Asset pricing

The Big Short: The Trailer

Sep 30th, 2015 | Filed under: Alpha Hunters, Alpha Seekers, Asset pricing, Media Coverage of Hedge Funds, Today's Post

A reflection on the newly released trailer for the forthcoming Paramount movie The Big Short, with Christian Bale front and center as Michael Burry. Brad Pitt shows up, too.

A Fresh Look at Bubbles: Revising Assumptions

Sep 16th, 2015 | Filed under: Academic Research, Asset pricing, CAPM / Alpha Theory, Derivatives, Today's Post

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.

Bitcoin and Kin: The View from Europe

Jul 1st, 2015 | Filed under: Asset pricing, Currencies, Derivatives, Today's Post, Virtual currencies

Bitcoin's price charts nowadays seem to have settled into an equilibrium between $240 and $220 per. But ESMA, and the authorities in Sweden, are both paying attention.

Activism: Why the Short-termers Can Be Right

Jun 15th, 2015 | Filed under: Academic Research, Asset pricing, Hedge Fund Strategies, Media Coverage of Hedge Funds, Today's Post

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.

A Close Look at the Deutsche Bank Findings

Jun 10th, 2015 | Filed under: Asset pricing, Best Practices, Derivatives, Risk management, Today's Post

Judy Collins might suggest looking at risk from ‘both sides now.’ But it appears that according to DB at a critical moment in global financial history, risk existed only to the extent that it worked to enhance the value of DB positions: it didn’t exist in any sense that might have required a haircut.

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

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.

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 by Permira. But it couldn't: the statute encouraging appraisal fights was too clearly worded for that.

Does Private Real Estate Actually Have a Low Correlation with Public Real Estate?

Mar 15th, 2015 | Filed under: Alpha Hunters, Alpha Strategies, Asset pricing, Institutional Investing, Private Equity, Real Estate, Today's Post

Brad Case, Ph.D., CFA, CAIA, looks at the relationships between public and private real estate.

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.

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.

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.

Aligning Interests: Side Pockets, Side Letters, and Central Issues

Dec 9th, 2014 | Filed under: Asset pricing, Best Practices, Hedge Fund Industry Trends, Investment Management Fees, Today's Post

A proposed new set of principles, designed to encourage investors in the alt-investment industry in their discussions with their managements, encourages skepticism both about side-pocketed assets and about other investors' sweetheart deals (i.e. "side letters.")

Vindicating Austrians: The New ESMA Warning on Risks

Sep 10th, 2014 | Filed under: Asset pricing, Risk management, Technology, Today's Post

In a new report, ESMA discovers that some investors may be guilty of "over-reliance on continued policy support." I gather that means that investors believe that central bankers and governments will play the role of Santa Claus indefinitely.

Volcker: ‘The Kind of Stuff You’re Being Taught’

Jul 17th, 2014 | Filed under: Asset pricing, Currencies, Today's Post

Paul Volcker is obviously entitled to express his concerns when he senses that the well-educated young people of today are taking economics courses full of the wrong lessons: specifically, that they are unaware of just how nasty a dragon inflation was in the U.S. in the 1970s.

Does a Firm Insist on Historical Cost Accounting? Short!

Jun 23rd, 2014 | Filed under: Alpha Strategies, Asset pricing, Derivatives, Today's Post

"Isn't there anything good to be said for the practice of historical cost accounting, especially when the cost figures are higher than the mark-to-market figures? Well ... no. It's reality avoidance."

EDHEC: Investors Who Don’t Want to be Mushrooms Need Benchmarks

Jun 16th, 2014 | Filed under: Asset pricing, Infrastructure, Private Equity, Today's Post

Investors need benchmarks, especially benchmarks of likely infrastructure return, because the long-term illiquid nature of that investment increases information asymmetry between investors and managers, whereas benchmarks keep this asymmetry bearable. So explains Frédéric Blanc-Brude of EDHEC.

Europe’s Valuation Practitioners Say: To Heck With Theory

Jun 3rd, 2014 | Filed under: Asset pricing, CAPM / Alpha Theory, Today's Post

A recent survey of firm-valuation experts from 10 European countries indicates that they can produce wildly different values given the same inputs. Okay: maybe that’s not too surprising. Any valuation model will necessarily include parameters that will in turn require a best-guess approach, often as subjective in inspiration as it is objective in aspiration. So […]

Marking to Market and Following the FVA Debate

Apr 30th, 2014 | Filed under: Asset pricing, Derivatives, Today's Post

In the recriminations that followed the demise of Enron in 2001, the whole idea of mark-to-market accounting acquired a taint. A lot has changed since then, but fair value debates we will always have with us.

Liquidity? Perhaps It Is What it Does

Feb 23rd, 2014 | Filed under: Academic Research, Asset pricing, Forex, Today's Post

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.

Amici in Halliburton: Coming To the Aid of Defendants

Jan 21st, 2014 | Filed under: Asset pricing, Legislation/Court rulings, Today's Post

The Supreme Court has received several amici briefs in the Halliburton case. They generally take the side of the defendant/petitioner, the corporation accused of securities fraud, in its opposition to the use of a 1980s vintage fraud-on-the-market theory to certify a class.

Halliburton’s Asbestos Liability Returns to SCOTUS

Nov 18th, 2013 | Filed under: Asset pricing, Legislation/Court rulings, Today's Post

In a traditional lawsuit over the sale of swampland in Florida I would have to show not only that the salesman lied to me, but that I relied on that lie, and accordingly built a house there and glub glub glub.

AIMA: Valuation Sound Practices Updated

Oct 17th, 2013 | Filed under: Asset pricing, Best Practices, Today's Post

Challenges brought about by the 2007-08 crises and their long wake have interacted in the U.S. with what was then a new fair-value hierarchy, the three levels of valuation as established by the FASB.

The Great Expertise Leveling: NYSE Edition

Oct 2nd, 2013 | Filed under: Algorithmic and high-frequency trading, Asset pricing, Today's Post

Anshuman Jaswal, senior analyst, Celent, has prepared a report on execution quality in the NYSE market that measures such quality along two axes: pricing and speed. Speed is straightforward, the metric for price as an execution issue is a bit trickier.

Another Look at the Chemicals Industry and Merger Activity

Sep 8th, 2013 | Filed under: Alpha Strategies, Asset pricing, Today's Post

Christopher Faille contemplates a newly listed blank check company looking to acquire a specialty chemicals concern, and he asks an expert what exactly "specialty" chemicals are. "And while I have you on the line...."

The Wind and the Leaves: Causality in Commodity Prices

Jun 5th, 2013 | Filed under: Asset pricing, Commodities, CTA, Derivatives, Hedge Fund Industry Trends, Today's Post

Three scholars find a very real possibility that there is a cause and effect relationship between index flows in the derivatives markets, at least the agricultural index markets, on the one hand and price moves in the underlying commodity on the other.

PrevInvest: Fishing for Yield in a World of Liquidity

May 19th, 2013 | Filed under: Asset pricing, Forex, Today's Post

A new report by PrevInvest, the "Investment Outlook & Hedge Fund Strategies Insight Report," focuses on the consequences of the race to the bottom among the world's industrialized nations and their central banks, and the way this has created a lot of sloshing-around of liquidity looking for profitable channels.

Time Flies and Statistics Lag: Thoughts on Factors

Aug 14th, 2012 | Filed under: Asset pricing, Behavioral finance, Today's Post

Clifford Asness and Andrea Frazzini show that an important detail in the way scholars go about studying factor pricing and behavioral finance is seriously flawed. The detail in question dates to an influential paper by Eugene Fama and Kenneth French, "The Cross-Section of Expected Stock Returns," (1992).