The Alpha Capture Ratio: Rising Interest Rates Mean Pricier Alpha
The rapid ascent of the federal funds rate from near 0% in 2022 to a 15-year high of 5.25% in July 2023 presents both an opportunity for hedge funds’ expected…
ChatGPT and Large Language Models: Syntax and Semantics
For more on artificial intelligence (AI) in investment management, check out The Handbook of Artificial Intelligence and Big Data Applications in Investments, by Larry Cao, CFA, from the CFA Institute Research Foundation.…
The Auto Sector’s Green Transition: Three Roads to Lower Returns?
Three investment return trends related to the green transition concern me. These apply across all sectors but to automotive in particular. Here is how I see it. 1. Pricing is…
Small Caps: Party Like It’s 2000?
The legendary musician Prince exhorted us to “Party like it’s 1999,” but today, as a small-cap stock investor, I’d flip the calendar one year ahead, to 2000. That’s because by…
How Do Performance Metrics Correlate? Might Fund Managers Cherry-Pick?
Portfolio managers report their risk-adjusted performance using Sharpe, Treynor, information, and Sortino ratios, among other popular metrics. Of course, with various measures to choose among, might fund managers be tempted…
The Benefits of Using Economically Meaningful Factors in Financial Data Science
Factor selection is among our most important considerations when building financial models. So, as machine learning (ML) and data science become ever more integrated into finance, which factors should we…
Rethinking Corporate FX Hedging: Seeing the Forest through the Trees
“It often happens that a player carries out a deep and complicated calculation, but fails to spot something elementary right at the first move.” — Alexander Kotov, Chess Grandmaster Introduction…
Book Review: The Economics of the Stock Market
The Economics of the Stock Market. 2022. Andrew Smithers. Oxford University Press. Judging by the behavior of the stock market, we are living in challenging times for mainstream finance. Under…
Project Finance: Beware Interest Rate Miscalculations
Interest rates are like the weather. We can prepare for typical fluctuations, but sudden changes can still catch us by surprise. After the global financial crisis (GFC), for example, we…
Steve Blank Profound Beliefs
This post previously appeared in EIX. In the early stages of a startup your hypotheses about all the parts of your business model are your profound beliefs. Think of profound…
