Copulas and trading strategies

Reliance on linear correlation coefficients and joint normal distribution of returns in multi-asset trading strategies can be badly misleading. Such conventions often overestimate diversification...

A theory of hedge fund runs

Hedge funds’ capital structure is vulnerable to market shocks because most of them offer high liquidity to loss-sensitive investors. Moreover, hedge fund managers form...

How to manage systemic risk in asset management

Systemic crises are rare but critical for long-term performance records. When the financial system fails, good trades become bad trades and many sensible investment...

Trend following and the headwinds of rising yields

The decline in bond yields over the past decades has supported profitability and diversification value of trend followers. Returns have been boosted by a...

Passive investment vehicles and price distortions

The share of passive investment vehicles in financial markets has soared over the past 20 years. In the U.S. equity market it has risen...

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Identifying the drivers of the commodity market

Commodity futures returns are correlated across many different raw materials and products. Research has identified various types of factors behind this commonality: macroeconomic...

Macro factors of the risk-parity trade

Risk-parity positioning in equity and (fixed income) duration has been a popular and successful investment strategy in past decades. However, part of that success...

Identifying market regimes via asset class correlations

A recent paper suggests identifying financial market regimes through the correlations of asset class returns. The basic idea is to calculate correlation matrixes for...

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