The RBI has mandated that Indians can trade rupee derivatives only if they have an underlying exposure. Exchange-traded rupee derivative transaction volumes could plunge more than 80% as most traders will not be able to meet this requirement (reuters).
I wrote about why this is a bad thing at Varsity: RBI: Putting the Ex in Forex.
However, they seem to be fine with non-rupee derivatives (reuters). Speculate all you want but leave the rupee alone, apparently.
In the new scheme of things, the only people who are not allowed to hedge against a depreciating rupee are Indians in India.
Markets this Week
More here: country ETFs, fixed income, currencies and commodities.
Links
Research
How Does Expropriation Risk Affect Innovation? (NBER)
We find robust evidence that expropriation risk, such as corruption, negatively impacts innovation by reducing R&D expenditure, human capital in R&D, number of patents, scientific publications, and the Economic Complexity Index.
Risk-Adjusting the Returns to Private Debt Funds (NBER)
Using both equity and debt benchmarks to measure risk, a typical private debt fund produces an insignificant abnormal return to its investors. The rates at which private debt funds lend are not high enough to exceed both their fees and investors' risk-adjusted rates of return.
Retail Investors and Analysts (SSRN)
Do retail investors respond to analysts’ revisions? Revisions in recommendations and price targets portend greater retail trading in the direction of the revision. Revisions in EPS forecasts create more retail trading, regardless of the direction of the revision. Retail investors trade in anticipation of revisions in price targets and recommendations. Retail trades earn higher returns when aligned with analysts’ revisions.
Retail Trading Intensity and the Overnight-Intraday Return Gap (SSRN)
In most stock markets, average overnight (close-to-open) returns are high while intraday (open-to-close) returns are low, even negative. We show that retail investors' trading intensity is a major explanatory variable for this “overnight-intraday return gap”.
Do Hedge Funds Hedge? (SSRN)
We measure hedging practice of hedge funds with the gap between risk inferred from fund returns and risk inferred from their stock holdings. Risk gap significantly and negatively predicts future fund performance. Hedge funds in the bottom quintile ranked by risk gap outperform those in the top quintile by 3.84% per year on a risk-adjusted basis. Moreover, risk gap is positively related to tail risk and interfund return connectedness. Overall, our results suggest that risk management is an important indicator of managerial skill in the hedge fund industry.
Investing & Economy
Everything is Obvious (behaviouralinvestment)
Cliff Asness: Cognitive Dissonance (aqr)
India
Sunset looms for PLIs with fading interest (livemint)
There are over 40 million cases pending in India’s judicial system. At the close of 2021, Indian prisons were holding over 500,000 inmates, 77.1% of whom were awaiting trial (livemint).
India must prioritize the needs of its thirsty cities before the rest (livemint). And air quality (livemint).
Modi sets ambitious India economic goals for probable third term (reuters).
RoW
Chilean politicians are clamoring to convince the country’s only steelmaker to overturn a decision to shutter operations due to an influx of cheap Chinese alloy, testing the nation’s free-trade resolve. (yahoo)
Yellen faces tough road on China's vast overproduction problem (reuters)
China's Quiet Push Into Russia's Far East Puts Putin in a Pickle (newsweek)
Job creation in South Asian economies is not keeping pace with the rise in the working age population (reuters)
Economies focused on exports have lifted millions out of poverty, but epochal changes in trade, supply chains and technology are making it a lot harder. (nytimes)
Dependence on credit to boost demand imperils the world economy (imf). Reasons: @michaelxpettis
A.I.
Artificial intelligence is spurring a new type of identity theft — with ordinary people finding their faces and words twisted to push often offensive products and ideas (washingtonpost)
OpenAI deems its voice cloning tool too risky for general release (theguardian)
Odds & Ends
A stealth attack came close to compromising the world’s computers (economist)
Scientists are finding that anti-obesity medicines can also help many other diseases (economist)
People Hate the Idea of Car-Free Cities—Until They Live in One (wired)