Spring 2018

Tuesday, March 8th @ 12:30-2:00 PM (1011 Evans Hall)

Factor Strategies: Crowding, Capacity and Sources of Active Returns

Ananth Madhavan, Blackrock

We develop a methodology to estimate dynamic factor loadings using cross-sectional risk characteristics, which is especially useful when factor loadings significantly vary over time. In comparison, standard regression approaches assume the factor loadings are constant over a particular window. Applying the methodology to a dataset of U.S.-...

This talk will explore the cost of implicit leverage associated with an S&P 500 Index futures contract and derive an implied financing rate. While this implicit financing rate was often attractive relative to market rates on explicit financings, the relationship between the implicit and explicit financing rates was volatile and varied considerably based on legal and economic regimes. Among other findings, regulatory reform in 2000 appeared to reduce significantly the spreads between this implicit financing rate and contemporaneous Eurodollar and US Treasury rates.

Significant market events such as Flash Crash of 2010 undermine the trust of the capital market system. An ability to forecast such events would give market participants and regulators time to react to such events and mitigate their impact. For this reason, there have been a number of attempts to develop early warning indicators. In this work, we explore one such indicator named Probability of Informed Trading (typically shorten as PIN) and its variants. In an earlier test, a variant known as VPIN was demonstrated to show a strong signal more than an hour before the Flash Crash of 2010....

We argue that emotional coloring of experiences via political propaganda has long-term effects on risk taking. We show that living in an anti-capitalist system reduces individuals' willingness to invest in the stock market even decades later. Utilizing a large comprehensive data set of 300,000 clients of a German discount broker, we find that even today East Germans invest less in the stock market, both at the extensive and the intensive margin, are more likely to hold stocks of communist countries, and are less likely to hold stocks of capitalist institutions and countries. Effects are...