In this
week’s edition LIBOR manipulation, a new “must-have” book and some interesting
quant strategies.
ECONOMICS
On the transfer of risk and the mystery of low
yields – alphaville
/ FT
By removing safe assets from the market and
replacing them with base money, the central bank is hoping that investors will
regain their risk appetite when faced with poor yields in Treasuries. But since
that’s not happening – because it
requires a mental shift linked to expectations — it’s resulting in ever lower
yields instead.
In the Balance: Is inequality good for us? – BBC
(mp3)
The chasm between rich and poor is growing
around the world, but should that worry us? Maybe inequality is actually a good
thing, a prerequisite for a productive economy. To find out, In the Balance has
lined up a stellar cast. A Nobel prize-winning critic of the free market:
Professor Joseph Stiglitz. A multi-millionaire friend and former colleague of
the Republican presidential candidate: Edward Conard. And the Rector of Exeter College, Oxford: Frances Cairncross.
Plus: are decisions at meetings taken for good logical reasons - or just
because the person sitting next to you has a really annoying habit?
Historical Echoes: A Water Machine that
Simulates the Economy
– Liberty
Street
In 1949, engineer/economist A. W. H. (Bill)
Phillips unveiled a mechanical economic model, the Phillips machine, which
could demonstrate—by pushing colored water through clear pipes—how money moves
through the economy.
Economics, Good and Bad – Krugman
/ NYT
the fact is that these have been glory days for
standard macroeconomics, which has done amazingly well under crisis conditions.
If you’ve heard different, blame politics, not the economics itself.
On price stability during an ‘abundance shock’ – alphaville
/ FT
What microeconomists think about macroeconomics – mainly
macro
Richard Layard explains the Manifesto for Economic
Sense – voxeu.org
The Manifesto for Economic Sense aims to stop
the recitation of meaningless mantras and start an economic discourse based on
research- and evidence-based arguments.
Can Policymakers Stem Rising Income Inequality? – iMFdirect
Rent-seeking lessons from Mubarak to Louis XIV – John
Kay
The real damage imposed by men such as Mr
Mubarak is not the money they might have stolen. The tragedy is that the system
that enables them to steal it destroys opportunities for others to generate
wealth – not only for themselves but for the whole population.
REGULATION
Levitt on Failure to Save Glass-Steagall Bank
Act – BB (mp3)
Former Online Brokerage Chief Offers Handy
How-To-Guide Re: Getting Banned From The Securities Industry – Dealbreaker
LIBOR MANIPULATION
Banker to the Bankers Knows the Numbers Are
Lying – View
/ BB
The BIS, which acts as a bank for the
world’s central banks, should know fudged numbers when it sees them. What may
come as a surprise is how openly it has been discussing the problem of bogus
balance sheets at large financial companies.
A Rate-Setting Mechanism of Far-Reaching
Effects – DealBook
/ NYT
Two big remaining questions are why banks still
use Libor and why regulators do not appear to have pressed for it to be used
less. There have been reports of its manipulation since 2008, yet the benchmark
continues to be widely used.
A Huge Break in the LIBOR Banking Investigation – Rolling
Stone
On The Corrosion of Moral Leadership – The
Psy-Fi Blog
This doesn’t happen by accident, it comes from
the top, and the buck needs to stop with those who permit these festering
cultures to survive.
After Barclays, the golden age of finance is
dead – The
Telegraph
Retribution and regulation are sure to follow
the Barclays scandal, but if the City is shackled, Britain as a whole will suffer
Record fines for Barclays are just the
beginning of the Libor scandal – The
Telegraph
If money makes the world go around, Libor makes
the money go around first. It's at the heart of everything, and dishonestly
manipulating Libor is nothing less than manipulating the price of money itself.
Barclays’ LIBOR embarrassment – Schumpeter
/ The Economist
The coarse talk of the banking trade – The
Guardian
The vulgar vocabulary of the trading floor may
help to explain the hierarchy that allowed the Barclays scandal to continue
HIGH-FREQUENCY
The Achilles’ heel of high frequency trading – Macro
Rants
Could a Delay Tame the World of High Frequency
Trading? – Institutional
Investor
Mark Cuban: High-Frequency Traders Are the
Ultimate Hackers – MarketBeat
/ WSJ
QUANT
FX Strategies in Periods of Distress – SSRN
an overview of widely practiced short-term multi-currency investment strategies such as carry trade, momentum and term spread strategies. We provide evidence on their downside risk properties and illustrate their performance over historical episodes of financial market turmoil. We show that the strategies exhibit substantial tail risks and that they do not perform uniformly during distress periods in global markets. Interestingly, equity market investments feature even greater downside risk.
an overview of widely practiced short-term multi-currency investment strategies such as carry trade, momentum and term spread strategies. We provide evidence on their downside risk properties and illustrate their performance over historical episodes of financial market turmoil. We show that the strategies exhibit substantial tail risks and that they do not perform uniformly during distress periods in global markets. Interestingly, equity market investments feature even greater downside risk.
Can dual-currency sovereign CDS predict
exchange rate returns? – ScienceDirect
We find that the spread difference between
dual-currency sovereign CDS significantly affects the bilateral exchange rate
returns. In addition, the difference could predict the cumulative exchange rate
returns up to 10 days.
Effective Trade Execution – arXiv
This paper examines the role of algorithmic
trading in modern financial markets. Additionally, order types,
characteristics, and special features of algorithmic trading are described
under the lens provided by the large development of high frequency trading
technology. Special order types are examined together with an intuitive
description of the implied dynamics of the order book conditional to special
orders (iceberg and hidden). The chapter provides an analysis of the
transaction costs associated with trading activity and examines the most common
trading strategy employed in the market.
Book Review: The Little Book of Hedge Funds – The
Aleph Blog
Vector Autoregressive Models – European
University Institute (pdf)
Bye-Bye, Wall Street: New Flavor Of Big Data
May Be More Lucrative For Quants – Forbes
Signal Extraction for Nonstationary
Multivariate Time Series – FED
HEDGE FUNDS
Hedge funds get exotic in hunt for profits – Reuters
Investors fed up with losses from their
mainstream hedge fund holdings are eyeing some exotic alternatives.
Kepos' quiet touch wins favor among quant funds – Reuters
When Mark Carhart meets with the world's
largest pension funds and endowments he brings along an appealing proposition:
His new hedge fund makes money during a crisis.
TRADING
Some Important Lessons I’ve Learned – Adam
Grimes
Investing Routines: A Pillar of Any Successful
Program – The
Trader’s Journal
First Principles in Technical Analysis (5/?) – Adam
Grimes
STOCK MARKETS
Charting The End Of 'Stock-Picking' Alpha – ZH
Charts from
Goldman Sachs, conclusion: With currently
elevated macro risks investors have a better chance to generate alpha by
focusing on trading and picking equity indices rather than stockpicking -
especially with ETF volumes now dominating individual stock volumes
Stocks for the very, very, very long run – ASA
Bull’s Eye Investing (Almost) Ten Years Later – John
Mauldin / The Big Picture
Bob Janjuah on The S&P Trek From 1,400 To
1,000 To 800 – ZH
Learning from Experience in the Stock Market – FED
(pdf)
Jim Chanos' Bearish Views on Some Value Traps – Can
Turtles Fly
Of VIX, Correlation, And Building A Better
Mousetrap – ZH
HOUSING
The Aftermath of the Housing Bubble – The
Big Picture
Housing bubbles and interest rates – voxeu.org
Visit Ireland and Spain and you will find row upon row of
empty houses – the remnants of a housing boom turned bust. Were low interest
rates to blame? This column looks at the effect of a deviation in interest
rates from the Taylor rule and finds that keeping interest rates ‘too low’ can explain up to
50% of the overvaluation of the property market in these countries and
elsewhere.
Housing Bubbles and Homeownership Returns – FED
CHINA
“HISTORY”
Picture Guide to Financial Markets Since 1800 – The
Big Picture
*Charting How Everything Changed In 2008 – ZH
Four charts from Barclays, with plenty of text. (more uncertainty, tails are fatter, rising systemic correlation, less liquid markets)
Four charts from Barclays, with plenty of text. (more uncertainty, tails are fatter, rising systemic correlation, less liquid markets)
Does Uncertainty Have A Seasonality? – The
Big Picture
BizDaily: Lessons from history – BBC
(mp3)
Can the the debt dramas of the ancient world
offer guidance to modern statesmen? And how recovery from Europe's greatest trauma in recent memory,
the Second World War, says more about today's troubles than you might think.
Plus in the last of the Knowledge Economy series, we look at the importance of
education in a warzone.
OTHER
Howard Marks On Mistakes, Biases, And The
Efficient Market Fallacy – ZH
Ex central risk manager – The
Guardian
'We missed the way risk had been
re-concentrated' – A recently redundant risk manager says he and his colleagues
saw the crisis coming, but not how awful it would be
Investment Management Fees Are (Much) Higher
Than You Think – CFA
Institute
How Long Is Wrong? Reflections on Six Years of
Insights from Two of the World’s Foremost Financial Analysts – CFA
Institute
A Novel About Wall Street Borrows From Life – DealBook
/ NYT
"Dark Pools": An Exciting Thriller
That Will Teach You About Trading – Minyanville
Aaron Brown’s
good piece.
I Robot: Thomson Reuters adds psych analysis to
machine-readable news
– Finextra
Thomson Reuters is adding "psychological
analysis" to its machine-readable news service, interpreting the emotion
and sentiment of stories and social media posts to help investors develop trading
strategies.
Predicting The Future – Farnam
Street