"In fact, so many different kinds of investors are now “selling volatility” that BlackRock’s Dennis Stattman worried at the same conference that it had become a “crowded trade”. Sceptics worry these new players might be selling flood insurance on the cheap, just before a deluge."
"Shadow banking covers a wide range of ‘non-bank’ institutions that perform many of the functions of traditional banks, including lending, but do so outside of deposit-taking banks. The FT examines this sector, which is reshaping how companies fund themselves"The evolution of the financial system: the regulation and return of banks to traditional activities and the emergence of new institutions to fulfill the roles that have been abandoned.
"This paper analyzes market reactions to the 2013–14 Fed announcements relating to tapering of asset purchases and their relationship to macroeconomic fundamentals and country economic and financial structures. The study uses daily data on exchange rates, government bond yields, and stock prices for 21 emerging markets. It finds evidence of markets differentiating across countries around volatile episodes. Countries with stronger macroeconomic fundamentals, deeper financial markets, and a tighter macroprudential policy stance in the run-up to the tapering announcements experienced smaller currency depreciations and smaller increases in government bond yields. At the same time, there was less differentiation in the behavior of stock prices based on fundamentals."
"This is the intriguing premise of a tool being used internally at BlackRock, the world’s largest fund manager, which it has nicknamed “the Yellen index”. It is a measure that suggests, on the economic indicators favoured by Ms Yellen, monetary tightening is already overdue and the Fed falls further behind the curve with every passing day."
"The most important thing for the typical worker is to avoid the worst outcome, not aim for the best. Yet, understandably, few feel they have the expertise to allocate their investments accordingly. As a result many opt for what appears to be the safe option in the form of target-date funds (in America) or default funds (in Britain). These funds are certainly a lot better than the choices employees might make if left to their own devices—placing their entire portfolio in cash or in their employer’s shares, for example. Such funds generally follow a “lifestyle approach” in which the bulk of the portfolio is invested in equities when the employee is young and then switched into government bonds as retirement draws near."
"The capacity for strategic thinking about the payoff-relevant actions of conspecifics is not well understood across species. We use game theory to make predictions about choices and temporal dynamics in three abstract competitive situations with chimpanzee participants. Frequencies of chimpanzee choices are extremely close to equilibrium (accurate-guessing) predictions, and shift as payoffs change, just as equilibrium theory predicts. The chimpanzee choices are also closer to the equilibrium prediction, and more responsive to past history and payoff changes, than two samples of human choices from experiments in which humans were also initially uninformed about opponent payoffs and could not communicate verbally. The results are consistent with a tentative interpretation of game theory as explaining evolved behavior, with the additional hypothesis that chimpanzees may retain or practice a specialized capacity to adjust strategy choice during competition to perform at least as well as, or better than, humans have."
"Why invest in hedge funds? Citi says, "since the [global financial crisis], confidence that hedge funds can outperform the underlying markets has been strained and that more emphasis has been placed on their role in controlling volatility." But investors are happy enough to pay for that. An endowment manager quoted by Citi:"
