SLCG Research: Day-Count Conventions
(May 2012)
Earlier this month, SLCG finished a short research paper on the ubiquitous, but often overlooked, aspect of interest-bearing investments: day-count conventions. Day-count conventions (DCCs) refer to the various procedures used to compute the amount of time elapsed for the purposes of interest accrual. These conventions effect the payments we receive/pay on everything from mortgages to credit cards, from savings accounts to interest rate swaps.
Usually these conventions are written as a...
SLCG Research: Reverse Convertibles and Stochastic Volatility
(Feb 2012)
We've talked a lot about structured products -- and reverse convertibles in particular -- on this blog. In this blog post we discuss reverse convertibles in more detail and present some results found in a new research paper my colleagues and I have just completed.
Reverse convertible notes -- or simply "reverse convertibles" -- are structured products whose payoff at maturity is dependent upon the return of an underlying asset or security during the tenor of the note. If the underlying asset...
SLCG Research: Futures-Based Commodity ETFs
(Jan 2011)
SLCG released today a new study about Futures-Based Commodity ETFs. In the past decade the price of commodities has increased substantially and many investors have wanted to diversify their portfolios by including commodities. The most common way to invest in commodities is by buying futures contracts, which requires a good understanding of the pricing of futures contract and specific features of the futures market.
In the past few years we have seen many firms offer Commodity Exchange...
SLCG Research: Preferred Stock Portfolios
(Jun 2010)
SLCG released today 'The Risks of Preferred Stock Portfolios'.
Preferred stocks have characteristics similar to both debt and equity. Like debt, preferred stocks make fixed or floating dividend payments similar to coupon payments of debt. Like equity, the dividend payments are not an obligation of the issuer and a failure to make dividend payments does not constitute a default. Holders of preferred stocks have claims on the income and assets of the issuing company before common equity...
SLCG Research: Charles Schwab YieldPlus
(Jul 2009)
SLCG released today 'Charles Schwab YieldPlus Risk'
This paper reports on the Charles Schwab YieldPlus, a bond fund. YieldPlus returned -31.7% between June 2007 and June 2008. Though it told investors that it was an ultra short bond fund, it was in fact an ultra long bond fund. It held securities backed by illiquid long-term private label mortgages, violating concentration and liquidity limits stated in its prospectus. Up until 2007, these securities helped YieldPlus generate...
SLCG Research: Equity Indexed Annuities
(Sep 2008)
SLCG released today 'An Economic Analysis of Equity-Indexed Annuities'.
On June 25, 2008, the Securities and Exchange Commission (SEC) issued a rule proposal to exclude equity-indexed annuities from exemption from Federal securities laws. By requiring registration of equity-indexed annuities under Federal securities laws, the rule gives investors of equity-indexed annuities the same protection as it gives to investors of other securities similar to equity-indexed annuities.
In this...
SLCG Research: Collateralized Mortgage Obligations
(Jun 2007)
SLCG released today 'A CMO Primer: the law of Conservation of Structured Securities Risk'.
Recently, the finance industry witnessed the bailout of two Bears Sterns hedge funds and the collapse of Brookstreet Securities. Both had portfolio holdings of collateralized mortgage obligations (CMOs) and suffered huge losses thereof. We have seen such CMO losses before, when in 1994 interest rates rose, CMOs fell in value and bond mutual funds suffered unexpected losses.
In this paper, Dr....
