Baltas and Kosowski begin a recent paper with the observation that time-series momentum strategies have compiled an unsatisfactory record in the years since the global financial crisis. They ask why, and suggest how the strategies can be re-jiggered to improve performance.
BATS now proposes to define spoofing in an elaborate and narrow two-part manner. An investor, commenting to the SEC, accurately notes that this is a good deal different from the statutory definition, or from a definition endorsed recently in another context by BATS itself.
If it is possible for bubbles to arise in frictionless circumstances, then it follows that any theory that treats bubbles as the consequence of friction is, at very best, incomplete. And that is important to know especially if policy makers are busy drawing their own conclusions from those incomplete-or-worse theories.
Presumably the U.S. Supreme Court's decision, in December 2008, that states can in fact make and enforce tougher labeling standards for cigarettes than does the federal government was a negative for tobacco stocks. But did that mean that stock prices had already anticipated the decision before it happened? or that they immediately adjusted downward on the morning the decision was announced? Or ... neither of those?
Not even Schrodinger blamed the reporters for market irrationality. Saying out loud, "Hey, this cat is dead," doesn't kill the cat.
The authors of a new study of the relationship between fund size and performance employ a database consisting of 7,261 funds and their performance over a twenty year period (1994 to 2014). Spoiler alert: size is bad. Especially in a crisis.
Meredith Jones' book on investing in women takes it to the Street and comes back with some solid conclusions.
The conclusion of two Indian scholars in a new study supports the view that socially responsible investing is good for investors in India. But Faille worries that the battle-of-the-studies has thus far been indecisive, and that aerodynamics suggests this insect shouldn't be able to fly.
Two authors at EDHEC remind us that 15% of the assets in any ETF or ETF-like products for European investors were in smart-beta indexed products as of August 2014, and that this amount is growing. They discuss the extent to which investors are pleased with their results.
Much of the ubiquitous talk of the short-sightedness of nasty activist investors or traders is simply confused, analytically sloppy. It is a sort of confusion likely to have negative consequences to the extent that investors/traders themselves come to take it seriously.
The controversy over corporate governance, and whether the changes favored by reformers show up as superior corporate performance (as measured, for example, by Tobin's q) strikes Faille as dangerously abstract. The only way to get to the pointillist painting is by starting with particular data points.
A new report finds that firms where current public officials are destined to become employees outperform other private firms by 7.43% per year during the three years before the officials/employees pass from one post to the other. The outperformance is highest in the year immediately before the switch, Justas a cynic looking for corrupt quid pro quos would suspect.
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
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.
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.
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.