Browsing: Academic Research

Academic Research

Academic Research

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

Supreme Court Decisions: Post-Announcement Hours & Days

Sep 10th, 2015 | Filed under: CAPM / Alpha Theory, Hedge Fund Strategies, Alpha Hunters, Alpha Strategies, Legislation/Court rulings, Alpha Seekers

Presumably the U.S. Supreme Court's decision, in December 2008, that states can in fact make and enforce tougher labeling standards for cigarettes than does the federal government was a negative for tobacco stocks. But did that mean that stock prices had already anticipated the decision before it happened? or that they immediately adjusted downward on the morning the decision was announced? Or ... neither of those? Read More

Cause and Effect: Or, Shooting the Messenger

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

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: CAPM / Alpha Theory, Hedge Fund Industry Trends, Hedge Fund Strategies, Institutional Investing, Alpha Hunters, Alpha Strategies, Behavioral finance

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

‘Women of the Street’—Not Just Another War Story

Jul 22nd, 2015 | Filed under: Retail Investing, Institutional Investing, Alpha Hunters, Alpha Strategies, Alpha Seekers

Meredith Jones' book on investing in women takes it to the Street and comes back with some solid conclusions.Read More

The Old Puzzle of SRI: India and France

Jul 12th, 2015 | Filed under: Social investing, Alpha Strategies, Socially responsible investing, Alpha Seekers

The conclusion of two Indian scholars in a new study supports the view that socially responsible investing is good for investors in India. But Faille worries that the battle-of-the-studies has thus far been indecisive, and that aerodynamics suggests this insect shouldn't be able to fly. Read More

European Investor Satisfaction with Smart Beta ETFs

Jun 28th, 2015 | Filed under: CAPM / Alpha Theory, Alpha Strategies, Risk management, Liquid Alts, ETFs, Smart Beta

Two authors at EDHEC remind us that 15% of the assets in any ETF or ETF-like products for European investors were in smart-beta indexed products as of August 2014, and that this amount is growing. They discuss the extent to which investors are pleased with their results. 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

Corporate Governance: Sunday in the Park With George

May 19th, 2015 | Filed under: Regulatory, Emerging markets

The controversy over corporate governance, and whether the changes favored by reformers show up as superior corporate performance (as measured, for example, by Tobin's q) strikes Faille as dangerously abstract. The only way to get to the pointillist painting is by starting with particular data points. Read More

Study: Corporate/Government Cronyism Does Create Alpha

May 3rd, 2015 | Filed under: CAPM / Alpha Theory, Indexes

A new report finds that firms where current public officials are destined to become employees outperform other private firms by 7.43% per year during the three years before the officials/employees pass from one post to the other. The outperformance is highest in the year immediately before the switch, Justas a cynic looking for corrupt quid pro quos would suspect. Read More

EDHEC: Geography is Not Just a Listing or Headquarters

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

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

John H. Makin, Hedge Fund Economist/Principal, Defender of U.S. Fed

Apr 8th, 2015 | Filed under: Currencies, Alpha Hunters, Forex

The impression one gets from some of the recent work of Dr. Makin is of a man who decided, late in life, that currency is a state invention, and that the states deputize their central banks to make sure the rest of us use it properly. Read More

EDHEC: Smart Beta Indexes May Be On a Launch Pad

Apr 6th, 2015 | Filed under: CAPM / Alpha Theory, Risk management, ETFs

There have been "a considerable number of product launches in the area of smart beta ETFs," but investors are eager for more, perhaps in the hope the developers will get beyond the "few popular strategies" in that area on which they have so far focused. With more variety may come a real take-off. Read More

Intraday Momentum Confirmed: Day Traders Credited

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

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

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

Who Is Yanis Varoufakis? And Does it Matter?

Jan 27th, 2015 | Filed under: Currencies

Varoufakis believes in the single Eurozone currency. It is unlikely that the government that just appointed him Finance Minister plans to pull out of that zone and bring back the drachma. Read More

Prize to Sannikov: Scholar of Friction and Moral Hazard

Jan 26th, 2015 | Filed under: Alpha Hunters, Alpha Strategies

In a fascinating review article, Sannikov and his co-authors distinguished among the sorts of liquidity, and thus identified the precise sort of liquidity mismatch likely to lead to market shocks. In a working paper last year, Sannikov took on the issue of executive pay, incentives, and claw-backs. Read More

Explaining Why the Portfolio-Barbell Works

Jan 20th, 2015 | Filed under: Liability Driven Investing, Risk management, Emerging markets

Most efforts to introduce "entropy" into finance have seen it as a quantity to be minimized. A new paper, which begins as an effort to explain barbell portfolios, uses entropy in a different manner. Unfortunately, it doesn't really end up clarifying those barbells. Read More

If You’re So Smart, Why Aren’t You Rich?

Jan 14th, 2015 | Filed under: CAPM / Alpha Theory, Algorithmic and high-frequency trading

A new paper by a senior market economist at BNP Paribas celebrates the invention of Learning Vector Quantization (LVQ), a machine-learning algorithm that could enable some smart economists to get very rich indeed. Read More

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

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

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

Liquidity Makers and Takers: A Nobel Prize

Oct 19th, 2014 | Filed under: Retail Investing

The latest Economics Award has drawn the attention of the world briefly to a body of work that has a number of points of interest for the alt-investment community. Read More

Burr XII, Extreme Value, and a Fantasy

Sep 15th, 2014 | Filed under: Risk management, Asset allocation

The eight authors of a new study seek to add to “the existing literature of Bayesian VaR methods by … considering the … general class of Burr XII extreme value distributions “ and by estimating error bounds. After having a little fun we try to puzzle out what that means. Read More

Winner Takes All, and Liquidity Takers Win

Jul 22nd, 2014 | Filed under: CAPM / Alpha Theory, Algorithmic and high-frequency trading, Derivatives

It does appear that speed is helpful in generating alpha. How is it helpful? Here there are two views, and the less HFT-friendly of these views has received some scholarly/empirical support. Read More

Traders Sometimes Want Macro-News to Be Free

Jul 9th, 2014 | Filed under: Indexes, ETFs

There exists “robust evidence of informed trading during lockup periods ahead of the Federal Open Market Committee … monetary policy announcements” say three authors. Some agencies can embargo news effectively. The FOMC doesn't seem to be among them. Read More

Private Lawsuits Over Order Types Used to Facilitate HFT

Jun 2nd, 2014 | Filed under: Algorithmic and high-frequency trading, Legislation/Court rulings

HFTs and trading venues alike have worked hard to fit their practices into the Reg NMS framework. As a consequence, violations of NMS “are unlikely” Dolgopolov writes, “to provide a basis for civil liability of HFTs who use such orders because of their compliance – however formalistic – with this regulatory norm.”Read More

Index Provider Transparency: End Users Unimpressed

May 19th, 2014 | Filed under: Indexes

Europe's index providers, by their own account, already have strong incentives to offer optimal transparency and, in their self-interest, they do so. A survey and report from EDHEC examines this claim. Read More

Stop Loss (and Gain) Rules as Alpha Generators

Jul 15th, 2013 | Filed under: CAPM / Alpha Theory

A strategy based largely on stop-loss and stop-gain rules, one that uses such rules as the sole means of shifting assets from one asset class to another, can earn statistically significant CAPM alpha, according to a provocative study from the University of Arizona. Read More

More on the Post-Keynesian Smackdown: Subway Tokens Edition

Jun 19th, 2013 | Filed under: Currencies

Mosler is perfectly willing to have governments create money for their own spending. He does not see that as necessarily inflationary, apparently because the same governments can always tamp down on inflation through the tax system. Read More

Post-Keynesian Smackdown at Columbia

Jun 11th, 2013 | Filed under: Currencies

The dispute framed by a June 3d debate at Columbia Law School will define the future (and no very-distant future either) of economic policy in the western world and of the fate of all the currencies involved. The question will be: after Keynes, what? We owe thanks to everybody involved in arranging for the Murphy/Mosler debate. Read More

Lending Securities: Which Mutual Funds Do It Best

Mar 6th, 2013 | Filed under: Retail Investing

A newly released paper concludes that the returns many mutual funds make from lending their portfolio securities increase as the directors on their boards become more independent. Separately, it is a good sign if the directors have, as the saying goes, 'skin in the game.'Read More

If the CFO Says He Feels ‘Fantastic,’ Sell Short

May 24th, 2012 | Filed under:

Investors want to know whether the executives are speaking deceptively well before the restatement is filed. In order to help with that goal, Larcker and Zakolyukina in the paper, “Detecting Deceptive Discussions in Conference Calls,” have analyzed the transcripts, focusing especially on CEOs and CFOs because they are “the most likely executives to have knowledge about financial statement manipulation.” Read More

Quick Course: 140 Years of Panics and Policy

May 16th, 2012 | Filed under:

Should a lender of last resort lower interest rates to near zero in the hope that liquidity will drown systemic sorrows? Bagehot argues for a contrary approach. The interest rates for loans made to desperate borrowers should be high. “This will operate as a heavy fine on unreasonable timidity, and will prevent the greatest number of applications by persons who do not require it. The rate should be raised early in the panic, so that the fine may be paid early…."Read More

EDHEC Survey: Contracts, Not Regulation, Should Clarify Restitution

May 8th, 2012 | Filed under: Risk management

The issue of restitution for loss has been very much on the midns of the asset management industry over the last four years. As EDHEC observes in its new report on non-financial risks, “The collapse of Lehman not only [showed] the world that a systemically large institution could fail; it put … the question of international cooperation and rules harmonisation on centre stage. Restitution may be rendered impossible, at least under reasonable delays, in extreme cases such as the default of an institution – reputable as it might have been.”Read More

EDHEC on CDS Speculators and Eurozone Bonds

Apr 9th, 2012 | Filed under:

The relationship between two markets that O’Kane posits might almost be taken as a paradigm of the difference between Granger causation and physical causation. Consider the case of two distinct radar systems, one better at long range detection than the other. The superior radar system will detect an incoming airplane before the inferior system will. Thus, there will be a relationship of Granger causation between the detection of a particular blip on the better system and its detection on the other system. If we see an incoming blip on the better system we will be able to predict that it will soon show up on the inferior system. It doesn’t follow, though, that the one radar is physically causing anything to happen to the other radar. Read More

Looking at an Ink Blot, Seeing a Green Light

Sep 26th, 2011 | Filed under: Commodities

International Monetary Fund research shows that speculation does not influence the commodities markets.Read More

Study finds that an increase in assets isn’t all that great after all. But it won’t kill you either.

Sep 7th, 2011 | Filed under: Hedge Fund Industry Trends

What happens when a hedge fund gets a windfall of new investment dollars? Read More

Activist Hedge Funds: War for the Hearts & Minds of Accountants

Aug 25th, 2011 | Filed under: Hedge Fund Industry Trends, Hedge Fund Operations and Risk Management

Corporate CEOs aren't the only ones who dread the appearance of activist hedge fund managers on their radar screens. Activists are giving the accounting departments pause as well, according to a new paper by Hall and Trombley.Read More

Institutional investors found to be a “destabilizing” influence – but only over short time periods

Jun 23rd, 2011 | Filed under: Commodities

A paper published by he European Central Bank this month argues that purely-financial investors do indeed "destabilize" oil prices by indiscriminately allocating capital to oil futures. Read More

Blowing bubbles and capturing them in real time

Jun 8th, 2011 | Filed under:

Some new research shows that it may be possible to mathematically determine a bubble before it forms, let alone pops.Read More

Can networking actually be a bad thing for hedge funds?

May 2nd, 2011 | Filed under: Hedge Fund Operations and Risk Management

A recent study suggests to at least one mass media outlet that hedge funds should mind their own business and not by nosy about other hedge funds' trades. But a closer reading of the study suggests to us that it's extremely difficult to measure the vast array of social interactions in Hedgistan.Read More

Study: Public pension funds in a dangerous race with one another. Should focus on liabilities first.

Mar 24th, 2011 | Filed under: Institutional Investing

A study of 125 U.S. state pension plans reveals that management incentives, misguided accounting standards and conflicting interests could perpetuate a funding gap roller coaster. Read More

Are Brazil’s multimercado funds for Real?

Mar 17th, 2011 | Filed under: Hedge Fund Industry Trends

Brazil's "multimercado" funds are often described as a form of well-regulated hedge funds. But new research suggests that may be stretching the truth just a little. Read More