Browsing: Asset pricing

Asset pricing

A Fresh Look at Bubbles: Revising Assumptions

Sep 16th, 2015 | Filed under: CAPM / Alpha Theory, Derivatives

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. Read More

Bitcoin and Kin: The View from Europe

Jul 1st, 2015 | Filed under: Currencies, Derivatives, Digital 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. Read More

Activism: Why the Short-termers Can Be Right

Jun 15th, 2015 | Filed under: Hedge Fund Strategies, Media Coverage of Hedge Funds

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. Read More

A Close Look at the Deutsche Bank Findings

Jun 10th, 2015 | Filed under: Derivatives, Risk management

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.Read More

EDHEC: Geography is Not Just a Listing or Headquarters

Apr 12th, 2015 | Filed under: Alpha Strategies, Asset allocation, Emerging markets, Risk management

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 forRead More

The Supreme Court and Securities Fraud: No Barking Tuesday Night

Mar 31st, 2015 | Filed under: Legislation/Court rulings

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. Read More

A Defeat, but Not a Rout, for Appraisal Arb

Mar 17th, 2015 | Filed under: Alpha Strategies, Hedge Fund Strategies, Legislation/Court rulings

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. Read More

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

Mar 15th, 2015 | Filed under: Alpha Hunters, Alpha Strategies, Institutional Investing, Private Equity, Real Estate

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

Long-Term Infrastructure Debt: The Valuation Issue

Feb 26th, 2015 | Filed under: Alpha Strategies, Infrastructure, Insolvency

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. Read More

Down Memory Lane: That WTI-Brent Divergence

Feb 18th, 2015 | Filed under: Commodities, Infrastructure, oil

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. Read More

Arbitrage 101: When Voting Has Negative Value

Feb 11th, 2015 | Filed under: Hedge Fund Strategies, Performance, Analytics & Metrics

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. Read More

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

Dec 9th, 2014 | Filed under: Fees, Hedge Fund Industry Trends

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.") Read More

Vindicating Austrians: The New ESMA Warning on Risks

Sep 10th, 2014 | Filed under: Risk management, Technology

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. Read More

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

Jul 17th, 2014 | Filed under: Currencies

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. Read More

Does a Firm Insist on Historical Cost Accounting? Short!

Jun 23rd, 2014 | Filed under: Alpha Strategies, Derivatives

"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."Read More

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

Jun 16th, 2014 | Filed under: Infrastructure, Private Equity

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. Read More

Europe’s Valuation Practitioners Say: To Heck With Theory

Jun 3rd, 2014 | Filed under: CAPM / Alpha Theory

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 itRead More

The Wind and the Leaves: Causality in Commodity Prices

Jun 5th, 2013 | Filed under: Commodities, CTA, Derivatives, Hedge Fund Industry Trends

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. Read More

PrevInvest: Fishing for Yield in a World of Liquidity

May 19th, 2013 | Filed under: Forex

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. Read More

Time Flies and Statistics Lag: Thoughts on Factors

Aug 14th, 2012 | Filed under: Behavioral finance

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). Read More