Today’s Post

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.


Capital Call – Mastering 7 Essential Investor Questions

Feb 22nd, 2015 | Filed under: Institutional Investing, Today's Post

...One of the key hurdles all managers face is the investor interview, when the focus is not on the fund or strategy, but on the manager’s ability to sell him or herself. While managers are typically comfortable discussing their investment thesis and related activities, they are markedly less able to articulate the personal and intangible details about which investors want to learn more.


Focus on U.S. Real Estate Benchmarks: NCREIF Transaction Based Index

Feb 20th, 2015 | Filed under: Alpha Hunters, Alpha Strategies, Indexes, Real Estate, Today's Post

By Brad Case, PhD, CFA, CAIA This is the third in a series of articles focusing on the strengths of different indices that are published regularly and may be appropriate for benchmarking, risk assessment, and other real estate investment purposes. The first article focused on two similar index families, the Moody’s/RCA Commercial Property Price Index (CPPI) […]


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.


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.


The Danger of Indices

Feb 1st, 2015 | Filed under: Indexes, Performance, Analytics & Metrics, Today's Post

A useful benchmark or a dangerous prop? Guest columnist Andrew Beer looks at the hidden dangers in indices.


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.


How Bad is the Cash Drag on Open-End Private Equity Real Estate Funds?

Jan 22nd, 2015 | Filed under: Private Equity, Real Estate, Today's Post

Guest columnist Brad Case, Ph.D., CFA, CAIA, examines the effects of cash drag on open-end private equity funds.


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?


The Quant Conundrum: Perfectly Repeatable or Repeatedly Imperfect?

Jan 15th, 2015 | Filed under: Algorithmic and high-frequency trading, Alpha Seekers, Hedge Fund Strategies, Risk management, Today's Post

Guest columnist Diane Harrison looks at both sides of the quantitative investment debate.


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.


Top 10 Hedge Fund Trends for 2015

Jan 8th, 2015 | Filed under: Alpha Hunters, Hedge Fund Industry Trends, Hedge Fund Strategies, Institutional Investing, Today's Post

Guest columnist Don Steinbrugge, CFA, surveys institutional investors and hedge funds to find out what the top trends may be for 2015.


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.


The Global Economy in 2015 – 5 Key Trends

Jan 5th, 2015 | Filed under: Alpha Strategies, Today's Post

Guest columnist Shane Brett takes a look at what 2015 may look like from an economic perspective.


Focus on U.S. Real Estate Benchmarks: NCREIF Property Index

Jan 4th, 2015 | Filed under: Alpha Hunters, Alpha Strategies, Indexes, Real Estate, Today's Post

Brad Case, Ph.D., CFA, CAIA, guest columnist, continues his series on U.S. real estate benchmarks as he looks at the NCREIF Property Index.


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.


Case study: Straits gives managed futures a facelift

Dec 18th, 2014 | Filed under: Commodities, Retail Investing, Today's Post

As alternative investments become more mainstream, managers who traditionally have operated in the alternatives arena face a number of questions, including what is the right offering, the proper structure and how do we market the new vehicle. Guest columnist Ginger Szala examines the thought processes of one group as they made the leap to retailization.


Missing the Market: An American Visits Nigeria

Dec 17th, 2014 | Filed under: Alpha Hunters, Frontier markets, Today's Post

Guest columnist Doug Friedenberg explores Nigeria as a frontier market.


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


Does Leverage Have a Positive or Negative Effect on Private Equity Real Estate Investments?

Dec 14th, 2014 | Filed under: Private Equity, Real Estate, Today's Post

Guest columnist Brad Case, Ph.D., CFA, CAIA, explores the effects of leverage on private equity real estate investments.


Election direction, market correction, asset selection…it’s all an investment question

Dec 11th, 2014 | Filed under: Asset allocation, Today's Post

In the U.S., the midterm elections will largely dictate the course of the remaining years of the current presidential term. This course also plays a major role in the future direction and relative strength of the US markets, which subsequently impact advisors’ decision-making for client portfolios. The interplay between these three areas justifies a closer look at how their relationship correlates to the process of investment management.


Qatar and the QIA: When the SWF Is Also a Family Office

Dec 10th, 2014 | Filed under: Commodities, Institutional Investing, Technology, Today's Post

The royal family in Qatar, the House of Thani, just took direct control of the emirate's sovereign wealth fund. Also, that fund just invested big in Uber, confirming its reputation as perhaps the worlds most aggressive deal-hunting institution.