Recommended Reading

Below are a number of journal articles and books that are recommended reading for investors seeking to understand more about 36 South's investment approach, and volatility in particular. Please contact us if you would like any more information.

Forecasting Volatility

Forecasting Volatility in Financial Markets: A Review

Volatility forecasting is an important task in financial markets, and it has held the attention of academics and practitioners over the last two decades. Ser-Huan Poon and Clive Granger have in “Forecasting Volatility in Financial Markets: A Review” documented the work that has been done in 93 published and working papers on the performance of various volatility models. This extensive research reflects the importance of volatility in investment, security valuation, risk management, and monetary policy making.

Forecasting Volatility in Financial Markets: A Review
Ser-Huang Poon and Clive Granger
Journal of Economic Literature
Vol. XLI (June 2003) pp. 478–539

Twentieth century volatility

In Twentieth century volatility Alexander Ineichen illustrates what caused equity market volatility in the twentieth century and how difficult it is to predict future volatility. An exellent article that reminds any investor that it is easier to manage risk than trying to guess what the future might hold.

Volatility Exposure of CTA Programs and Other Hedge Fund Strategies

Marc Malek and Sergei Dobrovolsky point out fine differences in volatility exposure in CTA Programs and other Hedge Fund Strategies. With research that is based on their own Managed Futures Fund it is easy to unterstand that CTA Strategies provide investors with exposure to long gamma, as trend following position entries are similar to changing delta’s of long gamma options positions.

The recent behaviour of financial market volatility

A striking feature of financial market behaviour in recent years has been the low level of price
volatility over a wide range of financial assets and markets. The issue has attracted the attention of central bankers and financial regulators due to the potential implications for financial stability. This paper makes an effort to shed light on this phenomenon, drawing on literature surveys, reviews of previous analyses by non-academic commentators and
institutions, and some new empirical evidence.

VIX as a Companion for Hedge Fund Portfolios

In 1993, the Chicago Board Options Exchange introduced the CBOE Volatility Index, VIX, and it quickly became the benchmark for stock market volatility. VIX measures market expectations of near term volatility conveyed by stock index option prices. Since volatility often signifies financial turmoil, VIX is often referred to as the "investor fear gauge". In VIX as a Companion for Hedge Fund Portfolios the authors Srikant Dash and Matthew Moran outline the advantage of combining an investment in implied volatility (options premiums) to portfolio’s of Hedge Funds.

The new CBOE Volatility Index – VIX

In 1993, the Chicago Board Options Exchange introduced the CBOE Volatility Index, VIX, and it quickly became the benchmark for stock market volatility. VIX measures market expectations of near term volatility conveyed by stock index option prices. Since volatility often signifies financial turmoil, VIX is often referred to as the "investor fear gauge". This article is an exellent guidebook to how the VIX works. It becomes evident that the VIX is an instrument for trading and hedging and not a long term investment, due to its mean reverting characteristics.

VIX White Paper – The new CBOE Volatility Index – VIX

The Black Swan: The Impact of the Highly Improbable

Nassim N. Taleb is fascinated by the rare but pivotal events that characterise life in the power-law world. He calls them Black Swans, after the philosopher Karl Popper's observation that only a single black swan is required to falsify the theory that "all swans are white" even when there are thousands of white swans in evidence. Provocatively, Nassim N. Taleb defines Black Swans as events (such as the rise of the Internet or the fall of LTCM) that are not only rare and consequential but also predictable only in retrospect

Fooled by Randomness: The Hidden Role of Chance in the Markets and Life

This book is about luck perceived and disguised as nonluck (that is, skills), and randomness perceived and disguised as nonrandomness (that is, determinism). It manifests itself in the shape of the lucky fool, defined as a person who benefited from a disproportionate share of luck but attributes his success to some other, generally very precise, reason.

The (Mis)Behavior of Markets: A Fractal View of Risk, Ruin, and Reward

Benoit B. Mandelbrot, one of the century's most influential mathematicians, is world-famous for making mathematical sense of a fact everybody knows but that geometers from Euclid on down had never assimilated: Clouds are not round, mountains are not cones, coastlines are not smooth. To these classic lines we can now add another example: Markets are not the safe bet your broker may claim. In this book he shows how the dominant way of thinking about the behavior of markets - a set of mathematical assumptions a century old and still learned by every MBA and financier in the world - simply does not work.

Why Stock Markets Crash: Critical Events in Complex Financial Systems

Sornette reviews major stock market crashes and concludes that the underlying cause can be sought months and even years before the abrupt, catastrophic event in the build-up of cooperative speculation, which often translates into an accelerating rise of the market price, otherwise known as a "bubble."

Das Satyajit sardonic description of the derivatives industry provides an extremely entertaining approach to a genre saturated with glorified good fortune and dire warnings of imminent market apocalypse. This book provides insights to the world of structured products and accurately makes the link between derivatives and their impact on financial markets.