Browsing: volatility

By Masao Matsuda, CAIA, FRM, Founder, Crossgates Investment and Risk Management One would think hedge funds can weather market gyrations better than long-only equity investments as hedge funds have greater flexibility in determining the levels of market exposure.  However, while some individual hedge funds may have been successful in adverse marketRead More

By Mark Caslin, CEO, Alder Capital Uses of volatility forecasting in financial markets Volatility is generally accepted as the best measure of market risk and volatility forecasting is used in many different applications across the industry. These include risk management, VAR, portfolio construction and optimisation, active fund management, risk-parity investing,Read More

By Masao Matsuda, CAIA, FRM, Founder, Crossgates Investment and Risk Management In January 2020, the CAIA New York Chapter organized an event titled “Volatility? Downside Protection? Asset Allocation & Factor Management Tools for the Coming Decade.”[i] In retrospect, the event was uncannily prescient, as just a few months into the newRead More

By Nicolas Rabener of FactorResearch (@FactorResearch) INTRODUCTION Scratching the surface of most people’s knowledge often does not reveal depth, but a lack thereof. When the former US Democratic candidates Tom Steyer and Amy Klobuchar were asked to name Mexico’s president, who is one the key counterparties for any US president,Read More

It is reasonable to expect that a diversified hedge fund portfolio will make more modest returns in 2020 than it did in 2019, according to Agecroft Partners, which has done its usual January crystal-ball gazing on the new year, looking for the top industry trends and how they may playRead More

In a new paper, three quants with Robeco suggest that the “short” side of the activity of many long/short equity trades is pointless. These quants are David Blitz, Guido Baltussen, who is also affiliated with Erasmus University, Rotterdam, and Pim Van Vliet. They have broken down the common equity factorRead More

The Eurekahedge Hedge Fund Index was up 0.31% in October. However, it doesn’t measure up to the market next to the MSCI ACWI (Local), which ended October up 1.93%. Eurekahedge’s latest monthly report observes that US-China trade talks resumed, and this led to a certain tentative optimism. Since those areRead More

Since, as everyone says, “past performance is no guarantee of future results,” a history of close correlation between two assets, or between a single asset and a benchmark, is no guarantee of future correlation. The threat that a correlation upon which a particular investor has relied will cease to applyRead More

By Nicolas Rabener of FactorResearch (@FactorResearch) INTRODUCTION Some investment products and strategies can be considered toxic given their history on Wall Street. Portfolio insurance is rarely used in marketing materials, given its role in the 1987 stock market crash. CDO-Squared instruments and structured investment vehicles (SIVs) are also unlikely toRead More

By Mark Shore As the discussions of trade wars and tariffs persisted throughout 2018 and into 2019, it may have influenced a sense of uncertainty in the global financial and commodity markets as companies might have to rethink their supply chains and manage potential disruptions and at least in theRead More

Three scholars associated with the University of Wollogong, Australia, recently published a paper on the contribution of high-frequency traders to the absorption of new information by the markets, especially in relation to the prices of interest rate derivatives. The study is the work of Alex Frino, Michael Garcia, and IvyRead More

Observers have long noticed that the relationship between return shocks and equity price volatility is asymmetric. That is, positive shocks do not have a marked effect on volatility; negative shocks do. Fischer Black wrote on the subject more than 40 years ago. Recently there has been a good deal ofRead More

The VIX may be about to get some competition. VIX is the “fear gauge,” the very visible measure of expected price fluctuations in the S&P 500 index options. On the foundation of its popularity, CBOE has built a monopoly on exchange-traded volatility products. VIX derivatives have become among the mostRead More

GARCH (Generalized Autoregressive Conditional Heteroskedasticity) models are very useful for estimating the volatility for a lot of more traditional assets (stocks and bonds) and their indices, which is why they’ve been around since the 1980s. But when they’re used for Bitcoin, Ethereum, Ripple, and Litecoin they yield incorrect predictions forRead More

A recent article in the Journal of Risk and Financial Management  takes a fresh look at a familiar issue:  whether the development of exchange-traded funds (ETFs) and related instruments tracking the commodities industry (or, in short, the financialization of commodities) has had an impact on the volatility of the pricesRead More

The President’s Letter at the start of the latest Investment Quarterly from Neuberger Berman, the investment management spin-off from the late Lehman Brothers, looks at US stock market volatility through October, and fits it into the broader business-cycle picture. President (and CIO) Joseph Amato observes that optimists will look atRead More

A new paper, by Adriano Tosi, of the University of Zurich, Switzerland, looks at the mispricing of a cross-section of international option returns, which suggests that there is money to be made (in more decorous language a “positive risk premium” may be “commanded,”) by selling exchange-traded products and buying theRead More

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

By Bill Kelly, CEO, CAIA Association Just about 25 years ago a political strategist named James Carville brought this phrase into the common lexicon when he used the “Economy” as the initial punchline. The resonation of that simple phrase is arguably what got Bill Clinton into the White House. At just about that same time and a short 1,000 miles away from Hope, Ark., Professor RobertRead More

By Alternatives Team at Calamos Investments In 2018, volatility kicked into high gear. So far, there have been 11 days when the S&P 500 has moved at least 1%. Investors may not like the return of volatility, but it can strengthen the tailwinds for the gamma trading we do inRead More

By Bill Kelly, CEO, CAIA Association Warren Buffett cashed out his bet and the final numbers are in courtesy of the Oracle’s annual shareholder letter. Unfortunately, the most important investment lessons have been completely lost, as the media and the investment sage have mostly used this as an opportunity toRead More

By Bill Kelly, CAIA Association CEO Shadow or not, the groundhog brought volatility out of its burrow on February 2nd, and it is safe to say that it will persist for a lot longer than the six weeks of additional winter in the Northeast part of the USA.  Along withRead More

S&P Dow Jones Indices has put out a paper offering market participants without patience for “academic rigor” an accessible guide to the so-called “Fear Index,” the VIX, calculated from the prices of a specific basket of S&P options. The contributors to the paper are: Tim Edwards, S&P Global senior director,Read More

Excerpted from the Alternative Investment Analyst Review, Volume 1, Issue 4 The Alternative Investment Analyst Review is the official publication of the CAIA Association. Access to the most current issue is an exclusive benefit of CAIA Membership while archived issues are available to the public in the Perspectives section atRead More

Eurekahedge’s August report says that the Eurekahedge Hedge Fund Index grew by 0.88% in July 2017, while the underlying markets represented by the MSCI World Index grew by 1.64%. For June, overall, managers reported performance based losses of $8.4 billion, so that the industry growth was due entirely to netRead More

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

By Nick Niziolek, CFA In a recent post titled The Convertible Bond Trifecta, my colleague Scott Henderson outlined several market factors that appear supportive of convertible bonds after the volatility that started 2016. This post addresses a different role for convertibles: their use as a risk management tool within portfoliosRead More

One panelist said that many pension funds have "lost their way and [gone] to asset allocation instead of focusing on their underlying obligations." Read More

Eurekahedge's latest round-up of hedge fund results by strategy and region makes quantitative what you, dear reader, probably knew: August was bad. The report also includes some discussion of HK/Shanghai arbitrage. Read More

The success of low-volatility strategies has been noted in the literature at least since the mid-1970s, with the publication of a seminal work by Haugen and Heins. And such strategies continue to prove successful today. Why do they still work? Why don't the excess profits draw in the bears, consuming all the picnic baskets, driving profit levels down to normal? Read More

Coffee is an extremely volatile market. Uncertainties affect the whole chain of production, from the planter in Colombia to the local Dunkin' Donuts. Further, accusations (or the reality of) accounting chicanery are often added to the mix. Read More

The real problem behind the 2010 flash crash, Hull says, is that again as in 1987 (in a different way of course) traders were working within a market structure that allowed “the illusion of liquidity” to displace the real thing. He cites an authority, because as he says his firm, Ketchum, likes to stay close to the academic literature.Read More

Keith Black, PhD, CFA, CAIA, discusses trading volatility in Part II of this two-part series.Read More

A number of U.S. centered studies before this, such as one by Robert Daigler and Laura Rossi in 2006, had found that adding a long volatility position to an underlying equity portfolio has a significant diversification effect. But the authors of the new EDHEC paper wanted to determine whether the same benefits can be found in European data. Read More

Kathryn Kaminski tackles the tough question of volatility and how it affects managed futures.Read More