The asset under management (AUM) of the Exchange Traded Fund (ETF) industry has grown substantially in the recent years. From 2007 to the end of 2016, AUM increased from $851 billion to $3.546 trillion. Investors have been enjoying many benefits, especially the low cost, offered by ETFs as a result of this explosive growth. However,…Read More Risks Involved When Investing in Exchange Traded Funds
Last week, professor and Nobel Laureate Robert Shiller came out with a statement regarding the market high valuation. He referred to the CAPE ratio which is at 29 at the moment and is considered high. However, he also said that the high CAPE ratio does not necessarily mean investors should sell stocks right now. Still,…Read More Where are the Cheap Hedges for Equity Portfolios?
Last week, after the French election, the VIX plummeted and started its journey into the low-volatility regime again. Consequently, volatility selling strategy began gaining traction. However, FT.com published a warning Jim Keohane, the chief executive of the Healthcare of Ontario Pension Plan, compares selling volatility to picking up dimes in front of a steamroller. “You…Read More Why is Volatility so Low?
Two weeks ago, in a post entitled To Hedge or Not to Hedge, we argued that it’s always important for corporations to hedge the commodity prices and not to speculate. This post continues with more examples that highlight the importance of economic hedging. As oil price fluctuates, airlines can see their revenue vary widely. They…Read More More Examples as Why Hedging is Important
Last week, Bloomberg presented a fascinating story about Mexico’s secretive oil hedging program. We noted that while it was designed as a hedge, the Mexican government has made money consistently with it. If anything, recent results have made the Mexican government look especially good. The country earned $6.4 billion in 2015 and $2.7 billion in…Read More To Hedge or Not to Hedge
In a previous post we discussed how IFRS 9 will affect commodity firms through hedge accounting programs. Generally speaking, as pointed out by Thack Brown in this post, IFRS 9 will affect financial and non-financial corporates through: 1-New classification and measurement principles for financial assets, 2- New impairment models that will accelerate recognition of credit…Read More How Will IFRS 9 Affect Financial Institutions?
After an increase in volatility, equity markets seem to be going back into the state of calmness. Additionally, with Easter coming up, volume and volatility are expected to remain low, at least for a couple of weeks. However, beside the equity world, the credit market is experiencing a tightening as well. The graph below shows…Read More Relationship Between Credit Default Swaps and Equity Options
A common belief among commodity producers, importers and exporters is that hedging should be based on analysts’ expectations. Hence, they often attend meetings where they expect to hear forecasts from analysts and experts. For example, Ed White recently wrote Meeting halls at farm conferences are packed when the market analysis session is scheduled with farmers…Read More Hedging Should be Based on Risks and Not on Forecasts
With the VIX being so low, many investors believe that now is the time to go long volatility. This belief mainly stems from the mean reversion property of the VIX. However, we should note that The speed of mean reversion in the low volatility regime is slower than it is in the high volatility one…Read More Should We Buy VIX Futures When The Spot VIX is Low?
At the close of today, the VIX finished at 11.23%, so on the surface everything seems to be calm and normal. However, the low VIX is making some investors nervous. Why is the VIX so low? In this post Dani Burger , Cecile Vannucci , and Liz McCormick cited some reasons for the low VIX: The…Read More Why Is VIX So Low and What To Do About It?