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?
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.
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.
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.
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.
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.
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.
A new paper by a scholar at the McCombs School of Business looks at what causes what on Wall Street, starting with how (if at all) analyst downgrades cause price declines.
The latest Economics Award has drawn the attention of the world briefly to a body of work that has a number of points of interest for the alt-investment community.
The eight authors of a new study seek to add to “the existing literature of Bayesian VaR methods by … considering the … general class of Burr XII extreme value distributions “ and by estimating error bounds. After having a little fun we try to puzzle out what that means.
It does appear that speed is helpful in generating alpha. How is it helpful? Here there are two views, and the less HFT-friendly of these views has received some scholarly/empirical support.
There exists “robust evidence of informed trading during lockup periods ahead of the Federal Open Market Committee … monetary policy announcements” say three authors. Some agencies can embargo news effectively. The FOMC doesn't seem to be among them.
HFTs and trading venues alike have worked hard to fit their practices into the Reg NMS framework. As a consequence, violations of NMS “are unlikely” Dolgopolov writes, “to provide a basis for civil liability of HFTs who use such orders because of their compliance – however formalistic – with this regulatory norm.”
Europe's index providers, by their own account, already have strong incentives to offer optimal transparency and, in their self-interest, they do so. A survey and report from EDHEC examines this claim.
On Barhydt's view, we have to see Bitcoin and other currencies like it as part of an evolution of the whole world of commerce, payments, and exchange, a vast movement of disintermediation that threatens to disrupt the banking and finance industries.
Christopher Faille makes it clear that he has no Keynesian sympathies. In his humble opinion, the Austrians are in general right on the economics, though they could use some empirical/pragmatic assistance on the matter of epistemology.
If you wish, you can take the idea that humans are purposive as a very broad empirical generalization. Or you can take it in various other ways. What matters is that it certainly isn’t as specific or historical as the kind of fact-gathering that the historicists of yore had in mind. And that continues to serve as a sore point in discussions within and about Austrian economics.
The way to keep growing is to keep changing. For the European ETF market, that means product innovation, from infrastructure funds to smart beta.
Hoarding bad news bears this meaning: at some point a lot of bad news is going to break through the informational dam all at once, producing a flood, that is, a firm-specific crash.
Four researchers have developed an "event-based" understanding of Liquidity, measuring it as a characterization (from 0 to 1) of the predictability of asset price trajectories. Illiquidity is surprise.
Andrew Beer looks at hedge fund replication to see if it works.
A forthcoming paper by Goldstein et al opens a window onto the convergence of two market-structure issues that, until quite recently, had not even been thought very similar.
A forthcoming paper suggests that the old risk premium in crude oil futures has essentially disappeared, at least as averaged out over (rather modest) spans of time, and proposes commodity index funds as an explanation of the disappearance.
Two scholars have published a new model of private equity funds, looking for the real drivers of abnormal returns by process of elimination.
A strategy based largely on stop-loss and stop-gain rules, one that uses such rules as the sole means of shifting assets from one asset class to another, can earn statistically significant CAPM alpha, according to a provocative study from the University of Arizona.
Mosler is perfectly willing to have governments create money for their own spending. He does not see that as necessarily inflationary, apparently because the same governments can always tamp down on inflation through the tax system.
The dispute framed by a June 3d debate at Columbia Law School will define the future (and no very-distant future either) of economic policy in the western world and of the fate of all the currencies involved. The question will be: after Keynes, what? We owe thanks to everybody involved in arranging for the Murphy/Mosler debate.
A newly released paper concludes that the returns many mutual funds make from lending their portfolio securities increase as the directors on their boards become more independent. Separately, it is a good sign if the directors have, as the saying goes, 'skin in the game.'
Investors want to know whether the executives are speaking deceptively well before the restatement is filed. In order to help with that goal, Larcker and Zakolyukina in the paper, “Detecting Deceptive Discussions in Conference Calls,” have analyzed the transcripts, focusing especially on CEOs and CFOs because they are “the most likely executives to have knowledge about financial statement manipulation.”
Should a lender of last resort lower interest rates to near zero in the hope that liquidity will drown systemic sorrows? Bagehot argues for a contrary approach. The interest rates for loans made to desperate borrowers should be high. “This will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it. The rate should be raised early in the panic, so that the fine may be paid early…."
The issue of restitution for loss has been very much on the midns of the asset management industry over the last four years. As EDHEC observes in its new report on non-financial risks, “The collapse of Lehman not only [showed] the world that a systemically large institution could fail; it put … the question of international cooperation and rules harmonisation on centre stage. Restitution may be rendered impossible, at least under reasonable delays, in extreme cases such as the default of an institution – reputable as it might have been.”
The relationship between two markets that O’Kane posits might almost be taken as a paradigm of the difference between Granger causation and physical causation. Consider the case of two distinct radar systems, one better at long range detection than the other. The superior radar system will detect an incoming airplane before the inferior system will. Thus, there will be a relationship of Granger causation between the detection of a particular blip on the better system and its detection on the other system. If we see an incoming blip on the better system we will be able to predict that it will soon show up on the inferior system. It doesn’t follow, though, that the one radar is physically causing anything to happen to the other radar.
The latest version of a yearly analysis tells the same old story about performance, now backed up by fifteen years of data. And the potential rewards of investing with smaller funds go beyond what you see in the database statistics.
International Monetary Fund research shows that speculation does not influence the commodities markets.
Study finds that an increase in assets isn’t all that great after all. But it won’t kill you either.Sep 7th, 2011 | Filed under: Academic Research, Hedge Fund Industry Trends, Today's Post
What happens when a hedge fund gets a windfall of new investment dollars?
Corporate CEOs aren't the only ones who dread the appearance of activist hedge fund managers on their radar screens. Activists are giving the accounting departments pause as well, according to a new paper by Hall and Trombley.
A paper published by he European Central Bank this month argues that purely-financial investors do indeed "destabilize" oil prices by indiscriminately allocating capital to oil futures.
Some new research shows that it may be possible to mathematically determine a bubble before it forms, let alone pops.
A recent study suggests to at least one mass media outlet that hedge funds should mind their own business and not by nosy about other hedge funds' trades. But a closer reading of the study suggests to us that it's extremely difficult to measure the vast array of social interactions in Hedgistan.
Study: Public pension funds in a dangerous race with one another. Should focus on liabilities first.Mar 24th, 2011 | Filed under: Academic Research, Institutional Investing, Today's Post
A study of 125 U.S. state pension plans reveals that management incentives, misguided accounting standards and conflicting interests could perpetuate a funding gap roller coaster.
Brazil's "multimercado" funds are often described as a form of well-regulated hedge funds. But new research suggests that may be stretching the truth just a little.
Currency markets basically follow a random walk. But according to a new study, the returns from currency hedge funds are anything but random.