Capital Asset Pricing Model (CAPM)

While I am a believer of APT more than of CAPM, I will share some of my findings on CAPM. CAPM has many flaws: there are capital taxes, high transaction cost on illiquid securities with few floating shares, licensed leveraged funds do influence prices with outsized positions, different analyst has a different expectations of a... Continue Reading →

Is inflation targeting still a macroprudential goal for central banks? What does a large foreign exchange reserve means?

Concerns about recent Fed hiking was also about the years of undershooting inflation targets set by the Fed, and the Fed behind the curve with respect to rising inflation. Accordingly, policy should be set with a view to achieving modestly above-target inflation, perhaps 2.3 or even 2.5 per cent, during a boom with the expectation that... Continue Reading →

Basel I Minimum Capital Requirements

In the business of taking risk on both sides of the balance sheet, holding capital is necessary to provide protection against unexpected losses. This is not the same as expected losses, which are covered by provisions, reserves and current year profits. Basel I map out the risk weights for any credit (counterparty) exposure for on-balance sheet assets, as well as further... Continue Reading →

FRM part I review (May 2017, Singapore)

Finally, after weeks of intensive study of financial concepts from a non-finance major undergraduate, I managed to get through this. Why FRM, not CFA? If you take a look at the FRM 2017 learning objectives, you will realise that GARP does not make reference to books from CFA (the exam provider herself) but references authors who are... Continue Reading →

Reconciling interest rate parity and the real world

We all ever once heard contributors at Bloomberg talked about ineffectiveness of the Taylor rule to prompt Fed hiking earlier, or your macroeconomics professor talking on Purchasing Power Parity and Interest Rate Parity. Seems like a knowledge that would allow an undergraduate to make side incomes from tracking the rate differential. But that's unlike reality... Continue Reading →

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