How it trades affects how it behaves

Part of a continuing series of facts that seem obvious, but are in fact news: the changing nature of equity market trading (more bots, more ETFs) has affected the dynamics of the market. (See here for a previous item.) Specifically, according to FT alphaville (who cite Barclays research) equity correlation has had a close relationship […]

Economics – a sensible view from a warmer clime

DeLisle Worrell, Governor of the Central Bank of Barbados, had these sensible words to say in a speech recently: Traditional Economics remains trapped in a time warp defined by the concepts that Leon Walras borrowed from the physics he knew at the time of the development of the marginalist theory of market economics which underpins […]

Basel update

From the Committee, edited down for brevity: The Committee retained most of the definition of capital proposals set out in the December 2009 consultative package. However, it concluded that certain deductions could have potentially adverse consequences and may not appropriately take into account evidence of realisable valuations during periods of extreme stress. Therefore, the following […]

Balance sheet sensitivities

FT alphaville has an interesting post on the Spanish stress test results. They quote Deustche bank research as follows: We regard the impairment assumptions (both on sovereign and the different credit buckets) as sufficiently severe and consistent. We are, however, less convinced by and have lower visibility on what is included in and how the […]

I have been on a short trip, and I bring back for you…

… the worst knock-knock joke ever. Knock knock. Who’s there? Sutton. Sutton Hoo?

The great regulatory capital game – an experiment in crowd sourcing policy

Here’s something I would like to do – it is far too much work for me (or I suspect less than a team of 30) to actually do, but never mind that, let’s just run with it. First, build a mini model of the banking system as a set of autonomous agents. You’ll need a […]

How much stimulus can technology absorb?

Here’s an interesting conjecture from the Futurist. First he points out that we have had a massive stimulus, yet this has not lead to inflation. Remember, $1T of liquidity and an essentially zero FED funds rate have not lead to any prospect of inflation. Now you all I am sure know the conventional explanations of […]

Bish, bosh, Basel

Underground, overground, Baseling free The people of the BIS thirty are we Making good use of the things that we find Things that the everyday banks leave behind OK, OK, that was a cheap shot, but I did like the Wombles when I was a kid, and the Basel Committee is meeting today to work […]

Sweet pea, serious problem

The good news is that June’s sunshine has left me with some gorgeous flowers. The bad news is that last month was the hottest June ever recorded worldwide and the fourth consecutive month that the combined global land and sea temperature records have been broken, according to the US government’s climate data centre. Our failure […]

And here comes Hurst, they think it’s all over! It is now!

There has been some comment recently about a paper by Reginald Smith on the impact of high frequency trading (HFT) on market dynamics. I want to spend a little timing explaining what the paper says, roughly, and why it matters. We can clearly demonstrate that HFT is having an increasingly large impact on the microstructure […]

Quote of the day

From Steve Randy Waldman at Interfluidity: I feel about the financial sector the same way I would feel about my morphine dealer after looking down to find piranha feeding between my ribs. That’s a little unfair, but you take his point. However much you might despise bankers (and I like a good few of them) […]

Why we do crazy things

Rajiv Sethi makes an important and subtle point in a post on Naked Capitalism. He is discussing the behaviour finance literature, and in particular the idea that failure to correctly estimate the probability of bad outcomes leads to the design of unsafe securities that look safe: …what troubles me about this paper (and much of […]

CCP collateral and why it matters

An interesting article in Risk magazine by Mark Pengelly raises some questions about the range of collateral accepted by some CCPs: One New York-based head of collateral at a major dealer says the types of collateral often accepted by CCPs can also create wrong-way risk: “If you look at the clearing house structures, the types […]

Like a suburban Sunday

Looking at last night’s equity index closes (most things down 0.5%), I get the feeling that this the pattern for the rest of the year. Mild disappointment. We are drifting lower on a slowing economy on both sides of the atlantic. My rationale for an extended period of boredom is a combination of government spending […]

The long view

Just to remind ourselves how unnecessary the Osborne deficit fetishism is, here’s the long view of UK net public debt

Freeland sensibilities

As Reuters correspondents go, Chrystia Freeland is sensible, certainly more so than some of her fishy colleagues. She recently pointed out the importance of systemic weakness rather than people in the Crunch, a point I have been making since it began: Blaming the crisis on human error is a lot easier than trying to work […]

How culture specific is the Kruger-Dunning effect (and what can you do about it)?

I do try, on occasion, to write boring titles, but with this one, honestly, I think I’ve set the bar fairly high. Bear with me. The Kruger-Dunning effect is the phenomenon whereby the worse someone is at performing in a given domain, the worse they are at estimating how good they are. The great performers […]