Identifying the Characteristics of Banks Proprietary Trading Style

33 Pages Posted: 19 Jul 2011

See all articles by Luís Vasco Lourenço Pinheiro

Luís Vasco Lourenço Pinheiro

ISEGI NOVA

Miguel A. Ferreira

Nova School of Business and Economics; European Corporate Governance Institute (ECGI); Centre for Economic Policy Research (CEPR)

Date Written: July 12, 2011

Abstract

Bank’s proprietary desks and hedge funds have similar investment styles, goals and dynamics. We apply bank related factors, trend following strategies, and active managers benchmarks in order to understand the style and especially the dynamics of banks proprietary trading desks decisions. We find that bank traders are not trend followers, but are positively correlated to macro hedge funds and above all are short volatility strategies, meaning selling options (calls and puts) with bonds as the major underlying. We conclude that Asset Based Style (ABS) factors are an alternative approach for regulators and other market participants to understand banks proprietary market exposure.

Keywords: Banks Proprietary Trading, Hedge Fund Strategies

JEL Classification: G23

Suggested Citation

Pinheiro, Luís Vasco Lourenço and Ferreira, Miguel Almeida, Identifying the Characteristics of Banks Proprietary Trading Style (July 12, 2011). Available at SSRN: https://ssrn.com/abstract=1884167 or http://dx.doi.org/10.2139/ssrn.1884167

Luís Vasco Lourenço Pinheiro (Contact Author)

ISEGI NOVA ( email )

Campus de Campolide
Lisbon, 1070-312
Portugal

Miguel Almeida Ferreira

Nova School of Business and Economics ( email )

Campus de Campolide
Lisbon, 1099-032
Portugal

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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