You're probably familiar, at least in passing, with the 'convexity' of long-term bonds - i.e. that yields dropping 1% produce a bigger price move than yields rising 1%. A significant amount of brainpower has gone into understanding all the ramifications of this convexity in the fixed income...

In this short note, we show investors one way to calculate ideal investment sizing by using two rules of thumb based on a simple outline of individual risk aversion. We illustrate these two heuristics, which are not widely appreciated, with thought experiments involving coin flips and ketchup &...

The US Treasury effectively ”owns” about 24% of the stocks held by high income US taxable investors. Through the capital gains tax, Uncle Sam has an effective exposure of more than $1 trillion of equities. And this huge-but-silent investor might be about to get a lot bigger if capital gains...

Investors are periodically challenged with this question: with funds ready to invest, but faced with a market that is generally perceived to be expensive, is it better to wait for a market correction before investing? Many investors are certain that a correction must be around the corner, and...

The motivation for this paper is to apply a statistical arbitrage technique of pairs trading to high-frequency equity data and compare its profit potential to the standard sampling frequency of daily closing prices. We use a simple trading strategy to evaluate the profit potential of the data...

Ever since Harry Markowitz published his seminal paper on portfolio selection, investors have incorporated estimates of future volatilities and correlations into their asset allocation process. While portfolio construction methods continue to evolve, many investors continue to forecast...

When an event is anticipated, the firm's stock return around the announcement of the event may have an inconsistent sign: a positive sign around negative news, or vice versa. We attempt to quantify the frequency of this problem, first with a brief mathematical model and simulation, then with...

The Chicago Board Options Exchange (CBOE) Volatility Index, often referred to as VIX Volatility Index (VIX), is considered by many market participants as a common measure of market risk and investors' sentiment. It is also sometimes called the fear index. In general, the VIX represents the...

Since Bachelier's thesis in 1900 (laying the foundation of the stochastic process, or Brownian motion, as a model of stock price changes), attempts at understanding the nature of prices and at predicting them have failed. Statistical methods have only found minor regularities/anomalies, and...