Friday, June 27, 2014

Pimco runs risks in turning up the ‘vol’ -

Pimco runs risks in turning up the ‘vol’

Nice overview from the F-Times of: risk to increase volatility specifically and the way that crowded trades can be build by conventions that become oversold.

"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."

Tuesday, June 24, 2014

Shadow Banking: In depth news, commentary and analysis in a series from the Financial Times

Shadow Banking: In depth news, commentary and analysis in a series from the Financial Times:

"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.

Sunday, June 22, 2014

Frequentism and Bayesianism IV: How to be a Bayesian in Python

Frequentism and Bayesianism IV: How to be a Bayesian in Python: "I won't be so much concerned with speed benchmarks between the three, as much as a comparison of their respective APIs. This post is not meant to be a tutorial in any of the three; each of them is well documented and the links above include introductory tutorials for that purpose. Rather, what I want to do here is a side-by-side comparison which will give a feel for how each package is used. I'll propose a single relatively non-trivial test problem, and show the implementation and results of this problem using all three packages. Hopefully by seeing the three approaches side-by-side, you can choose which package might be best suited for your particular application."

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Thursday, June 19, 2014

Rules push on clearing houses poses risk to banks -

Rules push on clearing houses poses risk to banks - "Trades not going through clearing houses will also need to be backed by more collateral. However, the LSE study argued that investors being allowed to net their portfolios in a single place dramatically reduced the changes in margin valuation. That single place could be either a single fully integrated clearing house, or a series of fully interoperable ones."

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Wednesday, June 18, 2014

Impact of Fed Tapering Announcements on Emerging Markets

Impact of Fed Tapering Announcements on Emerging Markets:

 "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."

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Monday, June 16, 2014

‘Yellen Index’ flashes imminent Fed tightening

‘Yellen Index’ flashes imminent Fed tightening -

"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."

This could be a really good additional exercise for the interest rate assignment: create a "Yellen Index".

Saturday, June 14, 2014

Reproducible research is still a challenge

Reproducible research is still a challenge: "We used knitr to implement the analysis in a literate programming style. The entire analysis, including justification of the core functions, is available to interested people. However, working with blocks of ugly data-wrangling code, or with long-running calculations, remains a challenge."

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Buttonwood: Pensions à la mode | The Economist

Buttonwood: Pensions à la mode | The Economist: A comparison of pension returns across countries.  This is an exercise in assessing the returns from a standard investment 60% in equities and 40% in bonds.

"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."

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Tuesday, June 10, 2014

The VIX Is Not A Great Way to Measure Complacency - Bloomberg View

The VIX Is Not A Great Way to Measure Complacency - Bloomberg View: "This is I think roughly the way to read the notion, which my Bloomberg View colleague Mohamed El-Erian examined today, that low readings on the VIX -- an index of implied volatility in short-dated S&P 500 index options -- mean that the market is "complacent." So:

Equity volatility is basically a mean-reverting thing.2
The volatility index is below its long-run average.
Therefore volatility will go higher.
Soon and horribly.
Run, you fools!
Why are you being so complacent?"

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Chimps and games

Chimpanzee choice rates in competitive games match equilibrium game theory predictions : Scientific Reports : Nature Publishing Group:

"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."

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How the Recession Reshaped the Economy, in 255 Charts -

Info graphics - how employment has changed post recession in the US:

How the Recession Reshaped the Economy, in 255 Charts -

Number employed and earnings.

Tuesday, June 03, 2014

Hedge Fund Investors Aren't as Dumb as They Look - Bloomberg View

Hedge Fund Investors Aren't as Dumb as They Look: Though returns have been poor, there is some evidence that they can help to reduce risk.

"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:"

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