We report on a talk given by Dr. Keith Crane of the Rand Organization about renewable energy and climate change at a meeting of the FInancial Policy Council. Dr. Crane showed that the cost differences between renewables and coal shrink when the costs of carbon emission controls are also counted. Subsequent research revealed possible reasons why the average person in the United States has a unique inability to accept climate science, in opposition to the conclusions of the U. S. Defense Department.

Financial crises always turn up new risks – and new opportunities. Famously, George Soros bet against the Bank of England during a fiscally challenged time in the early 1990s and pocketed a billion and change for his troubles. Was that a spectacular guess in a geopolitical game of chicken, or was it true alpha? We don't know, because we don't have the data. Currencies didn't much matter then; they do now.

The European Debt crisis has been the epicenter of the most recent market earthquakes. Now that a resolution is on the table, the "What now?" question remains.

The Commodity Customer Coalition has now issued a white paper presenting its own view of the “background, impacts, and solutions to MF Global’s Demise.”

Pragma studied the empirical relationship between the routing behavior of market participants and the fee structures of the venues through using publicly available trade and quantity (TAQ) data from June 2011....The hypothesis left standing is that the inverted fee structure acts as intended. "[W]hen there is a choice of where to take liquidity, the pecking order is clear and coincides with cost."

A new study from SEI shows If an alternative strategy can be offered in a mutual fund structure it has a much broader market opportunity than if not. Hedge fund managers want the mutual fund market just as mutual fund managers want to use the broader hedge fund range of strategies.

"...by following and understanding the latest thinking in managing sovereign credit risk- portfolio and risk managers will not only be able to extract greater returns from their existing investments, but deliver greater protection for clients......"

Amongst equity long-short funds, which constitute about half of the Asian hedge fund universe, the returns of hedge funds “were sometimes mean reverting but at other times displayed persistence in positive/negative momentum.” That is to say that sometimes a coin that has come up heads three times will come up tails the fourth time, but at other times it will persist in coming up heads the fourth time.

The true opportunities now lie in taking illiquidity. The panic – for there is no other word to describe this behaviour – today presents those who can afford to have a longer-term investment horizon with a unique time arbitrage.

Equity hedge fund performance has resembled the results of the S&P Index lately. We speculate that regression to the mean is because humans are involved, and find reasons to be cheerful for the group's future.

The hedge fund industry that invests in Asia is increasingly run from within the region, especially from the two hub cities of Hong Kong and Singapore, according to an August 2011 report by Singapore based consult In the early days of the Asian hedge fund industry, Asian strategies were quite generally run from outside of Asia [...]

The world is a fairly small pond in which ripples anywhere soon shake the surface everywhere. Such an observation, like the word “globalization,” has become a cliché, but the truth behind them both becomes quite obvious in the course of a new “Viewpoint” paper by Ernst & Young that examines fund distribution strategies in the [...]

Intuition (codified by many models) suggests that investors have to be bribed to accept risk, so that there ought to be a positive link for any given class of security between the amount of risk, and thus the measurement of volatility, on the one hand, and expected return on the other. A puzzle arises, then, from empirical research indicating that “idiosyncratic” volatility, that is, the volatility due to the characteristics of a specific security, is negatively correlated with return once one passes the mid-point of the range of volatility.

We visit a Town Hall meeting to discuss the Occupy Wall Street group's use of social media. While there, we are reminded of the potential power of social media and its use to affect public opinion without spending gobs of money. We also learn reasons why the investment community should, at minimum, pay some attention.

Spread capture is a percentage of the bid-ask spread, so that if an algorithm always accepts the outstanding offer when buying – if it is always the one to cross -- it will capture 0 percent of the spread. If a deal is concluded on its own bid determined through limit orders, on the other hand, it captures 100 percent of the spread. The spread capture metric is popular, the Pragma paper says, because it “reflects a widespread assumption that the higher the number the better the performance of the algorithm.”

In spite of a difficult fundraising climate, there are some positive things about the current real estate investing environment. Like Scarlett O'Hara, institutional investors seem to think that "land is the only thing that matters."

Managers were asked: “other than delivering expected performance, what is the greatest challenge in satisfying investors?” The results were: getting investors comfortable with infrastructure, 22 percent; providing satisfactory performance attribution data, 19 percent; providing broader education/consulting, 18 percent; providing satisfactory risk analytics, 11 percent; other, 28 percent. The residual answer produced more favorable replies, then, than did any of the pre-scripted answers.

In spite of sketchy performance from some top managers, institutional investors remain committed to hedge funds and a large number are shopping for new relationships in 2012.

Even against the backdrop of a global recession, the top 50 fastest growing companies in the USA averaged growth rates between 3,893% and 40,882% in the three years to the start of 2011.  These are rates of return which more than compensate the investor for the risk of making high-growth-young-company-investments.  For some investors, alternative markets [...]

The classical philosopher Aristotle is often associated with the logical principle that every well-formed proposition is either true or false, either A or not-A.  Actually, Aristotle’s views were a bit more complicated than that. He raised the possibility for example that the truth of the statement “there will be a sea battle tomorrow” might be [...]

It is by now common knowledge that High Frequency Trading comprises 70 to 75% of market trading in North America and western Europe.  And it helps to remember that the primary usefulness of algorithmic trading is to provide liquidity to the investor class.  We presume that the distinction of said class is that its investment [...]

By John Brynjolfsson In October the markets voted: the EU finance ministers are ‘all in’ in their commitment to finding a solution to the Union’s troubles. Here, from a perch at Armored Wolf, however, we see a quagmire, and looking forward we will remain focused on the still inherent and deeply seated issues plaguing the [...]

By Christopher Faille The ideas of “cause and effect” seem simple enough when left unexamined. The cue stick hits the cue ball; the cue ball hits the eight ball; the eight ball rolls into the pocket. How can anyone fail to understand this?

Commodities have been the big story of the past decade – almost a repeat of the inflation-burdened 1970s. If hems reflect stock market sentiment, we should be seeing an outbreak of bell-bottom trousers and platform shoes. Certainly, a new cohort of investors, institutional and retail alike, see price rises in the elements core inflation strips out – namely food and energy – as a secular shift. Still, appearances can be deceiving. A recent study argues a long-only bet on commodities is likely to result in a return that is statistically 0: not the 1970s at all.

Cyril Demaria, a partner at Tiaré Investment Management in Zurich, and a former portfolio manager at Maaf Gestion, has written a book, Introduction to Private Equity, John Wiley & Sons Inc., Hoboken, N.J., 2010, 244 pp., $49.95. The subject matter is named well enough in the title. I’ll only add that Demaria uses the term “private [...]

Well, maybe not $75 Trillion.  And it doesn’t call itself a hedge fund.  To be really, really fair, Bank of America couldn’t have gotten all its derivatives positions wrong, even though it’s a bank.  However, as we shall demonstrate, the phrase “equity sliver” is way too optimistic.  Understand this about a derivative hedge:  it’s a [...]

By Christopher Faille Charles Jones of Columbia Business School made a presentation at an SIFR event in Stockholm, titled “What do we know about algorithmic and high-frequency trading?” Although a distinguished professor like Jones would not put the matter this way, his thoughts do have me thinking of the old human-inhabited trading floors, and their cyberspace [...]

This is the first in a series of real estate articles by new editorial board member Jan B. Brzeski, Principal at Arixa Capital Advisors, LLC, Los Angeles, CA.

Johan Bollen is associate professor at the Indiana University School of Informatics and Computing. He was formerly a staff scientist at the Los Alamos National Laboratory from 2005-2009, and an Assistant Professor at the Department of Computer Science of Old Dominion University from 2002 to 2005. He obtained his PhD in Experimental Psychology from the University of Brussels in 2001 on the subject of cognitive models of human hypertext navigation.

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.

Jeremy King of Knight Pacific discusses his contrarian views on investing in Asia.

By Christopher Faille One of the great clichés used by reporters, commenters, bloggers and twitterers in recent months has been that the central bankers of the developed world, and/or their Treasuries, have “run out of bullets.” They have “spent all their ammunition” seeking stimulus already and will have nothing in reserve should there be another serious [...]

Alpha Hunters Andrew Timpson and Joseph Schlater of Busara Advisors talk about what it takes to get an emerging manager allocation.

Diversification – particularly of risk – is the “a” in alpha. At first sight, commodities earn an “a.” Certainly they have attracted attention from institutional and retail investors alike. Most of those are long-only portfolios – as in “l.” They are a “p” for poor, “h” as in hedge in “a” for adverse markets.

By Doug Friedenberg We attended a recent meeting put on by Pershing for their prime brokerage clients at which Nouriel Roubini spoke about the near-term prospects for your favorite world, Earth, from an economic point of view.   On a positive note, no large asteroids are currently headed our way, although another prominent economist, Paul Krugman, has [...]

Chris Brodie has been trading commodities for over 20 years, and set up Krom River in 2006. Scotsman Brodie relocated to Zug in Switzerland several years ago and has no regrets about the move. The fund’s best year so far was 2008 when it rose by 37% while the GSCI fell by two thirds, and it was also up in August of this year. Krom River are running both discretionary and systematic funds, and also have a dedicated agricultural vehicle. We touched on a range of topics that CAIA candidates and charterholders will be familiar with. Krom River is a signatory of the Hedge Fund Standards Board that has been discussed on AAA.

The second in a three-part series on private equity from SEI shows that alpha is a bit slippery these days.

Clearing within ten days after the transaction (T+10) was once the norm, though it now seems archaic. Clearing overnight or in a once-a-day cycle will in the years ahead become equally unsatisfactory. It may soon “become standard practice for risk managers and eventually traders to demand proof that their trades have been cleared mere seconds after execution.”

The concept underpinning financial exchanges can be traced back through much of human history. In Aristotle's Politics, "...there is the anecdote of Thales and his financial device.... he knew by his skill in the stars while it was yet winter that there would be a great harvest of olives in the coming year; so, having little capital, he gave earnest-money for the use of all the olive-press in Chios and Miletus, which he hired at a low price because no one bid against him. When the harvest-time came, and many wanted them all at once and of a sudden, he let them out at any rate which he pleased, and made a quantity of money..." While technology has moved on, the basic principle of futures and options exchanges remains the same. Participants in the market can take the role of Thales (using their insight to bet on price increases), the olive-press-owners (who hedged that Thales' price for the future was higher than they would otherwise get) or even investors who provide 'earnest money' to Thales (assuming markets will rise) or fund the olive-presses (assuming prices will fall).

By Christopher Faille Passive and active investments are often contrasted as if the distinction is self-evident. It isn’t. Even for an unambitious long-only equity indexed fund, trades have to be executed in order to maintain the desired balance, and these trades can be executed either well or poorly, in ways that help or hurt the investor. [...]

In Part II of this Alpha Hunter series, we examine the role intellectual property plays in the U.S. economy.

There will likely always be at least a simmering tension in the hedge fund industry between the managerial desire for discretion in the use of assets and every investor’s desire to have the option of withdrawing funds as needed. When a manager seeks to offer its investors more liquidity than its own portfolio can provide, [...]

Business owners aren't creating jobs for the sake of creating jobs - they are creating money, with job creation as collateral damage from the money creator's point of view.

New research from the Managed Funds Association looks at the state of the pension fund industry and examines the role that hedge funds can play in order to improve institutional investors' positions.

Dennis Lohfert, founder of Ion Asset Architecture, discusses quantitative trading strategies and how they are affected by current market conditions.

Building with BRICs, an interview with Jim O'Neill, Chairman of Goldman Sachs Asset Management

Patent trolls aren't the only ones hiding under the bridge and collecting tolls on intellectual property. Alpha Hunter Michael Friedman discusses the hidden alpha potential in IP.

AllAboutAlpha.com interviewed Arzhang Kamarei, a partner at Tradeworx, a quantitative investment management firm with expertise in high-frequency and medium-frequency equity market-neutral strategies.

AllAboutAlpha.com spoke to John Zito, portfolio manager for credit opportunities at Brencourt, about some of the strategies Brencourt has employed and continues to employ in its search for alpha. He observed that one of the main investment strategies pursued by the Credit Opportunities Fund in particular is capital structure arbitrage.