For our first Deep Dive this week, we look at how the liquidity in the FX swaps market impacts FX spot markets. A new paper from the BIS looks at what has been driving the deterioration in this liquidity and how regulation could be partly to blame.
We turn to mutual fund returns for our second Deep Dive. In the past, there has been some academic support for mutual fund outperformance persisting. But a new paper by researchers at Yale University finds that the past outperformance of mutual funds is no longer an indicator of future outperformance.
Enjoy!
Bilal
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(total reading time: 2 mins)
For our first Deep Dive this week, we look at how the liquidity in the FX swaps market impacts FX spot markets. A new paper from the BIS looks at what has been driving the deterioration in this liquidity and how regulation could be partly to blame.
We turn to mutual fund returns for our second Deep Dive. In the past, there has been some academic support for mutual fund outperformance persisting. But a new paper by researchers at Yale University finds that the past outperformance of mutual funds is no longer an indicator of future outperformance.
Enjoy!
Bilal
How Regulation Has Distorted FX Market Liquidity (6 min read) The FX markets are the largest financial markets in the world with an average daily trading volume of over $6 trillion. The trading volume in FX swaps, which is the most liquid FX derivative instrument, has exceeded that of spot for many years – by 2019, it accounted for almost half of all trading in global FX markets
But despite this, prior research on the liquidity in FX markets has focused disproportionately on the spot markets, rather than FX swaps. BIS economists Vladyslav Sushko and Ingomar Krohn address this by analysing FX swap markets. They find compelling evidence that the liquidity conditions in FX swap markets impact spot markets and vice versa.
(Manan Shah │ 19th February, 2020)
Do Recent Winning Mutual Funds Maintain Their Outperformance?! (2 min read) Countless disclaimers tell us that “past performance is no guide to future performance”, but in mutual funds, many investors think it is. And not only do they use past performance as a guide, their actions are backed by several seminal academic studies from the 1990s – notably M. Carhart’s 1997 paper “On Persistence in Mutual Fund Performance”. However, Yale University academics J. Choi and K. Zhao recently updated Carhart’s work in their new paper “Did Mutual Fund Return Persistence Persist?” Their answer is no.
(Siddharth Latwal│19th February, 2020)
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)