Posts Tagged ‘ volatility ’
The VIX Dog That Didn’t Bark
Feb 7th, 2021 | Filed under: Newly Added, Other Topics in A.I.By Rick Roche, CAIA In the story, “The Adventure of Silver Blaze”, Sherlock Holmes solves a mystery in part by when no one he’d spoken to during an investigation mentioned that they heard a dog bark the night a famous race horse was stolen and the horse trainer was killedRead More
Private Equity and the Leverage Myth
Jan 6th, 2021 | Filed under: Private Equity, Debt Types of Private Equity, Newly Added, Asset allocation, Equity Types of Private Equity, Asset Allocation Models, Private InvestmentsBy William Kinlaw, CFA This article offers commentary and highlights from “Private Equity and the Leverage Myth” by Megan Czasonis, William Kinlaw, Mark Kritzman and David Turkington in The Journal of Alternative Investments. You can read the full paper here. The private equity market is on an astonishing growth trajectory.Read More
Art Investing: Recession and Volatility-Related Case Studies
Nov 2nd, 2020 | Filed under: Private Equity, Newly Added, Venture capital, Other Issues in Private Investments, Frontier markets, Private InvestmentsBy Arthena’s Art Market Research Team The effects of recessions on fine art prices are, without a doubt, the topic most-opined-about in our industry’s relatively small financial news echo chamber. Any hint of a market slowdown tends to flood our inboxes with an unyielding torrent of analysis, evidenced by theRead More
Volatility Hedge Funds: The Good, the Bad, and the Ugly
Sep 3rd, 2020 | Filed under: Hedge Fund Strategies, Equity Hedge Funds, Newly Added, Hedge FundsBy Nicolas Rabener of FactorResearch (@FactorResearch) INTRODUCTION In finance 101, there is usually little doubt on what constitutes the major asset classes in the investment industry, i.e. there are the traditional ones like equities or fixed income as well as alternatives like real estate or private equity. The instruments ofRead More
The calm before the (next) storm?
Aug 27th, 2020 | Filed under: Newly Added, The Global Economy & Currencies, Economics, Macroeconomics, Finance & EconomicsBy Kara O’Halloran, FS Investments The dog days of summer are upon us. While August has historically brought volatility to markets, equities in 2020 appear to have shrugged off their typical late-summer doldrums, posting solid gains to start the month. However, some warning signs are flashing of possible bumps ahead.Read More
Time-varying Equity Volatility Markedly Affects Hedge Fund Performance
May 19th, 2020 | Filed under: Performance, Analytics & Metrics, Hedge Fund Strategies, Newly Added, Risk management, Benchmarking & Performance Attribution, Risk Management Strategies & Processes, Hedge Funds, Structure of the Hedge Funds IndustryBy 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
Volatility Forecasting Across the Financial Markets
May 12th, 2020 | Filed under: Currencies, Newly Added, Risk management, The Global Economy & Currencies, Risk Management Strategies & ProcessesBy 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
Time-varying Volatility Adds a Critical Dimension to Diversification
Apr 21st, 2020 | Filed under: Newly Added, Risk management, The A.I. Industry, Risk Management Strategies & Processes, Allocating to A.I.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
THOU SHALL NOT SHORT THE VIX
Mar 26th, 2020 | Filed under: Newly Added, Alpha Strategies, Hedge Funds, Other Topics in A.I.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
Hedge Fund Investors Respond to the Turning of the Business Cycle
Jan 13th, 2020 | Filed under: Hedge Fund Industry Trends, Private Equity, Hedge Fund Strategies, Investing in Commodities, Equity Hedge Funds, Debt Types of Private Equity, Newly Added, Equity Types of Private Equity, Other Issues in Private Investments, The A.I. Industry, Hedge Funds, Commodities, Private InvestmentsIt 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
A Critique of (Non-forensic) Short Selling
Dec 12th, 2019 | Filed under: Hedge Fund Strategies, Equity Hedge Funds, Financial Economics Theory, Newly Added, Alpha Strategies, The A.I. Industry, Hedge Funds, Finance & EconomicsIn 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
Hedge Fund Flows Fall Flat in October
Nov 24th, 2019 | Filed under: Hedge Fund Industry Trends, Hedge Fund Strategies, Industry Size & Managers, Equity Hedge Funds, Newly Added, Asset Managers, Indexes, Event-Driven Hedge Funds, The A.I. Industry, Macro and Managed Futures Funds, Hedge FundsThe 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
Past performance guarantees no future results
Oct 17th, 2019 | Filed under: Algorithmic and high-frequency trading, Financial Economics Theory, Newly Added, Risk management, Business News, The A.I. Industry, Risk Management Strategies & Processes, Finance & EconomicsSince, 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
Low Vol vs Option-Based Strategies
Oct 6th, 2019 | Filed under: Newly Added, Risk management, Risk Metrics and Measurement, The A.I. Industry, Risk Management Strategies & ProcessesBy 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
Trade Tensions, Tariffs and European Volatility
May 30th, 2019 | Filed under: Derivatives, Newly Added, The Global Economy & Currencies, Business News, Economics, The A.I. Industry, Macroeconomics, Finance & EconomicsBy 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
Interest Rate Derivatives, Announcements and HFT: It’s All About Timing
May 23rd, 2019 | Filed under: Algorithmic and high-frequency trading, Newly Added, Credit Derivatives, The A.I. Industry, Structured Credit Products, Structured ProductsThree 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
Commodities are Beginning to Resemble Equities
Apr 7th, 2019 | Filed under: Commodities, Investing in Commodities, Newly Added, oil, Energy, The A.I. Industry, Gold, CommoditiesObservers 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
A Proposed Model for VIX Derivatives Pricing
Feb 14th, 2019 | Filed under: Derivatives, Newly Added, The A.I. Industry, Commodities, Structured ProductsThe 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
Modeling the Volatility of Crypto Exchange Rates
Jan 31st, 2019 | Filed under: Newly Added, Regulatory Environment, Digital currencies, Risk Metrics and Measurement, The A.I. Industry, Emerging Alternative Investments, Risk Management & Operations, Other Topics in A.I.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
Financialization and the Volatility of Commodity Prices
Dec 20th, 2018 | Filed under: Commodities, Industry Size & Managers, Investing in Commodities, Newly Added, oil, Energy, The A.I. Industry, Risk Management Strategies & Processes, Commodities, Risk Management & OperationsA 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
Volatility & Creative Destruction: Some Pieces of the Larger Puzzle
Nov 4th, 2018 | Filed under: Private Equity, Newly Added, The A.I. Industry, Hedge Funds, Private InvestmentsThe 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
Volatility Arbitrage and Cross-Border Options
Jul 29th, 2018 | Filed under: Hedge Fund Strategies, Investing in Commodities, Newly Added, Alpha Strategies, Risk management, Macro and Managed Futures Funds, Risk Management Strategies & Processes, Hedge Funds, Commodities, Risk Management & OperationsA 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 Makes the Case for a VRP Strategy
Jun 5th, 2018 | Filed under: Financial Economics Theory, Newly Added, Behavioral finance, Finance & EconomicsAQR 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
It’s the Volatility (of Volatility), Stupid!
Jun 4th, 2018 | Filed under: Newly Added, What about beta?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
Whether Vol is High or Low, Gamma Trading Can Exploit Opportunity
Mar 5th, 2018 | Filed under: Hedge Fund Strategies, Newly Added, Hedge FundsBy 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
A Rhetorical Oracle?
Feb 26th, 2018 | Filed under: Hedge Fund Industry Trends, Newly Added, What about beta?, Risk Metrics and Measurement, Fees, Structure of the Hedge Funds IndustryBy 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
A Cautionary Tale
Feb 20th, 2018 | Filed under: Newly Added, What about beta?, Other Topics in A.I.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 on Reading VIX
Feb 6th, 2018 | Filed under: Financial Economics Theory, Newly Added, Finance & EconomicsS&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
Below the Black: A Review of Risk Reduction Strategies
Sep 13th, 2017 | Filed under: Commodities, Hedge Fund Strategies, Investing in Commodities, Newly Added, Risk management, Risk Metrics and Measurement, Macro and Managed Futures Funds, Risk Management Strategies & Processes, Hedge Funds, Commodities, Risk Management & OperationsExcerpted 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 Reports: Total Industry Assets Stand at $2.33 Trillion
Aug 29th, 2017 | Filed under: Industry Size & Managers, Newly Added, The A.I. Industry, Structure of the Hedge Funds Industry, SRI and Clean Energy, Other Topics in A.I.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
The Low Volatility Anomaly: Gunpowder Inc.
Feb 26th, 2017 | Filed under: CAPM / Alpha Theory, Financial Economics Theory, Newly Added, Hedge Funds, Structure of the Hedge Funds Industry, Finance & EconomicsIn 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
Convertibles as a Risk Management Tool in Emerging Markets Portfolios
May 2nd, 2016 | Filed under: Hedge Fund Strategies, Newly Added, Hedge FundsBy 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
Advice for Pension Funds Who May Have Lost Their Way
Nov 10th, 2015 | Filed under: Newly Added, Institutional Investing, Institutional Asset Management, Allocating to A.I.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
Blame China; Blame the US Fed, whatever … August Hedge Fund Numbers Stunk
Sep 21st, 2015 | Filed under: The Global Economy & Currencies, Structure of the Hedge Funds IndustryEurekahedge'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
Axioma on those Low-Vol Picnic Baskets
Jul 25th, 2013 | Filed under: CAPM / Alpha Theory, Alpha Strategies, IndexesThe 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
Waking Up to Volatility in Your Cup
Oct 23rd, 2012 | Filed under: CommoditiesCoffee 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
Hull Warns of HFT Cancellations & the Illusion of Liquidity
Oct 17th, 2012 | Filed under: Algorithmic and high-frequency tradingThe 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
Understanding VIX Part 2: Understanding VIX Futures and Exchange Traded Products
Aug 19th, 2012 | Filed under: Alpha Strategies, CAIA Alternative ViewpointsKeith Black, PhD, CFA, CAIA, discusses trading volatility in Part II of this two-part series.Read More
Vol Derivatives: Robust Benefits for European Equities Portfolios
Jul 2nd, 2012 | Filed under: DerivativesA 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
Was Managed Futures Tackled by Turbulence? When is Volatility a Friend or Foe?
May 3rd, 2012 | Filed under: Commodities, Alpha StrategiesKathryn Kaminski tackles the tough question of volatility and how it affects managed futures.Read More