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What are the main fixed-income hedge fund strategies?
Fixed-income hedge funds use arbitrage (on/off-the-run, swap spread, basis), global macro (curve, carry), credit strategies, mortgage/structured, and EM debt. High leverage; tail risks from liquidity and correlation.
How has the SOFR transition from LIBOR changed swap pricing?
The SOFR transition fundamentally reshaped swap mechanics. SOFR is secured and backward-looking, unlike the unsecured forward-looking LIBOR...
Is there a canonical sector rotation playbook tied to the economic cycle?
Early recovery favors cyclicals and financials. Mid expansion favors tech and industrials. Late expansion favors energy and materials. Recession favors defensives.
Why is smile risk a bigger deal for exotic options than vanillas?
Vanillas reference a single strike, so you only need one point on the smile. Exotic payoffs reference paths, barriers, or averages that depend on vols at MULTIPLE strikes over time...
Why can IFRS reverse inventory write-downs but US GAAP cannot?
US GAAP treats write-downs as new cost basis (permanent floor), while IFRS treats them as temporary valuation allowances reversible up to original cost. Zenith's $170 recovery hits current earnings under IFRS but defers to sale date under GAAP.
What is the resource curse and why do commodity-rich countries often grow slowly?
Resource curse links commodity abundance to slow growth through Dutch disease, volatility, rent-seeking, weak institutions, and conflict. Strong institutions can reverse it.
What is the joint hypothesis problem in market efficiency testing?
Any EMH test jointly tests efficiency AND the pricing model used. Dr. Venkataraman's 3.2% small-cap alpha disappears under Fama-French, illustrating model-dependence.
When is the Gordon (single-stage) DDM appropriate and what are its key assumptions?
Gordon applies to mature dividend-paying firms with stable growth below the required return — sensitivity to r−g requires disciplined assumption setting.
What's the difference between permanent and temporary working capital?
Permanent working capital is the minimum level of current assets a company must always hold. Temporary working capital is the additional amount needed during peaks.
How do you extend Porter's Five Forces for modern industry analysis?
Extend Porter's with complementors, regulation, network effects, data moats, and talent intensity — better for platform and digital industries.
What's the actual difference between smart beta and factor investing?
Smart beta is long-only rules-based cap-weight replacement. Factor investing is broader, often long-short, and can span asset classes.
What are the key cash flow quality indicators and red flags that analysts should monitor?
Key cash flow quality indicators include the OCF-to-net-income ratio, free cash flow trends, operating accruals, DSO changes, and capex-to-depreciation ratios. An OCF/NI ratio persistently below 1.0 with rising accruals is a major red flag suggesting earnings may not be supported by cash generation.
What are the Beneish M-Score components, and how do they help detect earnings manipulation?
The Beneish M-Score uses eight financial ratios including days sales in receivables, gross margin index, asset quality, and total accruals to detect earnings manipulation. A score above -1.78 suggests a high probability of manipulation. Each variable captures a different dimension of potential accounting distortion.
When can a company remove factored receivables from its balance sheet?
Factored receivables can be removed from the balance sheet only when the transfer qualifies as a true sale with no significant recourse. If the seller retains credit risk through recourse provisions, analysts should treat it as a secured borrowing by adding back receivables and recognizing an equivalent liability.
How is the Stress Capital Buffer (SCB) calculated and what are its implications?
SCB = max(starting CET1 - trough CET1, 2.5%) + 4 quarters of dividends. Sets firm-specific buffer above 4.5% minimum plus G-SIB surcharge.
What is DFAST and how does it differ from CCAR?
DFAST is statutory with standardized capital actions; CCAR is supervisory with planned capital actions and drives the SCB. DFAST applies to Cat I-IV, CCAR historically to largest.
How do you run operational risk scenario analysis workshops that produce credible loss estimates?
Use structured elicitation with independent estimation, anonymous dispersion display, and bias awareness to produce defensible operational risk scenario estimates.
What is the effective spread and how is it different from the quoted spread?
Quoted = ask-bid; Effective = 2|P-mid| (actual cost); Realized = 2|P-mid_t+5| (MM revenue after impact)...
What is the order processing cost component of the spread?
Processing cost covers fixed costs of maintaining markets: tech, fees, capital, personnel — relatively stable component...
What is repricing gap analysis and what are its limitations?
Repricing gap analysis groups assets and liabilities into time buckets based on when they next reprice, then computes the gap in each bucket.
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