Say Cheese
Is it a smirk or is it a smile?
A lot of ink has been spilt on how option trading volumes are a magnitude greater than futures or equity trading volumes. While degen retail gambling is always a factor, these volumes include multi-leg strategies that require constant rebalancing.
For example, there are traders who focus on the “wings” or the “smile” where dislocations could exist for a few seconds at best. Flagging these as “rampant speculation” is throwing the baby out with the bathwater.
Some thoughts on the smirk on our blog: The Smirk, Part II
Markets this Week
More here: country ETFs, fixed income, currencies and commodities.
Some of you might prefer the recap as a video:
Links
Research
The Risks of Passive Investing Dominance (SSRN)
Passive capitalization-weighted index funds now surpass active management in aggregate investor allocations. Flows into passive strategies cause unrelated stocks to move synchronously, undermining diversification and potentially increasing systemic risk. New flows into passive products mechanically overweight overvalued stocks and underweight undervalued stocks due to market-price weighting, exacerbating momentum-driven price distortions. Rebalancing at the stock level to non-price-based anchor weights may mitigate these distortions and enhance long-term returns.
AI-Powered Trading, Algorithmic Collusion, and Price Efficiency (NBER)
The integration of algorithmic trading with reinforcement learning, termed AI-powered trading, is transforming financial markets. We show that they autonomously sustain collusive supra-competitive profits without agreement, communication, or intent.
Sleep, Mental Alertness, and Stock Market Trading (SSRN)
We test whether mental alertness, as proxied by sleep disruption, impairs investor trading performance. Using four complementary approaches, we document that retail investors who experience a later sunset time on average earn lower abnormal returns on their trades. The sleep disruption effect derives from impaired investor attention.
India
189 Killed In 2006 Mumbai Train Blasts. All 12 Convicts Acquitted (ndtv)
A lot of public infrastructure, built at a colossal cost to the taxpayer, is falling apart almost as quickly as it is coming up. The roofs of newly built airports collapse at the first big downpour. Brand new expressways are developing craters large enough to swallow trucks whole. And bridges are falling down decades before the end of their design life (livemint).
Multinational companies can be taxed in India if they exercise substantial operational control here, even without long-term employee presence. The court held that a Permanent Establishment (PE) should be treated as a separate taxable entity, meaning India can tax profits attributable to the PE even if the foreign parent company incurs overall global losses (livemint).
In less than a decade, India has transformed itself from a heavily import-dependent mobile phone market to the world’s third-largest exporter of mobile phones, clocking exports worth USD 20.5 billion in calendar year 2024 (economictimes).
The pharmaceutical industry has leveraged the PLI scheme to its advantage, building self-reliance in active pharmaceutical ingredients (APIs) and drug manufacturing. India, which was a net importer of bulk drugs worth INR 19.3 billion (approximately US$223.3 million) in FY 2021-22, transitioned to a net exporter, recording INR 22.8 billion (approximately US$263.9 million) in exports by FY 2024-25 (india-briefing).
UPI and PayPal to join hands (economictimes)
India-UK FTA: when both countries declare victory (livemint, livemint, reuters, gov.uk):
India’s automakers are set to gain access to the UK market as the FTA removes 18% duty on exports. The domestic clean mobility market is protected as India has offered no concessions for electric and hybrid vehicles made in the UK.
Luxury car imports from the UK cheaper for Indian consumers.
Indian consumers hoping for the prices of their favourite UK whiskies to drop dramatically after the free-trade agreement need to temper their expectations. Industry analysts and company executives suggest the immediate impact on retail prices will likely be modest, with reductions estimated between single digits and 10-15%, largely because import duties currently make up only 10-15% of the total shelf price.
Indian tariffs on aerospace go from 11% to 0%.
UK firms to access India's non-sensitive federal government tenders above 2 billion rupees. The deal will give UK businesses access to India’s public procurement market, comprising about 40,000 tenders with a value of about 38 billion pounds a year.
China has started construction of the world’s biggest hydroelectric dam, a project that’s set to be far larger than the Three Gorges Dam. Downstream from the site, the Yarlung Tsangpo runs through the northeast Indian state of Arunachal Pradesh and feeds into one of India’s major rivers, the Brahmaputra, before flowing into Bangladesh (bloomberg).
ED files Fema case against Myntra over Rs 1,654 crore FDI violation; disguised multi-brand retail as wholesale (timesofindia).
Parliamentary panel retains Income Tax Bill provisions allowing tax officials to forcibly access social media, private email (thehindu).
The line between arbitrage and market manipulation has long been one of the grayest areas in financial markets — and India’s recent action against high-frequency trading giant Jane Street has brought this murky boundary into sharp focus (cnbc).
row
The list of famous auto industry flops is long and storied, topped by stinkers like Ford’s Edsel and exploding Pinto and General Motors’s unsightly Pontiac Aztek crossover SUV. Even John Delorean’s sleek, stainless steel DMC-12, iconic from its role in the “Back To The Future” films, was a sales dud that drove the company to bankruptcy. Elon Musk’s pet project, the dumpster-driving Tesla Cybertruck, now tops that list (forbes).
Trump has turned himself into the central dispenser — and recipient — of economic opportunity (washingtonpost).
Manufacturers are producing more steel than the world can possibly use. Excess steel production is estimated to reach 721 million tons by 2027. The problem is that no country wants to be the one to stop producing a material that is considered essential to its economic and national security (nytimes).
Details released by the White House on its tariff agreement with Japan include many points that are unclear or out of sync with how Tokyo has explained it, including the date it goes into effect and the framework for Japanese investment in the U.S. (nikkei) Under the deal, it will be cheaper to import finished cars from Japan than it will be to import the steel, aluminum, and other parts necessary to build cars in the United States (reason).
The UK is trying to tax the superrich by getting rid of a tax-loophole. The nondomiciled—or non-dom status, as it is known—allowed foreigners living in the U.K. to pay tax only on what they earned domestically. Profits made abroad were ignored unless brought into the U.K. The U.K. hoped eliminating non-doms would bring in about $45 billion by 2030. But instead of paying up, wealthy expats are rushing for the exits, sparking questions about whether the effort will raise any money at all (wsj).
Lab-grown diamonds have captured 17 per cent of the US retail market by volume, up from just 3 per cent in 2020. Over 70 per cent of the world’s lab-grown diamonds for jewellery — many destined for the ring fingers of newly engaged couples — originate in a Chinese factory, with Henan at the centre of the synthetic trade (ft).
Chinese stocks go down at night because no one trusts anyone (ft).
Industrial pruning won't pull China out of deflation as quickly as last time (reuters)
BlackRock has told staff traveling to China for business trips to use temporary loaner phones and not to bring company laptops, underscoring growing concern among some global firms about employees working there (bloomberg).
Odds & Ends
Anthropic, the AI startup that’s long presented itself as the industry’s safe and ethical choice, is now facing legal penalties that could bankrupt the company. Damages resulting from its mass use of pirated books would likely exceed a billion dollars, with the statutory maximum stretching into the hundreds of billions (obsolete).
This week, a wallet holding Bitcoin since around 2011 sold 80,000 BTC, transforming a $54,000 initial buy into $9.6 billion. It’s one of the biggest whale moves ever (reddit).
Massive SharePoint breach, including US nuclear agency - Microsoft links attack to 3 China-backed hackers (msn)
Hackers leak 13,000 user photos and IDs from the Tea app, designed as a women's safe space (nbcnews)
Meme of the Week
