Browsing: Behavioral finance

Behavioral finance

Oil Trading and Round Number Effects

Sep 13th, 2018 | Filed under: Behavioral finance, Commodities, Commodities: Examples, Finance & Economics, Financial Economics Theory, Investing in Commodities, Newly Added, oil, The A.I. Industry

The “round number effect” is an endless source of fascination in the worlds of both trading and statistics. Human brains, after all, tend to think in round numbers. A market pundit on television may say, “If the price of stock XYZ gets below $8.00, it’ll be worth buying.” He won’tRead More


The Structure of the Securities Lending Market

Aug 2nd, 2018 | Filed under: Behavioral finance, Finance & Economics, Financial Economics Theory, Macroeconomics, Newly Added, The Global Economy & Currencies

An author affiliated with the National University of Singapore and one with Goethe University Frankfurt, Germany, have co-authored a paper on the structure of the securities lending market: specifically, on the fact that this market is an oligopoly, and on the implications that has for pricing. The general outlines areRead More


A Counterintuitive Result on Bank Size and Too Big to Fail

Jul 22nd, 2018 | Filed under: Behavioral finance, Finance & Economics, Financial Economics Theory, Newly Added

Ten years ago, a series of bank failures rocked the financial and economic worlds. One of the immediate political consequences of those failures was the creation, by the US government, of a Troubled Asset Relief Program (TARP). This almost immediately morphed into a troubled equity relief program, because as TreasuryRead More


AQR Makes the Case for a VRP Strategy

Jun 5th, 2018 | Filed under: Behavioral finance, Finance & Economics, Financial Economics Theory, Newly Added

AQR Capital Management, the Greenwich, CT-based global investment firm, has posted a new discussion of the volatility risk premium and of the advantages of strategies based thereon. In principle the premium would disappear if markets efficiently estimated the probability of significant losses. But it remains, because investors are risk averseRead More


Options-based Strategies and their Pay-offs

Apr 10th, 2018 | Filed under: Behavioral finance, Finance & Economics, Financial Economics Theory, Newly Added, Risk Management & Operations, Risk Metrics and Measurement

Roberto Obregon, of the Meketa Investment Group, has written a paper (available at SSRN) on the use of options-based equity strategies. Obregon is the author of a number of scholarly papers on alternative strategies, including one last fall on global macro, which he co-authored with Willam Dana. In his optionsRead More


How Random is the Walk? Bond Market Empiricism

Jan 2nd, 2018 | Filed under: Behavioral finance, CAPM / Alpha Theory, Finance & Economics, Financial Economics Theory, Newly Added

A new paper, forthcoming in the Journal of Empirical Finance, looks at the corporate bond market, and looks specifically for behavioral biases. Although it finds some, it also finds that they are small, and can’t serve as the foundation for a profitable trading strategy. Though its route is roundabout, theRead More


Lazard Research on Smart Beta

Nov 5th, 2017 | Filed under: Behavioral finance, Due Diligence Process, Finance & Economics, Financial Economics Theory, Newly Added, Other Topics in A.I., Risk Management & Operations, Smart Beta

Jason Williams, senior vice president at Lazard Asset Management, has written a white paper on the “six sins of smart beta.” First: what is smart beta? Academic studies indicate anomalies in the markets that somehow don’t get arbitraged away.  These become identified as “factors” and indexes can be designed soRead More


The Consequences of Auditing the Auditors

Sep 6th, 2017 | Filed under: Behavioral finance, Finance & Economics, Newly Added

Nemit Shroff, an associate professor of accounting at the Massachusetts Institute of Technology, Sloan School of Management, has written a study of the consequences of auditing for the auditees. He has concluded that the Public Company Accounting Oversight Board (PCAOB) “adds significant value to the financial reporting process,” with aRead 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


Cause and Effect: Or, Shooting the Messenger

Aug 27th, 2015 | Filed under: Behavioral finance, Media Coverage of Hedge Funds

Not even Schrodinger blamed the reporters for market irrationality. Saying out loud, "Hey, this cat is dead," doesn't kill the cat. Read More


Crisis? Tempted to Flee to Shelter of Big Funds? Bad Idea

Jul 29th, 2015 | Filed under: Alpha Hunters, Alpha Strategies, Behavioral finance, CAPM / Alpha Theory, Hedge Fund Industry Trends, Hedge Fund Strategies, Institutional Investing

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.Read More


Intraday Momentum Confirmed: Day Traders Credited

Mar 24th, 2015 | Filed under: Behavioral finance, CAPM / Alpha Theory, Derivatives, ETFs

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? Read More


Alpha, Love, and Marriage

Mar 10th, 2015 | Filed under: Alpha Hunters, Behavioral finance, Risk management

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.Read More


Money Markets: The Cure to What Ails the Sukuk Space

Dec 22nd, 2014 | Filed under: Behavioral finance, Emerging markets

Two World Bank economists review the impediments that face the growth of the sukuk market, impediments often inherent in the theological precepts that gave rise to it. Part of the solution: well-functioning money markets as a context for sukuk issuance. Read More


Stop Draghi[ng] My Heart Around

Nov 9th, 2014 | Filed under: Behavioral finance, Currencies

Draghi and Yellen seem to be headed in opposite directions. One is revving up the money-creation engine, the other is 'tapering.' So why is Yellen so publicly supportive of Draghi? And what happened to the rebellion within the ECB? Read More


Hedge vs. Mutual Funds and the ‘Timing of Information Acquisition’

Oct 28th, 2014 | Filed under: Behavioral finance, CAPM / Alpha Theory

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. Read More


Hong Kong Shariah-Compliant Launch Sells

Sep 22nd, 2014 | Filed under: Behavioral finance, Emerging markets

If I should declare that I will never eat duck, and then I simply re-name certain ducks “chickens” and eat them, then people who genuinely as a matter of principle refuse to eat duck may consider me a false friend. And those who have no objection to the eating of duck may think me a silly goose. Read More


Betting on Vice Doesn’t Really Pan Out

Sep 9th, 2014 | Filed under: Alpha Strategies, Behavioral finance, CAPM / Alpha Theory, Social investing

Christopher Faille, inspired by Greg Richey, of California State University, San Bernardino, has a few words about socially irresponsible investing, that is, the creation of a portfolio built around destructive human vices. Read More


Natural-Language Processing: After the Initial Buzz

Jun 10th, 2013 | Filed under: Alpha Seekers, Alpha Strategies, Behavioral finance

You can't expect to harvest much alpha if you simply buy on good sentiment as measured through news or on the web, and sell on negative sentiment. As the authors of this white paper put it in quant-speak, such predictive value as these measures have 'does not translate ... cleanly into return space.'" 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


Efficiency May Be Special Case of Adaptation

Apr 24th, 2012 | Filed under: Alpha Strategies, Behavioral finance, Hedge Fund Strategies

In a new paper, Andrew Lo has educed from his Adaptive Markets Hypothesis five practical conclusions, among them that during times of crisis, the usual positive relationship between risk and return may not hold. There is in general a "time-varying and often negative relationship between the two." Read More