Stock picking

An interesting transaction-level study we take a closer look at today asks who takes the other side of trades when the most pro-cyclical players in markets — primarily asset managers — buy in booms and sell in busts. The paper uses comprehensive transaction data across major European equity and interest-rate cash and derivatives markets to classify counterparties by sector and to measure, at horizons from 15 minutes to one month, which sectors absorb net flows from pro-cyclical investors. Dealer banks emerge as the dominant liquidity providers across asset classes. At intraday and daily horizons, dealer banks absorb the vast majority of the net flow coming from asset managers. Other active liquidity sources, such as principal trading firms and hedge funds, play only minor roles.

Market concentration has become one of the most discussed structural risks in today’s equity markets. A small group of mega-cap stocks—often the largest five to ten names—now accounts for an unusually large share of major market indices. This has led to widespread concerns that such concentration makes markets more fragile and that elevated index weights at the top may foreshadow weaker future returns. Many investors worry that history is repeating itself and that extreme concentration today implies disappointment tomorrow.

One year is again behind us (in this case, it was 2025), and we are all a little older (and hopefully richer and/or wiser). Turn-of-the-year period is usually an excellent time for a short recap. Over the past 12 months, we have kept our pace and published nearly 70 short analyses of academic papers and our own research articles. So let’s summarize 10 of them, which were the most popular (based on the Google Analytics ranking). The top 10 is diverse, as usual; once again, we hope that you may find something you have not read yet …

Over the past seven decades, U.S. equity-market volatility has roughly doubled—from about 10% to 20%—and this increase is concentrated at the market level and at high frequencies (daily volatility up by ~130%, weekly by ~75%, monthly by ~40%). A new paper by Lars Lochstoer and Tyler Muir argues that this structural change is not driven by macroeconomic fundamentals or firm-level shocks but by the dramatic growth of index-level trading (futures, ETFs, index mutual funds, and extended trading hours). Using statistical investigations—the 1997 introduction of E‑mini S&P 500 futures and historical NYSE trading‑hour changes—the authors provide causal evidence that easier and larger trading of the market portfolio has raised aggregate volatility through higher trading volume and a shift toward systematic demand shocks.

Gold has been in the headlines lately as it climbs to new highs, prompting many investors to look for ways to benefit from the rally. However, many institutional investors – such as mutual funds and pension funds – face restrictions on buying physical gold or gold-backed ETFs. Instead, they often turn to gold mining stocks to gain indirect exposure to gold’s price. That approach seems logical on the surface: mining stocks typically offer leveraged exposure to gold’s movements. But as highlighted by Dirk G. Baur, Allan Trench, and Lichoo Tay in their recent study “Gold Shares Underperform Gold Bullion”, this strategy can be misleading. The authors demonstrate that, over the long run, gold mining shares structurally underperform physical gold itself.

The low-risk anomaly in financial markets has puzzled researchers and investors, challenging the traditional risk-return paradigm (higher risk->higher return). This phenomenon, where low-risk assets outperform their high-risk counterparts on a risk-adjusted basis, has been observed across various asset classes, including stocks and mutual funds. What may be the possible explanation? Pass-through mutual funds, which aim to replicate the performance of specific market indices, play a crucial role in this context by channeling investor flows and potentially influencing asset prices through demand pressure.