ARTICLES

by 0 comments on "What is Socially Responsible Investing-Its Advantages and Disadvantages"

There has been an increased demand for businesses to conduct their operations in a socially responsible way. This demand comes due to an increased drive towards sustainability and considering the needs of society as a whole. The idea of socially responsible operations has also translated into the investing world through socially responsible investing. What is…

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by 0 comments on "Are Accounting Numbers Useful?"

Accounting numbers are prevalent in financial reporting, business valuation, and investment management. They’re so frequently used that the practitioners rarely asked pragmatic questions such as: are they useful, do they account for some meaningful risks, can they be used to price assets. A recent article [1] attempts to bring some answers to these questions, This…

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by 0 comments on "Pricing Convertible Bonds Using Monte-Carlo Simulations"

Convertible bonds are complex securities that are part debt, part equity. The main feature of a convertible bond is the conversion that allows the bondholder to convert debt to equity. In addition, there can be many other “exotic” features such as callable, puttable, forced conversion, soft call, contingent conversion, etc. Given their complexities, convertible bonds’…

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by 0 comments on "Are Index Options Markets Efficient?"

Options market efficiency is a topic of interest not only to academics but also to practitioners. There is a body of research focusing on market inefficiency. For example, we recently highlighted a research paper dealing with sector ETFs’ implied volatilities and correlations. The research result implies that the options market is not efficient, as one…

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by 0 comments on "Further on Trending/Mean-Reverting Properties of Stock Indices"

We previously demonstrated that stock indices exhibit mean-reverting property in the short term and trending property in the long term. Reference [1] further explored the trending/mean-reverting properties in a longer timeframe and pointed out that in the very long term, the markets mean-revert, We provide further evidence that markets trend on the medium term (months)…

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by 0 comments on "Can Dividend Yield Be Negative?"

We previously discussed implied dividend yield and how to extract it from traded financial instruments. Given that dividend is considered a cash payment the shareholder receives when holding a stock, naturally one would think that dividend yield can only be zero or positive. We recently, however,  worked with a client whose implied dividend yield is…

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by 0 comments on "Predicting Volatility Risk Premium Through Sector Implied Correlation"

The volatility risk premium is a common phenomenon that exists in the volatility space. It is often defined as a stock’s or index’s implied volatility (IV) minus its realized volatility (RV). For equity indices, over the long term IV is generally greater than RV, thus giving rise to the popularity of short volatility trading strategies.…

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by 0 comments on "Volatility Term Structure of the DAX Index"

Volatility term structure is believed to be a common phenomenon across asset classes. In equity indices, it’s well-known that implied volatility (IV) is generally greater than realized volatility (RV) (i.e. there exists a so-called volatility risk premium), and out-of-the-money (OTM) IV is greater than at-the-money (ATM) IV (i.e. there exists a so-called volatility skew). The…

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by 0 comments on "Does Intraday Momentum Exist in Stock Indices?"

Most of the studies on time-series momentum have been performed in the daily, weekly, and monthly timeframes. Relatively less research has been conducted in the intraday timeframe. So naturally, we would ask the question: Does the momentum exist intraday? Reference [1] answers this question. It examined the time-series momentum of the SP500 index in the…

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by 0 comments on "Does Trend Following Work on Single-Name Stocks?"

Trend following is a popular trading strategy used by Commodity Trading Advisors (CTA) and Hedge Funds around the world. The traded assets are often futures on commodities, FX, fixed-income, and equity indices. We previously demonstrated that stock indices exhibit trending property in the long term, i.e. their returns are positively autocorrelated. We subsequently developed a…

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