Blog

Our experts frequently write blog posts about the findings of the research we are conducting.

Displaying 21-30 out of 108 results for "ETF".

Morgan Stanley's Excessive Municipal Bond Markups

(Aug 2013)

Yesterday, FINRA fined Morgan Stanley for best execution and for charging excessive markups or markdowns. We have been covering markups extensively, and we have taken the Morgan Stanley municipal bond transactions identified by the FINRA action and applied our markup calculation methodology to calculate the distribution of markups charged by Morgan Stanley.

Let's start with an example. FINRA flagged a customer purchase of $145,000 in a West Virginia municipal bond (CUSIP: 95639RBW8) on...

Do Leveraged ETFs Increase Stock Market Volatility?

(Aug 2013)

Leveraged exchange-traded funds (LETFs) are controversial investments. Because they can be leveraged as much as 3x, and can be linked to highly volatile underlying assets, their daily price movement is typically very dramatic. Also, LETFs tend to lose value over time if their underlying assets are relatively volatile due to rebalancing effects, something we've covered in our blog post "Leveraged ETFs", as well as in our research papers, "Leveraged ETFs, Holding Periods and Investment...

The Effect of Oil Futures Markets on ETF Investors

(Aug 2013)

Barron's reporter Brendan Conway is reporting on a relatively rare phenomenon occurring in oil markets that is benefiting some passive investors. Futures contracts for oil are generally more expensive as the time to expiration increases -- i.e. a contract expiring later is usually more expensive.The story goes that there are costs associated with storing oil and as a result the futures prices reflect the impact of these storage costs.

The current situation in the oil markets is the reverse:...

Municipal Bonds Trading in ETFs

(Aug 2013)

About a month ago, we spent a full week highlighting research conducted at our firm that shows the degree to which investors are harmed by excessive markups in municipal bond trading. In the paper, our colleagues argue that low-cost improvements in disclosure requirements could largely eliminate these transfers of wealth from taxpayers and investors to the brokerage industry.

After the research was completed, we began thinking about other ways investors gain exposure to municipal bonds. For...

JP Morgan to Exit the Physical Commodities Business

(Jul 2013)

The Wall Street Journal is reporting that JP Morgan plans to sell their physical commodities assets "amid heightened regulatory scrutiny of Wall Street's ownership of such assets."¹ JP Morgan joins several other investment banks, including Goldman Sachs and Morgan Stanley, who are looking to sell or wind down their stakes in physical commodities.

According to the WSJ, the sale by JP Morgan will include trading desks that trade metals, power and fossil fuels. JP Morgan has drawn particular...

Why Banks Are Storing Physical Commodities, and Why it May Matter

(Jul 2013)

Physical commodities -- barrels of oil, bars of gold, bushels of wheat, etc. -- are used for a variety of industrial purposes, but can also be bought and sold in financial markets. Most commodities trading involves futures contracts, as trading the physical commodity itself involves transportation and storage costs. Traditionally, banks who traded commodities were only allowed to deal in derivatives such as futures contracts, rather than dealing in the physical commodity itself.

But since the...

Persistence Scorecard: Even Harder to Stay on Top

(Jul 2013)

S&P Dow Jones Indices has recently updated their semiannual Persistence Scorecard, which studies the consistency of returns for actively managed US equity mutual funds. Like the previous Persistence Scorecard from December 2012, the updated study finds little evidence that actively-managed mutual funds can outperform stated benchmarks on a consistent basis.

In fact, the results are rather worse than in the previous study. The report highlights three factors:

Percentage of funds in top quartile...

VelocityShares' New Volatility ETFs

(Jul 2013)

You've heard it here before: hedging equity exposure with volatility derivatives is very tricky.

While the CBOE Volatility Index (VIX) and the S&P 500 are negatively correlated suggesting a possible hedging opportunity, you cannot invest in the VIX itself, you have to invest in derivatives (futures or options) linked to the VIX. The simple fact is that this indirect exposure to the VIX does not behave like the VIX itself, making it in the end a rather poor hedge to equities .

But issuers of...

Structured Investments Linked to Proprietary Indices

(Jun 2013)

Structured products are often linked to well known indices like the S&P 500 or the Dow Jones Industrial Average, but recently it has become more and more common for banks to issue structured investments linked to proprietary indices that they create themselves. The use of proprietary indices (also known as 'self-indexing') has begun to arouse suspicion from various sources and so we thought we'd take a step back and talk about the issue for a moment.

Structured products linked to well-known...

Foreign Exchange Rate Fixing

(Jun 2013)

Bloomberg News recently reported that traders at some of the world's largest banks have been in the business of rigging foriegn exchange (FX) rates. An FX rate essentially tells you how much of one currency you can buy with another currency: for example, currently you can buy about 100 Japanese yen for each US dollar. The rates affect "trillions of dollars of investments" according to Bloomberg, since they are used for the valuation of portfolios, derivatives, and even equity and fixed...

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