Category: Your Money

Some HFT strategies to be banned in EU

“There are particular automated strategies that have been identified by regulators which, if carried out, are likely to constitute market abuse,” the European Commission document says. “Further identifying abusive strategies will ensure a consistent approach in monitoring and enforcement by competent authorities.”

Among other strategies, the Brussels-based commission specifically targets:

  • Layering: in which traders place large orders they have no intention of allowing to go through,
  • Quote stuffing: in which investors seek an advantage by delaying data feeds, and
  • Spoofing: in which market participants try to trick other computers into making decisions that can be exploited for profit.

Read the Bloomberg article here.

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Hedge-fund manager calls Fed’s policy ‘superstition’

John Hussman says the only basis for further Fed action is superstition in the absence of either fact or theory.

Effective policy acts to relieve some constraint on the economy that is actually binding. Effective policy has some “transmission mechanism,” where changes in the policy target can be expected to translate into decisions that improve the allocation of resources and the level of activity in the economy. Effective policy is also preferably grounded in historical evidence that supports its effectiveness, or at the very least does not contradict the action. At present, the policy menu advocated by Ben Bernanke has none of these advantages.

Read more here.

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Are mutual funds worth it?

Mutual funds in India

Image via Wikipedia

There a mind-boggling number of mutual funds operating in India. According to the AMFI, there are about 42 fund houses, offering more than 4500 funds! They span equities, fixed-income and hybrids with a whole host of options available for pay-outs, tax-planning, etc. With so much on offer, one would think that there must be a solid value proposition that allows so many players in the market.

However, it appears that most mutual funds in India underperform their benchmarks! According to a June 2011 study by CRISIL:

Among equity-oriented funds, majority of large cap and diversified equity funds underperformed their benchmark indices, viz, the S&P CNX Nifty and the S&P CNX 500, respectively, in all three time periods of analysis (1, 3 and 5 years).

In case of equity-linked saving schemes (ELSS), majority of funds have underperformed the
benchmark S&P CNX 500 over the 3 and 5 year time frames. The ELSS category (investments are intended for tax saving and typically have a 3-year lock-in) witnessed 57% and 65% of the funds underperforming the benchmark S&P CNX 500 over the 3 and 5 year time frames, respectively.

Here’s a snippet from the report:


So the question remains: why are investors paying asset management fees to fund-managers for under-performing the benchmarks? Why not invest in ETFs where you are at least tracking the market (at a much lower fee)?

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Europe’s Problems Summed Up

Moses with the tablets of the Ten Commandments...

Image via Wikipedia

Pythagorean theorem: 24 words
Lord’s prayer: 66 words
Archimedes’ Principle: 67 words
Ten Commandments: 179 words
Gettysburg address: 286 words
US Declaration of Independence: 1,300 words
US Constitution with all 27 Amendments: 7,818 words
EU regulations on the sale of cabbage: 26,911 words

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