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Journal Article

Leverage Aversion and Risk Parity

In recent years, a new approach to asset allocation called risk parity (RP) has been gaining in popularity among practitioners.

Journal Article

Slow-Moving Capital

Unlike textbook arbitrageurs who instantaneously trade when prices deviate from fundamental values, real-world arbitrageurs must overcome various frictions.

Journal Article

Liquidity and Asset Prices

Liquidity is a complex concept.

Journal Article

Sharpening the Arithmetic of Active Management

Does the dictum that the return to active management must equal that of passive management hold in the real world? This paper explores the assumptions and possible market impact.

Journal Article

Low-Risk Investing Without Industry Bets

The strategy of buying safe low-beta stocks while shorting (or underweighting) riskier high-beta stocks has been shown to deliver significant risk-adjusted returns.

Journal Article

Market Liquidity and Funding Liquidity

The funding of traders affects — and is affected by — market liquidity in a profound way.

Journal Article

Asset Pricing With Liquidity Risk

This paper presents a simple theoretical model that helps explain how asset prices are affected by liquidity risk — the inability to find buyers or sellers of securities at will — and commonality in liquidity. This liquidity-adjusted capital asset pricing model (CAPM) provides a unified framework for understanding the various channels through which liquidity risk may affect asset prices.

Journal Article

Regulating Systemic Risk

Systemic risk is the risk that the failure and distress of a significant part of the financial sector reduces the availability of credit which in turn may adversely affect the real economy.

Journal Article

Dynamic Trading With Predictable Returns and Transactions Costs

Active investors and asset managers — such as hedge funds, mutual funds and proprietary traders — try to predict security returns and trade to profit from their predictions.

Journal Article

When Everyone Runs for the Exit

The severe consequences for the global economy brought about by the 2008 liquidity crisis highlight the importance of liquidity risk.