Browsing: Finance & Economics

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Finance & Economics

The Low Volatility Anomaly: Gunpowder Inc.

Feb 26th, 2017 | Filed under: CAPM / Alpha Theory, Finance & Economics, Financial Economics Theory, Hedge Funds, Newly Added, Structure of the Hedge Funds Industry

In a new paper David Blitz, the head of quantitative strategies for Robeco Asset Management, crunches numbers and reaches a surprising conclusion, precisely contrary to an intuitively appealing theory about the low volatility anomaly.  But … let’s begin from the beginning. Standard financial economic theory holds that investors are compensatedRead More


Why Do Alpha Seekers Find It In the Small Caps?

Feb 21st, 2017 | Filed under: Allocating to A.I., Alpha & Beta, Finance & Economics, Financial Economics Theory, Newly Added

The median performance of active fund managers with a small-cap mandate is uniformly better than the performance of their colleagues with a large cap mandate against their respective benchmarks. Fewer than 40% of large-cap managers outperform U.S. large-cap equity. More than 60% of their small-cap counterparts do so. The patternRead More


Earnings Releases & Social Media: Listening to the Crowd

Feb 16th, 2017 | Filed under: CAPM / Alpha Theory, Finance & Economics, Financial Economics Theory, Newly Added

Earnings releases, and the “seasons” made up out of them, have become almost a comforting ritual in the investment world. The days leading up to a company’s release often incites a good deal of more or less well-informed guesswork. That guesswork may become significantly more informed through crowdsourcing. That isRead More


Moszoro and Bykhovsky on Political Cognitive Biases

Feb 12th, 2017 | Filed under: Business News, Finance & Economics, Newly Added

In the politically charged atmosphere of our day, especially in the United States since the most recent presidential inauguration, it would be unwise to presume that hedge fund managers are exempt from political cognitive biases, or that these biases leave their portfolio decisions unaffected. Marian Moszoro and Michael Bykhovsky co-wroteRead More


Big Data is Old Hat: Machine Learning is Hot

Jan 26th, 2017 | Filed under: Algorithmic and high-frequency trading, Allocating to A.I., Benchmarking & Performance Attribution, Business News, Finance & Economics, Newly Added

A year ago, in a report on Big Data and investment management, Citi Business Advisory Services predicted that “with the improved volume, velocity and variety of data inherent in the big data approach, the innovation seen in systematic trading models over the past decade could accelerate.” One of the platformsRead More


On the Bitcoin Blockchain: Looking Under the Hood

Jan 19th, 2017 | Filed under: Algorithmic and high-frequency trading, Business News, Currencies, Digital currencies, Emerging Alternative Investments, Finance & Economics, Newly Added, The Global Economy & Currencies

More than a year ago, the Capco Institute Journal of Financial Transformation (Journal) ran a “critical assessment,” by Robert Sams, of bitcoin blockchains as a means of distributed clearing. With both bitcoins and blockchains newly in the news, Sams’ informed assessment is worth another look. Two years ago, Nasdaq announcedRead More


Active Share: Empirical and Conceptual Issues

Jan 17th, 2017 | Filed under: CAPM / Alpha Theory, Finance & Economics, Financial Economics Theory, Newly Added

In 2009, Martijn Cremers, of the University of Notre Dame, and Antti Petajisto of New York University, introduced a new portfolio measurement they called Active Share, measuring in percentage terms the deviation of a portfolio from its benchmark (deviation in holdings, not in performance). Thus, a portfolio with 100% activeRead More


Funds of Funds and the Task of Financial Intermediation

Jan 12th, 2017 | Filed under: CAPM / Alpha Theory, Finance & Economics, Financial Economics Theory, Newly Added, Private Investments, Venture capital

Are funds of funds a valuable form of intermediation? Robert Harris, of the University of Virginia, Darden School of Business, and three other distinguished scholars looked at this question in a Darden Business School Working Paper, and they decided that, at least with regard specifically to the role of FOFsRead More


The Federal Reserve on Distributed Ledger Technology (that is, on Blockchains)

Jan 5th, 2017 | Filed under: Finance & Economics, Newly Added, Operations, Risk Management & Operations, The Global Economy & Currencies

A large team of officers and staff affiliated with the Federal Reserve (eight with the Board in DC, five with the FR Bank of New York, one with the FRB of Chicago) have collaborated on a new paper on distributed ledger technology in payments, clearing, and settlement. Of necessity, givenRead More


Natixis asks 500 institutional investors to look into the future

Dec 20th, 2016 | Filed under: Allocating to A.I., Emerging markets, Finance & Economics, High-net-worth investors, Institutional Asset Management, Newly Added, The Global Economy & Currencies

Natixis Global Asset Management has released the results of a survey of 500 institutional investors, asking them their views on prospects for 2017. The surveyed institutions expect that political and economic developments could cause an increase in volatility in the year to come, and active managers have to reset theirRead More


Private Equity Placements in China

Dec 8th, 2016 | Filed under: Allocating to A.I., Benchmarking & Performance Attribution, Currencies, Emerging markets, Newly Added, Private Equity, Private Investments, The Global Economy & Currencies

A new paper by G. Nathan Dong and two other scholars investigates private equity placements in China and their consequences for the issuing firms. The study works from a natural experiment that resulted from regulations created by the PRC ten years ago. In 2006, the China Securities Regulatory Commission issuedRead More


Rudin and Marr: A Reformulation of RP Methods of Portfolio Construction

Nov 24th, 2016 | Filed under: CAPM / Alpha Theory, Finance & Economics, Newly Added

A recent article by Alexander Rudin and William M. Marr, in The Journal of Alternative Investments, seeks to change the terms of discussion of the risk parity method of portfolio construction in a way that might remove some of the counter-intuitive consequences that can dog the approach. The paper, “InvestorRead More


Aftermath of 2008: Reactions to Decreased Liquidity

Nov 20th, 2016 | Filed under: Finance & Economics, Liquid Alternative Investiments, Liquid Alts, Macroeconomics, Newly Added, Other Topics in A.I., Regulatory Environment, The A.I. Industry, The Global Economy & Currencies

A new report from State Street Corporation and the Alternative Investment Management Association says that nearly half of the market participants surveyed believe that decreased market liquidity is a secular change, not a cyclical one: that is, that it is a climate that is here to stay, not a rainRead More


Dealmakers: Trump, Hillary, and Mergers

Nov 3rd, 2016 | Filed under: Business News, Event-Driven Hedge Funds, Hedge Funds, Newly Added

Intralinks, a firm created 20 years ago to enable “high-stakes transactions and business collaborations,” has surveyed global dealmakers on the upcoming U.S. presidential election and on how it may affect the economic and regulatory environment for mergers and acquisitions. The gist of it is: in a database of 1,600 M&ARead More


Massad: Where the U.S. and the World Stand on Margins & Cap Requirements

Oct 27th, 2016 | Filed under: Commodities, Finance & Economics, Forex, Investing in Commodities, Newly Added, The Global Economy & Currencies

The chair of the Commodity Futures Trading Commission, Timothy Massad, addressed the Outlook Conference of the Managed Funds Association on October 21, and spoke about the global implementation of uncleared margin rules, which he called a critical component of “the new regulatory framework for swaps trading that the leaders ofRead More


Academics:  No, Navinder Sarao Did Not Cause the Flash Crash 

Oct 25th, 2016 | Filed under: Algorithmic and high-frequency trading, Business News, Finance & Economics, Hedge Fund Operations and Risk Management, Newly Added, Operations, Personalities in AI, Risk management, Risk Management & Operations, Technology

Mid-October news reports tell us that Navinder Sarao has lost his effort to avoid extradition from Britain to the United States. So he will face charges in the U.S. in connection with the “flash crash” of May 2010, the incident in which the DJIA fell 998.5 points in less thanRead More


Fraudulent Transfer: No ‘Safety’ for Lyondell Shareholders   

Oct 20th, 2016 | Filed under: Business News, Equity Hedge Funds, Finance & Economics, Hedge Funds, Insolvency, Newly Added

In two decisions this year, in July and against in a re-affirmance in October, the U.S. District Court for the Southern District of New York has reinstated a claim brought by Trustee of the creditors of the bankrupt  chemical company Lyondell, looking to recover distributions made to the company’s shareholdersRead More


It’s On: Bondholder Groups Square Off over Puerto Rico Financing

Oct 16th, 2016 | Filed under: Business News, Event-Driven Hedge Funds, Hedge Funds, Insolvency, Newly Added

On Oct. 7, a group of hedge funds that hold the general obligation bonds of Puerto Rico amended an existing complaint (initially filed in July) in a significant respect: by adding a new defendant. The new defendant is the issuer of the “COFINA” bonds, the Puerto Rico Sales Tax FinancingRead More


Venezuela: Thinking of Cromwell and Crude

Oct 13th, 2016 | Filed under: Commodities, Commodities: Examples, Emerging markets, Finance & Economics, Newly Added, oil, The Global Economy & Currencies

Hedge funds, among them some of those the unsympathetic call “vultures,” bought into the bonds of the Petróleo de Venezuela SA (PDVSA) early this year. PDVSA is Venezuela’s state-owned oil company, the consequence of nationalization forty years ago. Its fate turns on (a) the vagaries of post-Chavez politics in thatRead More


Fine Art as Joy and Investment: A Reflection

Oct 12th, 2016 | Filed under: Business News, Newly Added, Real Assets

Why do people own great paintings? As something pleasing to hang on the wall? As a way to impress the neighbors? Presumably many buyers of privately circulating 17th century Dutch masterpieces are speculators, alpha seekers. But aren’t they speculating, in the end, upon what some end user will pay? WhatRead More


Tick Pilot Program: A Progress Report

Oct 4th, 2016 | Filed under: Algorithmic and high-frequency trading, Business News, Finance & Economics, Newly Added, Regulatory Environment, The A.I. Industry

The long-awaited nickel-tick pilot program, an effort to test an alternative to the penny-or-less tick sizes that now prevail, , officially gets underway on October 3, and is scheduled to continue for two years. Securities have been selected and the phase-in schedule is set. The pilot is of significance, becauseRead More


Papaconstantinou on ‘Selling the Family Silver’  

Oct 2nd, 2016 | Filed under: Business News, Currencies, Insolvency, Newly Added, The Global Economy & Currencies

A former finance minister of the Republic of Greece has published a book, Game Over, on what it is like to be in the midst of a continent-wide political and financial crisis. This is a volume that might be read with attention by those who seek alpha from distressed sovereignRead More


On Aluminum and Other Metals: A Thought on Physicality 

Sep 13th, 2016 | Filed under: Business News, Commodities, Commodities: Examples, Finance & Economics, Hard metals, Investing in Commodities, Newly Added

Hong Kong Exchanges and Clearing (HKEx), the company that bought the London Metal Exchange four years ago, has further expansion plans. At a recent event on the commodity markets of East Asia, Charles Li, the CEO of HKEx, spoke on this point. Li wants to create a physical metals tradingRead More


ESMA’s Greybeards Ponder Blockchains

Sep 11th, 2016 | Filed under: Algorithmic and high-frequency trading, Business News, Currencies, Digital currencies, Emerging Alternative Investments, Finance & Economics, Newly Added, Other Topics in A.I., The Global Economy & Currencies

There has been a flurry in recent days of activity about blockchains among the graybeards of the financial world, those who ponder the Really Big Picture and who have the ear of important regulators. Let us start from the beginning. What is a blockchain? It is a chronological, virtual, andRead More


UC Berkeley: Stale Prices Not a Threat to Liquidity Takers

Sep 7th, 2016 | Filed under: Algorithmic and high-frequency trading, Alpha Strategies, Business News, Equity Hedge Funds, Finance & Economics, Hedge Funds, Newly Added

Two scholars associated with the University of California, Berkeley, have argued in a recent paper that there is less to latency arbitrage, or at least to a certain paradigmatic sort of latency arb, than meets the eye. Robert P. Bartlett III and Justin McCrary used data from the Securities InformationRead More


Sovereign Debt: A Cryonic Solution to the Holdout Problem

Sep 1st, 2016 | Filed under: Business News, Finance & Economics, Industry Size & Managers, Insolvency

Where does the world stand on the restructuring problem after NML v Argentina?  One professor and one practicing attorney recently coauthored a fascinating proposal that might answer that question, part of which they call the “cryonic solution,” after the hoped-for science of freezing people to await the development of aRead More


The Next Crisis: BIS Warns of ‘Financial Vulnerabilities’ in EME/NFCs

Aug 25th, 2016 | Filed under: Currencies, Emerging markets, Finance & Economics, Macroeconomics, Newly Added, The Global Economy & Currencies

In a recent paper submitted to the G20’s working group on international financial architecture, scholars with the Bank for International Settlements have warned that an accumulation of debt in the years since the global financial crisis has left the emerging market economics (EMEs) vulnerable to capital outflows. The authors ofRead More


Risk-Adjusted Time Series Momentum Strategies

Aug 21st, 2016 | Filed under: Finance & Economics, Financial Economics Theory, Hedge Funds, Macro and Managed Futures Funds, Newly Added

The name is awkwardly long, and the standard abbreviation, “RAMOM,” sounds like what one says when cheering on one’s mother as she nears a finish line. Still, risk adjusted time series momentum strategies have something to be said for them, in comparison to cross-sectional momentum (MOM without preface), or evenRead More


New Support for a 40-Year-Old Theory about IPOs

Aug 18th, 2016 | Filed under: Finance & Economics, Financial Economics Theory, Newly Added

It is always aesthetically pleasing to see something elegant brought down from an attic, dusted off, and found to be of continuing value as part of the home’s furniture. Back in 1977, Edward Miller offered a hypothesis about the price move patterns distinctive to newly listed stocks.  In “Risk, Uncertainty,Read More


NB: China Positions the Yuan for Global Reserve Currency Status

Aug 9th, 2016 | Filed under: Currencies, Forex, Newly Added, The Global Economy & Currencies

Neuberger Berman, the asset management business spun off from Lehman in late 2008, has produced a new report on foreign access to China’s bond market. China has until now kept its bond market tightly fenced off from the rest of the world, which offers a marked contrast with the behaviorRead More


Stocks after Shocks: Equity Returns in the Face of Monetary Policy

Jul 31st, 2016 | Filed under: Economics, Finance & Economics, Financial Economics Theory, Newly Added, The Global Economy & Currencies

A new paper by two economists affiliated with the Federal Reserve System presents a new measure of the monetary policy exposure of individual stocks. The simplest approach to this task would be to regress individual stock returns around major central bank moves (“shocks”). But that turns out not to beRead More


Eurekahedge: Performance Down, Inflows Up in 1st Half 2016

Jul 28th, 2016 | Filed under: Equity Hedge Funds, Event-Driven Hedge Funds, Finance & Economics, Hedge Funds, Macro and Managed Futures Funds, Newly Added, The Global Economy & Currencies

The latest report from Eurekahedge indicates that hedge funds’ assets under management are up by $19.9 billion in the first half of 2016 worldwide. Eurekahedge, which tracks the health of the hedge fund industry month by month, also says that total industry performance-based results were down, $5.2 billion, so moreRead More


Volatility Spillover Effects: India, Korea, China

Jul 21st, 2016 | Filed under: Commodities, Currencies, Finance & Economics, Investing in Commodities, Newly Added, The Global Economy & Currencies

Last year, two scholars writing in the Journal of Alternative Investments looked at the volatility spillover effects in the Chinese stock index futures and spot markets.  The question for them was whether there is spillover from spot markets into futures markets and back. I propose to give you their answer,Read More


Infrastructure: Look at the Contracts–Not the Industry or the Index

Jul 10th, 2016 | Filed under: CAPM / Alpha Theory, Finance & Economics, Financial Economics Theory, Infrastructure, Newly Added, Operationally Intensive Real Assets, Real Assets

A new paper from EDHEC Infrastructure Institute decides that there is no such thing as a listed infrastructure asset class. What is the practical significance of that inference?  It means that for investors (individual or institutional) looking to diversify their portfolio properly, a dedicated index focused on a listed infrastructureRead More


Lyxor Quants Ask: What Exactly is a ‘Risk Factor’ Anyway?

Jul 6th, 2016 | Filed under: Allocating to A.I., Alpha & Beta, Finance & Economics, Financial Economics Theory, Newly Added, The A.I. Industry

Given the growing body of scholarly work over “risk factor” investing, especially the growing number of risks cited as factors, one has to wonder: what exactly is a “factor”?  In terms that admirers of Rodgers and Hammerstein will remember: is a feature of an investment a risk factor because it’sRead More


Brexit and Hedge Fund Strategies

Jun 30th, 2016 | Filed under: Currencies, Equity Hedge Funds, Finance & Economics, Hedge Funds, Newly Added, Relative Value Hedge Funds, The Global Economy & Currencies

How well did hedge funds help their investors to hedge potential losses as a consequence of the markets’ immediate reaction to the Brexit vote in the United Kingdom? How well will they hedge the other uncertainties going forward? Thursday, June 23, the UK voted to leave the European Union. TheRead More


Lewis’ Heroes Get an Exchange for Their Speed Bump

Jun 26th, 2016 | Filed under: Algorithmic and high-frequency trading, Business News, Equity Hedge Funds, Hedge Fund Strategies, Hedge Funds, Newly Added

On Friday, June 17, the Securities and Exchange Commission approved the promotion of IEX from an ATS to a proper exchange. Thereby it gave a new ending of sorts to Michael Lewis’ book, Flash Boys. One of the big issues for both proponents and opponents of IEX’ application to becomeRead More


Puerto Rico: The New Argentina?

Jun 21st, 2016 | Filed under: Business News, Event-Driven Hedge Funds, Finance & Economics, Hedge Funds, Newly Added

Puerto Rico and various instrumentalities thereof may default on debt within days. If they do so, this will happen without the benefit of an applicable bankruptcy system or other legislated means of restructuring, without a referee if you will, unless Congress acts decisively within a matter of days, something thatRead More


Giving the Baron King of Lothbury his Due

Jun 7th, 2016 | Filed under: Business News, Finance & Economics, Insolvency, Newly Added, The Global Economy & Currencies

The Bank of England is not only the central bank of the United Kingdom, in continuous operation since 1694; it is the model upon which central banking worldwide has been created. The Mother Central Bank is what it is. Mervyn King, the chief economist of the Bank of England throughRead More


Consequences of the Paris Climate Agreement

Jun 1st, 2016 | Filed under: Business News, Equity Hedge Funds, Finance & Economics, Hedge Funds, Insolvency, Newly Added

In early December 2015, representatives of 196 parties met in Paris, France, to discuss climate change, and the necessary reduction of greenhouse gas emissions on a global basis.  The result, the “Paris Climate Agreement,” seeks to limit warming to just 2 degrees Celsius (3.6 Fahrenheit) above pre-industrial levels, through aRead More


Puerto Rico and Bankruptcy

May 30th, 2016 | Filed under: Business News, Event-Driven Hedge Funds, Finance & Economics, Hedge Funds, Insolvency, Newly Added

The bankruptcies of public bond-issuing entities, such as Orange County, Calif.; Jefferson County, Ala.; and the City of Detroit, Mich. are still rare events, but they exert a lot of influence, in part because they demonstrate the possibility of that which isn’t supposed to be possible. The sort of entityRead More


A Review of the Commodity Index/Global Hunger Controversy

May 24th, 2016 | Filed under: CAPM / Alpha Theory, Commodities, Finance & Economics, Financial Economics Theory, Investing in Commodities, Newly Added

The consensus in market scholarship seems to be not only that “still waters run deep” but that deep waters run still. The greater the depth of volume in a commodity, the lesser the volatility of that commodity’s price. (This of course requires the usual “other things being equal” caveat.) ThisRead More


Global Focus Capital: Market’s Inflationary Expectations Are Too Low

May 12th, 2016 | Filed under: Allocating to A.I., Benchmarking & Performance Attribution, Commodities, Currencies, Finance & Economics, Macroeconomics, Newly Added, The Global Economy & Currencies

Investors can get ahead of events by aligning their portfolios to “a world of lower expected capital market returns and higher forward volatility.” That, at any rate, is the upshot of a thoughtful analysis by Eric J. Wiegel of Global Focus Capital, a Boston based asset allocation advisor. Why doesRead More


Trust Isn’t Just a Nice Warm Feeling

May 10th, 2016 | Filed under: Behavioral finance, Finance & Economics, Financial Economics Theory, Newly Added

Ross Levine, professor of finance at the University of California, Berkeley, and two scholars from Hong Kong (Professors Chen Lin and Wensi Xie) have published a study of corporate resilience in the face of a banking crisis. Their paper addresses a problem inherent in the relationship between Wall Street andRead More


Escape to the Internet? Or Build Better Communities?

May 8th, 2016 | Filed under: Currencies, Digital currencies, Newly Added, Operations, Other Topics in A.I., Risk Management & Operations, Technology, The Global Economy & Currencies

Dissatisfaction with the fiat money issued by or on signals from central bankers will not go away. Talk of “printing press” money seems quaint, as when people of my generation still refer to a keyboard as a “typewriter.” Central banks and their servants (and their servers) around the world engage,Read More


Thoughts on the Valuation of Secured Assets of a Bankrupt Debtor

Apr 26th, 2016 | Filed under: Business News, Event-Driven Hedge Funds, Finance & Economics, Hedge Funds, Insolvency, Newly Added

How should one value the assets of a bankrupt entity, especially those that secure its debt instruments? That is obviously a key question in the world of distressed-debt investing.  A 2014 report from a commission of the American Bankruptcy Institute, and the continued controversy over that commission’s proposals, offers usRead More


The Value of a Proxy Access Mandate: Part Two

Apr 19th, 2016 | Filed under: CAPM / Alpha Theory, Finance & Economics, Financial Economics Theory, Hedge Fund Industry Trends, Hedge Funds, Newly Added, Structure of the Hedge Funds Industry

This is the conclusion of a two-part series on the issue of the value of a proxy access mandate. In the first part we looked specifically at a study the CFA Institute made public two years ago, one that has of late received renewed attention. It relied upon four scholarlyRead More


The Value of a Proxy Access Mandate: Part One

Apr 17th, 2016 | Filed under: CAPM / Alpha Theory, Finance & Economics, Hedge Fund Industry Trends, Hedge Funds, Newly Added, Structure of the Hedge Funds Industry

This begins a two-part discussion of the issue of the value of a proxy access mandate. The question is an important one. It is prima facie wrong to create any new rule (whether it’s a corporate bylaw, a regulatory edict, an act of a legislature or anything else) unless thereRead More


Greek Debt: Back in the Headlines

Apr 4th, 2016 | Filed under: Business News, Finance & Economics, Insolvency, Newly Added, The Global Economy & Currencies

The issue of Greece’s insolvency had receded a bit from the headlines since the stormy days of last summer. Alpha-savvy readers will surely recall, though, that in July 2015, the Greek government and its European creditors reached a bailout agreement that required actions by the former, especially on pensions andRead More


The Puerto Rican Debt Crisis: Some Highlights Thus Far

Mar 31st, 2016 | Filed under: Business News, Event-Driven Hedge Funds, Finance & Economics, Hedge Funds, Insolvency, Newly Added

It has happened before. An insolvent public entity, whether a sovereign nation, state, county, or other, can’t pay its bills and blames the crisis on the ‘vulture’ hedge funds taking its instruments from their first buyers for pennies on the dollar. The leaders of the insolvent entity thereby deflect blameRead More