• AsianFA: Option-Implied Systematic Disaster Concern

    Source: Fang Liu
    Date Submitted: 24 Apr 2018
    Views: 14
    Downloads: 2
    The covariation of option-implied disaster concern of a stock and the market index allows me to estimate the conditional and systematic disaster concern of the stock with respect to the market. The estimated variables can be interpreted as the stock's risk-neutral conditional disaster probabilities given possible future market states. Theoretically, these risk-neutral conditional probabilities are equal to the corresponding physical conditional probabilities if the market state is the only priced factor---a sufficient but not necessary condition. Empirically, the conditional and systematic disaster concern variables strongly predict future realizations of stock disasters and returns in different market states. This suggests that the comovement of option prices between stocks and the market index carries forward-looking information on their joint tail distributions.
  • AsianFA Foreign Exchange Hedging and Corporate Innovation

    Source: Chongwu Xia, Chuyi Yang, Lei Zhang
    Date Submitted: 10 Apr 2018
    Views: 50
    Downloads: 4
    This paper studies the real impact of corporate hedging, by documenting the effect of foreign exchange hedging on corporate innovation. We predict that foreign exchange hedging could boost innovation due to the following reason: hedging reduces information asymmetry and hence cost of capital which is essential to innovation (financial constraint hypothesis). However, hedging can potentially impose short-term earnings pressure to managers, hence leads to lower innovation (market pressure hypothesis). We find consistent results for the financial constraint hypothesis. To address the potential endogeneity problem, we employ change regression, difference-in-difference regression and IV approach, and test the reverse causality explicitly.
  • S&P/JPX JGB VIX® Update March 2018

    Source: Applied Academics, S&P Dow Jones Indices
    Date Submitted: 10 Apr 2018
    Views: 0
    Downloads: 0
    JGB VIX Spikes After BoJ Comments.
  • AsianFA How Does Stock Illiquidity Affect the Informational Role of Option Prices?

    Source: Luis Goncalves-Pinto, Jing Xu
    Date Submitted: 25 May 2018
    Views: 48
    Downloads: 3
    In this research paper, we argue that deviations from put-call parity predict stock returns because of a mechanical effect unrelated to informed option trading. Theoretically, in the presence of stock trading costs, it is more (less) expensive to replicate calls relative to puts when the price of the underlying stock is more likely to increase (decrease). Empirically, we identify this mechanism by separating the actions of hedgers and speculators using an exogenous short-sale prohibition with a limited exemption for option dealers. We use equity lending fees to proxy for option replication costs, and option order-flow imbalances to rule out the informed trading explanation.
  • Volatile Week Ahead In Indian Equity Market - CG Power & Vedanta on Our Radar

    Source: Bhumit Choudhary, CFA
    Date Submitted: 25 Mar 2018
    Views: 82
    Downloads: 0

    Dalal Street turned out to be a “Bear’s treat” on Friday as the domestic Index NIFTY 50 plunged down by 162 points hitting the low of 9951 for the session, before closing for the week at 9998.05, just below the psychological mark of 10000, and also losing 197 points on weekly basis.

    In continuation of our previous report, levels of 9970 were achieved, sooner asthe  benchmark closed below 200-DEMA and going forward, we expect 9900 is next major zone at which all eyes should keep a close watch, because a firm close below this on a weekly basis, could trigger fresh rounds of selling, which could retest 9800 followed by 9600 on the lower side.

    After a sharp fall, limited possibility of some consolidation is likely and if it does so we might also see few points on the higher side which are near 10090, if at any point of time NIFTY manages to cross 10135,  we suggest to be on long side for next few trading sessions to gain 10280-10380 on the NIFTY.

  • AsianFA Aggregate Implied Volatility Spread and Stock Market Returns Aggregate Implied Volatility Spread and Stock Market Returns

    Source: Bing Han, Gang Li
    Date Submitted: 24 Mar 2018
    Views: 48
    Downloads: 2
    Original Academic Research Paper
  • S&P/JPX JGB VIX® Update January 2018

    Source: S&P Dow Jones Indices, Applied Academics
    Date Submitted: 23 Feb 2018
    Views: 1
    Downloads: 1
    JGB VIX Gets a Boost From the BoJ
  • Demystifying commodity futures in China

    Source: John Hua Fan, Tingxi Zhang
    Date Submitted: 22 Feb 2018
    Views: 111
    Downloads: 10
    This paper presents the most comprehensive study to date on commodity futures in China. We find that passive long-only investments deliver poor economic returns. Among 12 long-short strategies examined, momentum and term structure strategies generate statistically significant economic profits in nearby and distant contracts, illiquid markets and randomly selected commodity sectors. Our results cannot be attributed to aggregate market risks, none-tradable macroeconomic risks, commodity specific risks, market sentiment, transactions costs and data-snooping. We show that liquidity, anchoring bias and regulation induced limits-to-arbitrage provide at least a partial explanation. Furthermore, our findings suggest that long-short strategies that exploit past returns and hedging pressure make excellent candidates for hedging against movements in traditional assets in China. This paper also highlights the urgency to establish a CFTC-type repository for positions data that distinguish hedgers and speculators. Such data are essential to assess the effectiveness of risk transfers in these markets.
  • Dynamic regime switching behaviour  between cash and futures market:  A case of interest rates in India 

    Source: Pradiptarathi Panda, Prof. Malabika Deo, Jyothi Chitteni
    Date Submitted: 17 Feb 2018
    Views: 74
    Downloads: 4
    Abstract. This study examines the Markov dynamic regime switching behaviour between cash and futures market in respect to interest rate in India. The study uses daily data of volumes, weighted average price, weighted average yield for cash market and total values, open interest, settlement price from 21st January 2014 to 30th October 2014. We a contract i.e. 883GS2023 of NSE has been used for our analysis. All data are sourced from Clearing Corporation of India Ltd. (CCIL) and National Stock Exchange (NSE). We have run regime switching regression to capture the switching behaviour in bull as well as bear state of cash to future and future to cash in six different equations. This model also captures the estimated probability and estimated duration to continue in bull and bear state and does not require to test stationarity or conversion of data into any normalised form.  We find switching behaviour in both cash is regime switching the future as well as future is regime switching the cash market and the estimated probability differs from 70% to 97% in different cases. The estimated duration to continue in an existing state has also been captured in 6 different equations. 
  • Interest Rate: Futures and Cash Market Spill-over’s in India 

    Source: Hrudaranjan Sahoo, Pradiptarathi Panda
    Date Submitted: 17 Feb 2018
    Views: 88
    Downloads: 6
    The present study analyses the spill-over’s effect between the interest rate cash and futures market in India. We use daily data of volumes, weighted average price, weighted average yield to represent cash market and number of contracts traded, values, open interest, settlement price to represent futures market from 4th August 2014 to 31st December 2015 with 337 (trading days) number of observations. We consider a single instrument (i.e. 08.40 GS 2024) which is most liquid, active and have contracts for a longer time period. All data are sourced from Clearing Corporation of India Ltd. (CCIL) and National Stock Exchange (NSE). We first presents descriptive statistics followed by stationarity test, Correlation, Regression, Granger Causality test and ARMA (1, 1), GARCH (1, 1) spill-over’s model. The study finds cash market price is leading the futures market but the future settlement price has impact on the yield of the underlying security. 
  • Rise and Fall of Interest Rate Futures in Indian Derivative Market 

    Source: Pradiptarathi Panda, Dr. M Thiripalraju
    Date Submitted: 17 Feb 2018
    Views: 106
    Downloads: 3
    Interest rate derivatives are the most traded and widely accepted derivative instrument in the international derivative market. But this product is not popular in Indian derivative market. In 1999, the Over the Counter (OTC) interest rate derivative products were introduced and successful in terms of volumes. The Indian financial market introduced exchange traded interest rate derivatives in the year 2003, 2009 and 2014. While the product failed twice, in the third time (in 2014) the initial volumes are sharply declining in three exchanges viz. MCX-SX, NSE and BSE. In this backdrop, this study attempts to analyse the past, present and future of interest rate futures in Indian derivative market using the volumes, values and open interest of Interest rate derivatives for three exchanges. 
  • S&P/JPX JGB VIX® Update December 2017

    Source: S&P Dow Jones Indices, Applied Academics
    Date Submitted: 17 Jan 2018
    Views: 72
    Downloads: 3
    JGB VIX Faced Year-End Downward Pressure
  • An examination of alternative option hedging strategies in the presence of transaction costs

    Source: Vicky Chow
    Date Submitted: 28 Nov 2017
    Views: 138
    Downloads: 0
    This thesis examines the performance of several alternative option hedging strategies in the presence of transaction costs using both mean-variance and stochastic dominance rules. Consistent with previous literature, simulations suggest move-based strategies are optimal.  In contrast, however, empirical tests using historical market data suggest that a simple Black-Scholes delta-neutral hedging strategy is optimal and can lead to a substantial reduction in transaction costs.  My findings will assist financial market participants to make more informed hedging decisions.
  • AFM - Changing Probability Measures in GARCH Option Pricing Models

    Source: Wenjun Zhang, Jin E. Zhang
    Date Submitted: 26 Nov 2017
    Views: 102
    Downloads: 7
    In this paper, we consider several option pricing models with stochastic volatility
    in the context of the generalized autoregressive conditional heteroskedastic (GARCH)
    processes. We propose a globally risk-neutral valuation relationship (GRNVR) to derive
    the model dynamics under risk-neutral measure and obtain the corresponding
    closed-form pricing formula for the Chicago Board Options Exchange Volatility Index
    (CBOE VIX). The parameters of the proposed models are then calibrated using the
    S&P 500 returns data and the CBOE VIX. Based on the empirical pricing performances,
    we observe that the proposed GRNVR generally performs better than the
    locally risk-neutral valuation relationship (LRNVR). We also provide theoretical justi-
    cation of the proposed GRNVR.
  • Properties and the Predictive Power of Implied Volatility in Dairy Market

    Source: Adrian Fernandez-Perez, Bart Frijns, Ilnara Ga atullina, Alireza Tourani-Rad
    Date Submitted: 22 Nov 2017
    Views: 132
    Downloads: 7
    We examine the information content and predictive power of implied volatility
    derived from New Zealand Exchange options on whole milk powder futures. We
    first construct a market-based forecast of volatility using the implied volatilities
    from the option pricing approximation of Barone-Adesi and Whaley (1987). To
    construct the implied volatility index for the Dairy market (termed the DVIX) we
    follow the CBOE VXO (old VIX) methodology. The analysis of seasonalities in the
    DVIX reveals month-of-the-year effect with a decrease in the DVIX during April,
    May and June. We also find an inverse return-volatility relationship which exhibits
    asymmetry, implying that positive moves in the WMP futures prices are associated
    with larger absolute changes in the DVIX than negative moves in the WMP Futures
    prices. By estimating several in- and out-of-sample forecasting models, we find
    that both historical and implied volatility contain useful information about future
    realized volatility and that their combination produces the best forecast of the
    subsequent realized volatility.
  • S&P/JPX JGB VIX® 指数アップデート 2017 年 10 月

    Source: S&P Dow Jones Indices, Applied Academics
    Date Submitted: 16 Nov 2017
    Views: 214
    Downloads: 2
    選挙結果を受けてJGB VIX 指数は下落
  • S&P/JPX JGB VIX® Update October 2017

    Source: S&P Dow Jones Indices, Applied Academics
    Date Submitted: 16 Nov 2017
    Views: 102
    Downloads: 1
    JGB VIX Drops After Election Results
  • Asian Structured Products

    Source: Angela Wu, Clarke Pitts
    Date Submitted: 14 Sep 2017
    Views: 1888
    Downloads: 0
    In this paper, we examine the nature of structured products, why they are used, and by whom. We consider the size of the industry and some of its most popular products in the context of Asian capital markets. Finally, we identify a variety of risks for each of the parties involved: issuers, intermediaries, and investors.
  • Modelling the implied volatility surface based on Shanghai 50ETF options

    Source: Jinzhong Wang, Shijiang Chen, Ting Zhang, Qizhi Tao
    Date Submitted: 16 Aug 2017
    Views: 235
    Downloads: 6
    We develop a dynamic factor model to forecast the implied volatility surface (IVS) of Shanghai Stock Exchange 50ETF options. Based on the assumption that dynamic change in IVS is mean-reverting and Markovian, we use a state space model to capture the dynamics of IVS, and set the latent factors to be the Ornstein–Uhlenbeck processes. We obtain the optimal estimations of parameters using the Kalman filter algorithm. Empirical results show that our model performs better than the traditional IVS model in terms of fitting ability and prediction performance.
  • Is There a Friday Effect in Financial Markets?

    Source: Guglielmo Maria Caporale,
    Date Submitted: 07 Apr 2017
    Views: 2006
    Downloads: 20
    This paper tests for the presence of the Friday effect in various financial markets (stock markets, FOREX, and commodity markets) by using a number of statistical techniques (average analysis, parametric tests such as Student's t-test and ANOVA analysis, non-parametric ones such as the Kruskal-Wallis test, regression analysis with dummy variables). The evidence suggests that stock markets are immune to Friday effects, whilst in the FOREX Fridays exhibit higher volatility, and in the Gold market returns are higher on this day of the week. Using a trading robot approach we show that the latter anomaly can be exploited to make abnormal profits.
  • Practitioner’s Brief: Expect the Unexpected - Why Tightened Trading Rules Created a More Efficient Index Futures Market

    Source: Hai Lin, You Wang
    Date Submitted: 06 Apr 2017
    Views: 3513
    Downloads: 0
    In the summer of 2015, Chinese regulators aggressively tightened fairly lax trading rules in the country’s stock index futures market in the midst of a chaotic crash. The move, an effort to tamp down rampant speculation and manipulation, was widely criticized as an overreach. With margin barriers thrown up higher and position sizes significantly capped for nonhedgers, speculators all but vanished (a desired outcome); however, so too did volume, which decreased nearly 100%—not exactly a best-case scenario. “China has killed the world’s biggest stock index futures market,” Bloomberg wrote in September 2015. Illiquidity in the market for futures tied to the China Security Index 300 “was causing problems,” the Financial Times said. In hindsight, it’s worth asking: Were these regulations, while apparently necessary, nevertheless ill-advised? No, assert the authors, who do not gloss over the fact that liquidity was severely impacted. What they do emphasize is a rather counterintuitive finding: A market in which liquidity has ground to a halt does have an upside.

    Eugene Fama’s efficient market hypothesis (EMH) holds that stock prices immediately and inherently reflect all available information such that there’s no predictive power to be gleaned, i.e., it’s all randomness at play. EMH has been endlessly tested and re-tested since it first emerged in the 1970s at a time when low-cost passive management was coming on the scene as a disruptor to active management. Several testing methods were used to batter/gut-check EMH. Prominent among them was the variance ratio (VR) test, put to use, alongside other tests, by authors Lin and Wang. They set out to measure the efficiency levels of the Chinese stock index futures between July 2015 and September 2015. During this period, a slew of rule changes were implemented, making it harder to trade index futures, a prevalent means of speculating, hedging, arbitraging, and as it turned out, carrying out manipulative schemes, e.g., pump-and-dumps or coordinated bear attacks. The futures market plays a major role in price discovery in the broader spot Chinese stock market. Prior to the change, rules for stock index futures trading were indeed loose and transaction costs were low. Leverage was plentiful and dangerously easy to access. When all of these conditions were curbed via tighter rules, something interesting happened. Yes, volume collapsed. But what happened to the market’s efficiency?

    The results of VR tests (and Granger causality tests) were puzzling. Although the authors thought they would find that regulatory tightening had a detrimental impact on market efficiency and price discovery, just as it had on volume and liquidity, it did not prove to be the case. To the contrary, the VR testing found that absolute VR levels of Chinese index futures’ five-minute returns went from roughly 2.70 before the rule change to around 1.0 after—a decrease of more than 50%. In other words, markets became more efficient in the post-tightening study period. With volume and liquidity in such a freefall, why would that happen? It is possible, explained the authors, that in low liquidity environments trading mainly occurs among the most knowledgeable institutional investors. Speculators and manipulators fall away. So we’re talking about very light trading—but among very well-informed participants free from the distractive din of the less informed. This hypothesis requires testing. If additional data was available, it would be an interesting topic for further research, according to the authors.

    WHAT ARE THE IMPLICATIONS FOR INVESTORS AND INVESTMENT PROFESSIONALS? “Regulators can be helpful in a bad market state,” the authors said, noting that at the time the rules were imposed the stock futures market had been overrun by unchecked manipulators who were abetted by low barriers to leverage and the ability to upsize. The regulatory goal of squeezing nonhedgers out of the market was met. Authorities drastically reduced excessive manipulation—without unintentionally creating a less efficient market. Co-author Hai Lin explained in an email: “While extreme regulations do not happen often, that doesn’t mean that their potential can be ignored.” Regulations can tighten in stressful environments—or in other words, right when investors might be most inclined to employ hedging strategies. In developing risk management strategies, investors need to view regulatory conditions as a factor that can vary over time. ~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
    Summarized by Rich Blake. Rich is a veteran financial journalist who has written for numerous media outlets, including Reuters, ABC News and Institutional Investor. The views expressed herein reflect those of the authors and do not represent the official views of CFA Institute or the authors’ employers.
  • NZFC-Are Tightened Trading Rules Always Bad? Evidence from the Chinese Index Futures Market

    Source: Hai Lin, You Wang
    Date Submitted: 19 Jan 2017
    Views: 1661
    Downloads: 55
    Are Tightened Trading Rules Always Bad? Evidence from the Chinese Index Futures Market
  • NZFC-Evaluating the Tracking Performance and Tracking Error of New Zealand Exchange Traded Funds

    Source: Jun Chen, Yi Chen, Bart Frijns
    Date Submitted: 12 Jan 2017
    Views: 2223
    Downloads: 25
    This study examines the tracking performance and tracking error of New Zealand Exchange Traded Funds (ETFs). We document that New Zealand ETFs do not replicate their corresponding indexes perfectly. At the daily frequency, we observe that the ETFs have substantially different exposures to their underlying indexes from what they should be, which is confirmed by cointegration analysis. At the monthly frequency, tracking performance improves, but still shows significant differences between the ETF and its underlying index. When we examine the tracking errors of the ETFs, we observe that these are substantial, and that there is considerable variation in tracking error. Regression analysis shows that both characteristics of the ETF and the constituents of the index the ETF tracks, as well as the volatility of the underlying benchmark are determinants of the tracking error of the ETFs.
  • NZFC - Higher Moment Risk Premiums for the Crude Oil Market: A Downside and Upside Conditional Decomposition

    Source: Yahua Xu, Jose Da Fonseca
    Date Submitted: 10 Jan 2017
    Views: 3998
    Downloads: 55
    Relying on options written on the USO, an exchange traded fund tracking the daily price changes of the WTI light sweet crude oil, we extract variance and skew risk premiums in a model-free way. We further decompose these risk premiums into downside and upside conditional components and show that they are time varying; that they can be partially explained by USO excess returns and, more importantly, these decomposed risk premiums enable a much better prediction of USO excess returns than the standard, or undecomposed, variance and skew risk premiums.
  • Is the FED Factoring in Trump?

    Source: Matthew Peter
    Date Submitted: 28 Dec 2016
    Views: 226
    Downloads: 0
    At its last FOMC meeting for 2016, the US Federal Reserve (Fed) delivered on its long telegraphed rate rise. The Fed raised the band of the fed funds rate by 25 basis points from 0.25%-0.50% to 0.50%-0.75%, giving an effective fed funds rate of around 0.625%.
  • Vale 2016...

    Date Submitted: 28 Dec 2016
    Views: 411
    Downloads: 0
    As QIC’s Managing Director of Multi Assets, Jim Christensen, puts it, “If I had told you at the start of 2016 that the UK would leave the European Union, Donald Trump would be elected US President, that euro-sceptic parties may gain power in Italy, France and Netherlands, and the share of major sovereign bonds that had negative yields would rise from less than 5% in mid-2015 to more than 40% by mid-2016, would you have believed me if I also told you that equity markets would rally by around 10%, market volatility would fall by around 30% and that US bond yields would rise by 30 basis points?”
  • Creating Correctly-Designed Options Programs

    Source: QIC
    Date Submitted: 28 Dec 2016
    Views: 654
    Downloads: 0
    This is the second in our series on options strategies and follows the launch paper Equity protection now: like buying 'straw hats in winter' published last September. We anticipate doing several more research notes on options strategies this year.
  • Deregulation, Derivatives And The Threat Of Mass Destruction

    Source: Richard Duncan
    Date Submitted: 27 Dec 2016
    Views: 302
    Downloads: 0
    Eight years after the global financial system came very close to being destroyed by out of control speculation in the unregulated derivatives market, there is still nearly Half A Quadrillion Dollars worth of derivatives trading in opaque Over The Counter (OTC) markets. Next week I will upload a new Macro Watch video describing what has been done since the crisis to bring these “financial instruments of mass destruction” under control. Some progress has been made, but it has been incredibly slow. The vast majority of all derivatives still do not trade through exchanges. Consequently, the continuing lack of transparency means there is still a real risk that derivatives are being used to illegally manipulate interest rates, currencies and commodities. Moreover, margin requirements are still not in force. Margins provide a buffer that reduces counterparty risks. The lack of margins increases the danger that the failure of one counterparty could spread contagion and result in systemic collapse, as the near-failure of AIG came close to doing in 2008. My second book, The Corruption of Capitalism (2009), contained a chapter called Deregulation, Derivatives And The Threat Of Mass Destruction. It describes how derivatives were deregulated and points a finger at those most responsible. Alan Greenspan is heavily criticized for his role in the fiasco. This chapter serves as a good introduction to next week’s video. It’s a truly incredible story. I hope you will read it.
  • Derivatives Reform: Real or Razzmatazz?

    Source: Richard Duncan
    Date Submitted: 27 Dec 2016
    Views: 453
    Downloads: 0
    Eight years after the near implosion of the international financial system came close to plunging the world into a New Great Depression, and six years after the Dodd-Frank Wall Street Reform and Consumer Protections Act became law, Half A Quadrillion Dollars worth of derivatives contracts are still trading Over-The-Counter (OTC) with limited transparency and insufficient oversight. The latest Macro Watch video examines what progress has been made in reducing the threat posed by these “financial weapons of mass destruction”. We begin by asking why derivatives were deregulated in the first place. Was it simply stupidity? Was it greed and political corruption? Or was there more to it than that? Next we see a breakdown of the participants in the OTC derivatives market today. We find that non-financial customers hold only 5% of all contracts, while financial institutions hold 95%. That raises questions about the effectiveness of the Volcker Rule, which was intended to limit proprietary trading by banks. Finally, we look at the post-crisis derivatives reform agenda, both in the United States and at the international level. What we find is that reform progress has been glacial and that the risk to the global economy posed by hundreds of trillions of dollars of derivatives contracts remains very high.
  • Derivatives Reform Razzle-Dazzle

    Source: Richard Duncan
    Date Submitted: 27 Dec 2016
    Views: 226
    Downloads: 0
    Derivatives Reform is enormously important for the future of our economic system for two reasons. First, without the enforcement of effective reform, we cannot be certain that our largest financial institutions are solvent. We now know that if any one of them fails, they will all fail. We also know that a systemic financial sector collapse would result in a new global Great Depression. Second, without full transparency, we cannot know if prices are being determined fairly by the forces of real supply and demand or if they are being manipulated by banks, corporations and/or governments. Without transparency, commodity prices, interest rates and currency values can all be easily controlled behind a wall of trillions of dollars worth of contracts that no one can see through. Eight years after a financial sector meltdown that brought the world to the brink of a New Great Depression, and six years after the passage of the Dodd-Frank Act, in my opinion, the derivatives market, still $550 trillion in size, is just as much a threat to the global economy now as it was in 2008. Furthermore, the ability to use OTC derivatives to manipulate interest rates, currency values and commodity prices remains largely undiminished. Laws have been enacted to make the derivatives market safer, but implementation has been glacial. Thus far the actual effectiveness of trade reporting, central clearing and margin requirements is extremely limited. Whether the risks to the global economy created by hundreds of trillions of dollars worth of OTC derivatives is really reduced during the years ahead will depend on government enforcement of the spirit and the letter of the law. Unfortunately, in late 2016, it is still unclear whether the government is regulating the banks or if the banks are regulating the government. Only time will tell whether the reforms will ever actually be enforced or whether all the noise about reform is only razzle-dazzle designed to distract the public while business continues as usual. So far, it seems to me that it’s still business as usual.
  • AFBC-Decoding Leveraged Trading

    Source: Pengfei Li, Zhuo Chen, Zhengwei Wang, Bohui Zhang
    Date Submitted: 10 Nov 2016
    Views: 423
    Downloads: 6
    We examine the informational role of leveraged trading. Using a unique Chinese sample of stock-level margin buying and short selling over the period from July 2010 to June 2015, we document that short selling predicts cross-sectional stock returns while margin buying has no cross-sectional prediction power . The time-series return prediction of margin buying is mechanically driven by the future increase in margin buying, which is not sustainable during the June 2015 Chinese stock market crash. Further evidence shows that margin buying activities are more likely to co-move across stocks, the intensity of margin buying is positively associated with contemporaneous investor sentiment, and the return predictability of margin buying is stronger during high-sentiment periods. Overall, the findings suggest that leverage is not a sufficient condition for informed trading.
  • AFBC-A Model-Free Tail Index and Its Return Predictability

    Source: Jinji Hao
    Date Submitted: 06 Oct 2016
    Views: 452
    Downloads: 5
    This paper provides a novel framework for studying market risk. A tail index for extreme market risk is proposed and its innovation is shown to have strong predictive power of future monthly market returns.
  • 最拥挤的交易(中文版)

    Source: Hao Hong, CFA
    Date Submitted: 19 Sep 2016
    Views: 387
    Downloads: 8
    This article appear on WenXin's blog "洪灝的中国市场策略" on 13 September 2016.
  • 最拥挤的交易 (English Version)

    Source: Hao Hong, CFA
    Date Submitted: 19 Sep 2016
    Views: 253
    Downloads: 1
    This article appear on WenXin's blog "Hong Hao China Strategy" on 12 September 2016.
  • Nobel Laureate Myron Scholes on the Black–Scholes Option Pricing Model

    Source: Larry Cao, CFA
    Date Submitted: 28 Jun 2016
    Views: 499
    Downloads: 4
    This is a blog posted on CFA Institute's website on 13 October 2014.
  • Nobel Laureate Myron Scholes on the Common Mistakes Research Analysts Make

    Source: Larry Cao, CFA
    Date Submitted: 28 Jun 2016
    Views: 538
    Downloads: 4
    This is a blog posted on CFA Institute's website on 20 October 2014.
  • Sociology of Finance: Key Insights for Finance

    Source: Syed Danish Ali
    Date Submitted: 28 Jun 2016
    Views: 461
    Downloads: 11
    How we can guide financial modeling and quantitative finance by utilizing sociology of finance to put the modeling in its proper macro context.
  • Basis risk of banking interest rate cross hedging with OTC instruments in Thailand

    Source: Savin Wangtal
    Date Submitted: 23 Jun 2016
    Views: 468
    Downloads: 9
    Modern papers often focus at time-varying regression based or dynamic hedging of interest rate instruments, which does not work well in undeveloped market with limited hedging instruments. This paper examine of hedging in basis risk and required turnover from rebalancing in simple hedging approaches that can be easily employed in undeveloped market such as Thailand.
  • A New Breed of Mathematics: Topology

    Source: Syed Danish Ali
    Date Submitted: 23 Jun 2016
    Views: 413
    Downloads: 5
    Quantitative finance focuses alot on calculus and linear algebra. Now it should start focusing on topology to achieve better results.
  • Difference in Relationship of Sovereign CDS Market and Equity Market between Developed Capital Market and Developing Capital Market

    Source: Pathai pairojsakul
    Date Submitted: 23 Jun 2016
    Views: 418
    Downloads: 5
    This study investigates on the information flow and information asymmetric reaction between CDS return and equity return under different market characteristics classified, based on MSCI, to 18 countries contained in “Developed capital market” and 17 countries contained in “Developing capital market” from period 2012 to 2015. There are obvious evidences of contemporaneous information flow and lagged information flow from stock equity market to sovereign CDS market. Moreover this sensitivity is stronger in developed capital market than developing capital market. There are also obvious result in which show different country’s creditworthiness from previous trading day have asymmetric reaction to sensitivity of sovereign CDS market to equity market on following day. Nevertheless this information asymmetric reaction is not significantly different between developed capital market and developing capital market.
  • Derivative warrant market and implied volatility

    Source: Dalad Sae-ue
    Date Submitted: 22 Jun 2016
    Views: 477
    Downloads: 10
    This project tested whether the Thai derivative warrant price is closer to the Black and Scholes pricing theory over the Thai derivative warrant market history. It was found that the implied volatility from the derivative warrant price is 66.15% on the average,while the subsequent realized volatility is 34.39% on the average. This finding can be concluded that the Thai derivative warrant price is overvalue and the prediction of the volatility by the issuers which can be seen from the implied volatiltiy from the derivative warrant price is overestimate. From the regession model result, it also found that the implied volatility forecast error or the different between the implied volatility and the subsequent realized volatility does not reduce over the years, comparing to when Thai derivative warrant market starts in year 2009 and when it is more mature in year 2015. It means that the prediction of the volatiltiy is not better over the years. Moreover, it was found the reversion of the implied volatility forecast error from year to year. From the further study, it was found that the reversion is the result of the subsequent realized volatility movement, while the implied volatility is quite smooth over the years. The project also found that even there are more derivative warrant issuers over the years. This higher competitive market leads neither the the cheaper derivative warrant nor the higher effective Thai derivative warrant market which can be seen from the exceeding of the time-series average implied volatility over the time-series average realized volatility which does not reduce over the years. Moreover, there is also the reversion of this exceeding. Moreover, it was also found that the higher demand of the the call derivative warrant affects the change in implied volatility or the derivative warrant pricing which can be seen from the lower negative correlated between the implied volatility and the stock price over the years which can be conclude that the call derivative warrant pricing is higher when the stock price increase comparing year by year. However, this effect does not happen with the put derivative warrant and the surprising is that the change in put derivative warrant implied volaility positively correlated the change in stock price meaning that the put derivative warrant implied volatility is lower when the stock price decreases.
  • The Respond of Sovereign CDS Market to Macroeconomics Indicators in Crisis and Non-Crisis

    Source: Chanoknun Wutthinitikornkij
    Date Submitted: 21 Jun 2016
    Views: 424
    Downloads: 4
    The respond of domestic and the spillover effect of macroeconomics indicators from the major economies, U.S., Eurozone and China, on sovereign credit default swap (CDS) spread and volatility have been examined on seventeen countries over both financial instability and normal period from January 2008 to December 2015. The paper found that the better than expected announcement tends to reduce the CDS spreads, while the worse than expected one exhibits the opposite effect over both normal and crisis period. The announcement from three major economies has stronger spillover effect on other sovereign CDS market in the financial turmoil comparing to the normal period. The reaction on the volatility from both domestic and major countries is consistent with the expectation that better than expected announcement is likely to reduce the level of volatility, while the worse than expected one show the opposite effect over both normal and crisis period. Similar to CDS spread respond, the volatility tends to be more sensitive from both good and bad news in crisis.
  • 衍生品的使用,错用与滥用

    Source: Bud Haslett, CFA
    Date Submitted: 15 Jun 2016
    Views: 369
    Downloads: 1
    This article appears on CFA Institute hedge fund journal 2013 issue, season 2. The original article appears on CFA Institute's official website:
  • 罗伯特·莫顿: 引进衍生品才能享受它的好处

    Source: 杨斯媛, CFA
    Date Submitted: 14 Jun 2016
    Views: 326
    Downloads: 1
    This article appears on CFA Institute hedge fund journal 2013 issue, season 2.
  • What Is the Future of Financial Exchanges? (Video)

    Source: Padma Venkat, CFA
    Date Submitted: 07 Jun 2016
    Views: 575
    Downloads: 1
    This is a blog posted on CFA Institute's website on 23 April 2013. Video can be played in the Reference UFL below.
  • 国债期货的现货基础

    Source: 孙志鹏, CFA
    Date Submitted: 07 Jun 2016
    Views: 330
    Downloads: 2
    This article appears on CFA Institute hedge fund journal 2014 issue, season 1.
  • OTC Derivatives Reform — Asia Takes up the Challenge

    Source: Lee Kha Loon
    Date Submitted: 06 Jun 2016
    Views: 554
    Downloads: 1
    This is a blog posted on CFA Institute's website on 13 December 2011.
  • Efficiency of Hedging Against Fluctuating Prices of Dairy Products

    Source: Jan Koeman, Jędrzej Białkowski
    Date Submitted: 22 Feb 2016
    Views: 729
    Downloads: 16
    This article has been published in Applied Finance Letters, Volume 4(1&2), 2015, pp. 6-11.
  • The Co-movement of Credit Default Swap Spreads, Stock Market Returns and Volatilities: Evidence from Asia-Pacific Markets

    Source: Jose Da Fonseca, Katrin Gottschalk
    Date Submitted: 26 Jan 2016
    Views: 682
    Downloads: 27
    This is an empirical research paper.