This is a summary of links featured on Quantocracy on Wednesday, 09/01/2021. To see our most recent links, visit the Quant Mashup. Read on readers!
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Purchasing Power Parity [Quant Dare]Purchasing Power Parity (PPP) is a well-known measure used to compare the currencies of different countries in terms of price levels. So, in this post, we are going to explain PPP and study, through an example, its relation with the currency pairs. PPP is based on the law of one price (LOOP). For that reason, in order to understand PPP, first, we are going to explain the LOOP. This law states that
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VVIX/VIX as a Return Indicator? [CXO Advisory]Is the ratio of implied volatility of implied volatility (CBOE VVIX Index), interpretable as a measure of changes in investor fear level, to CBOE VIX Index itself a useful indicator of future stock market returns? To investigate, we relate monthly VVIX/VIX and monthly change in VVIX/VIX to monthly SPDR S&P 500 (SPY) total returns. Using end-of-month levels of both VVIX and VIX and
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Mutual Funds: Negative $125B in Value-Add? [Alpha Architect]Elton, Gruber, and Busse (2004) as well as Hortacsu and Syverson (2004) suggest that mutual fund markets are not perfectly competitive and that fees do matter to investors. In contrast, the neoclassical view of mutual funds (see for example Berk and Green, 2004; Pastor, Stambaugh and Taylor, 2019 and others) implies that fees do not matter because with competitive markets and rational investors,