed under: Behavioral finance, Best Practices, Emerging markets, Today's Post

Two World Bank economists review the impediments that face the growth of the sukuk market, impediments often inherent in the theological precepts that gave rise to it. Part of the solution: well-functioning money markets as a context for sukuk issuance.


Longevity Risk: Wary of Your 2015, and of Somebody Else’s Life Span?

Dec 21st, 2014 | Filed under: Institutional Investing, Liability Driven Investing, Risk management, Socially responsible investing, Today's Post

The new survey from Natixis tells us that a lot of asset-managing institutions think their industry as a whole has been quite slow about moving in the direction of liability-driven investment strategies. Also, more than half believe traditional assets are too correlated to provide them with the diversification they need.


The Magnetism of Insider Trading: Part One

Dec 16th, 2014 | Filed under: Alpha Hunters, Hedge Fund Strategies, Legislation/Court rulings, Today's Post

A three-judge panel of the appeals court instructed the district court to "dismiss the indictment with prejudice as it pertains to Newman and Chiasson." Here we discuss why. in the second part, we'll discuss the likely consequences.


Plans for a Nickel-Tick Pilot: Trouble in the Details

Dec 15th, 2014 | Filed under: Algorithmic and high-frequency trading, Regulatory, Technology, Today's Post

Observers of the slow slog toward an empirical test of larger tick sizes have raised concerns about the details of the three-track plan under consideration. In particular, there's an order-protection feature for one of the three "tracks" that has raised the hackles of Larry Tabb and the STA