Diversification When It Hurts? The Joint Distributions of Property and Other Asset Classes

As a result of the financial crisis of 2007–2008 and subsequent central banking decisions, the asset management industry changed its asset allocation choices. Asset managers are focusing their attention on the search for new asset classes by taking advantage of the new opportunities to capture risk premia with the aim of exceeding the returns given by traditional investments, including traded equities, fixed income securities, and cash. By doing so, they are trying to improve the selection of alternative assets, such as commodities that sometimes have relatively low correlations with traditional assets. The chapter begins by describing the principles of asset allocation, distinguishing between passive and active asset allocation, also focusing on beta and alternative beta. It then concentrates on how investors can gain exposure to commodities through different investment vehicles and strategies.

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Changing Capital Market Structure and Regulatory Challenges

The Oxford Handbook of Institutions of International Economic Governance and Market Regulation ◽

10.1093/oxfordhb/9780190900571.013.21 ◽

2019 ◽

Author(s):

Walter Mattli ◽

Miles Kellerman

Keyword(s):

Structural Development ◽

Industrialized Countries ◽

Negative Externalities ◽

Electronic Trading ◽

Global Capital ◽

Telecommunication Technology ◽

Stage Process ◽

Market Fragmentation ◽

Exchange Markets ◽

Asset Classes

Advances in telecommunication technology in the nineteenth century encouraged greater centralization of liquidity on single, dominant exchanges in most major industrialized countries. Electronic trading, in contrast, has precipitated increased market fragmentation, creating a host of new regulatory dilemmas. In an attempt to understand this phenomenon, this chapter proposes a two-stage process of market structural development in response to electronic trading. This process is then examined in equities and foreign exchange markets. Despite significant differences between these two asset classes, they have exhibited a remarkably similar pattern of disintermediation followed by reintermediation. This analysis is followed by a survey of recent regulatory approaches to mitigate the negative externalities associated with electronic trading. It concludes with a brief discussion on the future of market fragmentation and centralization in global capital markets.

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