All entries by this author

Eurelectric Speaks Up For Grushenka

Apr 16th, 2015 | Filed under: Derivatives, Regulatory, Risk management, Today's Post

Is it possible or desirable to separate "speculation" from operational hedging, so as to clear the way for industries to do the latter without the regulatory burdens that planners want to impose upon the former? Once Europe has decided that speculation is a bad thing, won't it end up pursuing the demon ways that will collapse the proposed distinction?


The Latest News from Italian Banking and the Dane-geld

Apr 15th, 2015 | Filed under: Alpha Strategies, Insolvency, Risk management, Today's Post

Banca Monte dei Paschi di Siena, BMPS, the oldest bank in the world, has now admitted that its exposure to Nomura Holdings has exceeded the 25% cap set by Italy’s regulators. Faille can't think of a good alpha-winning play on this fact, but it does inspire him to re-work a Kipling poem.


They Do It Right Down Under: Australian Institutional Funds

Apr 14th, 2015 | Filed under: Alpha Hunters, Alpha Seekers, Alpha Strategies, CAPM / Alpha Theory, ETFs, Indexes, Institutional Investing, Today's Post

The hapless U.S. mutual funds Chen and Gallagher sample have a nominally positive pre fee alpha only when measured against CAPM. That disappears into the negatives when the baseline used is the Fama-French model, and deeper into the negatives when the momentum factor is added.


When I Learned Truth About RadioShack

Apr 13th, 2015 | Filed under: Hedge Fund Strategies, Insolvency, Technology, Today's Post

IT guys have been denigrating RadioShack, from their own perch of superiority, for a long time. The trouble is, while those IT guys were the future, RadioShack's customer base was fading into the past.


EDHEC: Geography is Not Just a Listing or Headquarters

Apr 12th, 2015 | Filed under: Academic Research, Alpha Strategies, Asset allocation, Asset pricing, Emerging markets, Risk management, Today's Post

Indexes labeled as representing developed market equity include companies with significant and increasing exposure to macro-economic trends in the emerging markets. A portfolio that tracks such an index may well have much more such exposure than its managers or investors had bargained for


Liquidity, Leverage and Those Nimble Hedge Funds

Apr 9th, 2015 | Filed under: Derivatives, Hedge Fund Strategies, Regulatory, Risk management, Today's Post

Basel III has given us three different statistics with a common goal, to keep banks to a stable funding profile, neither too illiquid nor too highly leveraged. As these requirements come on-line, what will be the consequences for the relationship between prime brokers and hedge fund managers?


John H. Makin, Hedge Fund Economist/Principal, Defender of U.S. Fed

Apr 8th, 2015 | Filed under: Academic Research, Alpha Hunters, Currencies, Forex, Today's Post

The impression one gets from some of the recent work of Dr. Makin is of a man who decided, late in life, that currency is a state invention, and that the states deputize their central banks to make sure the rest of us use it properly.


Zulauf Sees Unprecedented Risks: Zhou Fears Deflation

Apr 7th, 2015 | Filed under: Currencies, Emerging markets, Macroeconomics, Today's Post

Felix Zulauf is the principal of Zulauf Asset Management, and a former global strategist for the UBS Group. He said that central banks have intervened on such a large scale of late that they have left "global financial markets ... more distorted than ever before and accordingly the risks are very high."


EDHEC: Smart Beta Indexes May Be On a Launch Pad

Apr 6th, 2015 | Filed under: Academic Research, CAPM / Alpha Theory, ETFs, Risk management, Today's Post

There have been "a considerable number of product launches in the area of smart beta ETFs," but investors are eager for more, perhaps in the hope the developers will get beyond the "few popular strategies" in that area on which they have so far focused. With more variety may come a real take-off.


Reflections on the MS Internet Explorer, R.I.P.

Apr 5th, 2015 | Filed under: Algorithmic and high-frequency trading, Legislation/Court rulings, Technology, Today's Post

The U.S. Department of Justice typically brings high-profile antitrust actions against 'monopolists' by piling its legal theories on top of dubious micro-economics. A recent announcement by Microsoft sends Faille down memory lane, to two 1990s era actions by the D of J against MS in the days when Bill Gates was still a great media ogre.


M&A: a Continuing Trend According To Survey

Apr 1st, 2015 | Filed under: Alpha Hunters, Alpha Strategies, Currencies, Today's Post

Intralinks is confident that the ongoing growth in M&A activity will continue through the 2d quarter, fueled by strong performances in EMEA and North America. In North America in particular the drivers include low interest rates and pressure on corporate honchos to generate growth in that low-rate environment.


The Supreme Court and Securities Fraud: No Barking Tuesday Night

Mar 31st, 2015 | Filed under: Asset pricing, Legislation/Court rulings, Today's Post

The U.S. Supreme Court has just created a new, and confusing, standard for the trial of issuers who have made opinionated statements in offering documents. In certain contexts, to be determined ad hoc, the statement of an opinion, such as "we believe our practices are all lawful and value adding" can be a misleading omission of facts that might tend to the contrary conclusion.


Hedge Fund Investors and Managers: Concord and Discord

Mar 29th, 2015 | Filed under: Alpha Hunters, Alpha Strategies, Hedge Fund Strategies, Institutional Investing, Today's Post

Investors in hedge funds want more transparency than they think they're getting, a fact that might not be clear to their managers.


A Taylor-Swift Lawsuit: ‘I’ve Got a Blank Space Baby.’

Mar 26th, 2015 | Filed under: Algorithmic and high-frequency trading, Derivatives, Hedge Fund Strategies, Technology, Today's Post

This is the story of one high-frequency trading firm suing one or more others and giving detailed credence to everything that has been said over the last year or so by those who bemoan the rise of HFT firms.


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?