January was the month that the bull market treated itself to a “new all-time high party” in New York. The S&P 500, Dow Industrials and Transports, the NASDAQ, the NYSE Composite and the NYSE daily advance/decline line have all made new all-time highs recently. For good measure, London’s FTSE joined the party in mid-month. And Toronto’s S&P/TSX Composite Index came within 11 points of making its own new high. Weekly charts, which provide a good longer-term perspective, remain unreservedly bullish. Major market indices are well above their rising 200-day Moving Averages and most charts show strong patterns of rising highs and rising lows. Individual sectors and stocks continue a pattern of rotational corrections, with new leadership arising as previous leaders take a rest. “Dow 20,000” may have captured the media’s attention, but it is the NASDAQ that is now showing signs of wanting to take the lead in the bullish

Editor’s note: this was originally published at the CBOE Blog on January 20, 2017 and is reprinted here as an example of how to less well known risk management too.

Introduction to CBOE SKEW Index (“SKEW”)

The crash of October 1987 sensitized investors to the potential for stock market crashes and forever changed their view of S&P 500^® returns. Investors now realize that S&P 500 tail risk – the risk of outlier returns two or more standard deviations below the mean – is significantly greater than under a lognormal distribution. The CBOE SKEW Index (“SKEW”) is an index derived from the price of S&P 500 tail risk. Similar to VIX^®, the price of S&P 500 tail risk is calculated from the prices of S&P 500 out-of-the-money options. SKEW typically ranges from 100 to 150. A SKEW value of 100 means that the perceived distribution of S&P 500 log-returns is normal, and the

Editor’s note:  This was originally published in Sight Beyond Sight on Januray 2, 2017 and is reprinted here with permission as an example of actionable macro-analysis. . To learn more, please visit Sight Beyond Sight.  

We are focused on one currency to begin 2017 – the Swedish krona (SEK).

Before the last Riksbank meeting on December 21^st, the Finance Minister, Financial Supervisory Authority (FSA), and National Institute of Economic Research (NEIR) all questioned whether the timeframe for reaching the Country’s inflation target should be “relaxed.” Even Parliament is now reviewing the mandate of the Riksbank.

More importantly, at the meeting, three members dissented from any the further extraordinary policy, while a compromise was reached to slow the pace of monthly asset purchases. While not a consensus view just yet there is an argument that

Editor’s note: This is a brief extract of a research paper that can be downloaded from SSRN.com.

Abstract: Most common stocks do not outperform Treasury Bills. Fifty eight percent of common stocks have holding period returns less than those on one-month Treasuries over their full lifetimes on CRSP. When stated in terms of lifetime dollar wealth creation, the entire gain in the U.S. stock market since 1926 is attributable to the best-performing four percent of listed stocks. These results highlight the important role of positive skewness in the cross-sectional distribution of stock returns. The skewness in long-horizon returns reflects both that monthly returns are positively skewed and the fact that compounding returns over multiple periods itself induces positive skewness. The results also help to explain why active strategies, which tend to be poorly diversified, most often underperform.

I. Introduction

The question posed in the title of this paper may seem nonsensical. The