Low correlation and poor diversification: how is it possible?

Posted on 02. Sep, 2013 by Jean Jacques Ohana in Weekly Focus

As showed by Riskelia’s financial market integration (figure 1), the interdependence of financial markets has significantly receded. Therefore, the whole markets moves are less correlated and less driven by the so-called “risk on / risk off” factor (combining positive positions on risky assets and negative exposure on bonds). Riskelia’s financial market integration is very similar [...]

Developed vs. emerging stocks: mind the gap!

Posted on 08. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

The divergence between the trends of connected assets conveys a very different type of information than the decorrelation between their daily returns. While the latter corresponds to a genuine change of status (e.g. one of the assets shifts from “risky” to “safe haven” or the other way round) and is very rarely observed, the former [...]

Review of the troops after the liquidation

Posted on 01. Jul, 2013 by Jean Jacques Ohana in Weekly Focus

The global selloff which hit all asset classes at the same time made significant damage in term of financial stability.

As stated by Riskelia since March 2013, many assets were in bubble territory, in particular risky debts and equities. As showed in figure 1, equities’ exuberance is presently over.

Liquidity has clearly tightened in key systemic links [...]

My name is “Bond”, guess my first name

Posted on 22. May, 2013 by Jean Jacques Ohana in Weekly Focus

Stories about the burst of bonds bubble have recently flourished as US interest rates have risen over the last weeks. We show in this study that bonds are not a homogeneous asset class. We have chosen to map corporate credit debt, sovereign and emerging bonds along two dimensions:

The first dimension characterizes the “risk on” or [...]

Is there a scenario where Government yields significantly rise? Not so sure…

Posted on 25. Feb, 2013 by Jean Jacques Ohana in Weekly Focus

As OECD Government yields are still near their lowest levels ever, it is mentally convenient to think that the only path is a rise in interest rates. By the same token, many analysts recommend borrowing money now since yields are expected to sharply increase in the future.

After 6 months of abundant liquidity and steady increase [...]

A hierarchy of speculative bubbles in risky assets

Posted on 28. Jan, 2013 by Jean Jacques Ohana in Weekly Focus

We can define risky assets as the ones which are positively related to equities. In this respect, the correlation table over the last 5 years shows that, besides equities, the short dollar and short yen sides are clearly in the risky assets side, together with commodities, the Hedge Funds HFRX, emerging debts and high yield [...]

The euro zone is losing the currency war

Posted on 21. Jan, 2013 by Jean Jacques Ohana in Weekly Focus

Since the improvement in the risk appetite, investment flows have driven the euro higher vs. every major currency (figures 2 and 3). As showed in figure 1, the insatiable quest for yield has driven investors’ appetite for the euro as a carry trade currency. As a matter of fact, the average 2 years Euro MTS [...]

The Japanese reflation experience should be a model for the euro zone

Posted on 14. Jan, 2013 by Jean Jacques Ohana in Weekly Focus

Japanese Prime Minister Shinzo Abe is not an economic thinker. He is rather nationalist, populist and aggressive towards China. Meanwhile, his unique ability to ignore the conventional austerian wisdom deserves to be highlighted.

Japan carries out a unique experiment within the G10 countries, by combining both monetary and fiscal stimulus. After urging the Bank of Japan [...]

Another S&P 500 flash crash: how excess liquidity kills the financial system

Posted on 24. Dec, 2012 by Jean Jacques Ohana in Weekly Focus

Last Thursday, the S&P 500 Futures price fell by 3.23% in just 15 minutes following the decision of Republican House Speaker John Boehner to call off a confidence vote on a compromise on the fiscal cliff. The S&P 500 recovered subsequently 2% and ended the day only 1% lower.

The event was singularly followed by declines [...]

Why Quantitative Easing alone won’t make commodities rise

Posted on 10. Dec, 2012 by Jean Jacques Ohana in Weekly Focus

The performance of risky assets since 2011 has been highly contrasted (figure 1). The Iboxx High Yield provided by far the highest risk-adjusted return. Whereas equities and precious metals have ended close to neutrality over the last two years, there has been a rift between the positive total return performance of Agriculture and Oil on [...]