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How do trend-following managed futures generate 'crisis alpha'?
Trend-following takes long/short futures across asset classes based on momentum. Generates crisis alpha during sustained bear markets. 5-15% typical allocation.
Why do companies do reverse stock splits and what does it signal?
Reverse splits consolidate shares to raise per-share price. Motivations include exchange listing compliance (5 penny stock rules), reduced short pressure, and pre-merger cleanup. Generally a negative signal — reverse-splitters underperform by 20-40% over 3 years...
What does the forward curve tell us about future rate expectations?
The forward curve is the market-implied future spot curve, assuming no-arbitrage. Under PEH, forward = expected future spot, but empirically there's a positive term premium (~0–100bps) so forwards overstate expected future rates.
What are the required disclosures in a GIPS-compliant presentation?
GIPS requires a specific compliance statement, firm/composite definitions, benchmark rationale, fees, 5-10 years of returns, dispersion, and ex-post standard deviation.
What internal controls does GIPS require for risk measurement?
GIPS internal controls require documented policies on composite inclusion, valuation, calculation, error correction, documentation retention, and ex-post risk measurement.
What is pecking order theory and why do firms prefer internal funds?
Pecking order: information asymmetry makes equity costly to issue, so firms prefer internal funds, then debt, then equity. Explains negative profitability-leverage relation and infrequent equity issuance.
What is PME (public market equivalent) and how does it measure PE manager skill?
PME compares PE returns against investing same cash flows in a public benchmark. KS-PME >1 means outperformance; accounts for timing and vintage effects...
When should I use Poisson regression and how do I interpret it?
Poisson regression models count data using Poisson distribution with log link. Coefficients are interpreted as log rate ratios; key assumption is equidispersion...
What is the Capital Market Line and how does it differ from the CAL?
The CML is the specific CAL drawn from rf through the market portfolio. It has the steepest possible slope and represents all efficient portfolios when a risk-free asset exists...
What does Regulation FD prohibit and how do firms stay compliant?
Regulation FD prohibits US public companies from selectively disclosing material non-public information to securities market professionals without simultaneously disclosing to the general public...
How does currency selection effect work in global fixed income?
Currency effect = sum of (Active FX Weight x Currency Return vs Base). Atlas's +10% EUR (+3%) and -10% JPY (-2%) produced +50bps total. Separate from local bond returns and hedging P&L; requires Karnosky-Singer framework for proper decomposition.
What is cointegration and how is it used in pairs trading?
Cointegration: non-stationary series with a stationary linear combination, implying long-run equilibrium. Used in pairs trading via Engle-Granger or Johansen tests.
How does the augmented Dickey-Fuller (ADF) test work?
ADF test checks for unit root. Null is non-stationary; reject when t-stat on lagged level is more negative than critical value. Difference non-stationary series until stationary.
Why is the inverted yield curve considered a recession indicator?
The yield curve inverts when short-term yields exceed long-term yields...
What is a butterfly trade on the yield curve?
A butterfly trade positions across three maturities to profit from changes in curve curvature...
How do I value the abandonment option on a failing project?
An abandonment option is a put on the project: management can 'sell' continuing operations and receive the salvage value V_s at any time before project end...
What is embedded finance, and how does banking-as-a-service enable non-financial companies to offer financial products?
Embedded finance integrates banking, lending, and insurance into non-financial platforms via APIs. A three-layer architecture — platform, BaaS middleware, and licensed bank — enables any company to offer branded financial products. This increases platform ARPU while disintermediating traditional branches.
What happens during the de-SPAC transaction, and how is the target company valued and priced?
The de-SPAC transaction merges the SPAC shell with the identified target. Ownership is split among target founders, SPAC public shareholders, sponsors, and PIPE investors based on the negotiated valuation. PIPE commitments provide cash certainty, and earnouts bridge valuation disagreements.
How is K-means clustering used to group assets for portfolio construction, and what are its limitations with financial return data?
K-means clustering partitions assets into groups by minimizing within-cluster variance based on return characteristics rather than subjective sector labels. It reveals natural groupings but assumes spherical clusters and is sensitive to outliers — important limitations for financial data.
How does bounded rationality affect market outcomes, and when do heuristic shortcuts lead to systematic pricing errors?
Bounded rationality means investors use heuristics like representativeness, availability, and anchoring instead of full optimization. These shortcuts work well in stable, repetitive environments but create systematic pricing errors when conditions are novel, emotionally charged, or involve small samples.
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