Portal de Periódicos da CAPES

Identifying the Characteristics of Banks Proprietary Trading Style

2011; RELX Group (Netherlands); Linguagem: Inglês

10.2139/ssrn.1884167

1556-5068

Luís Vasco Lourenço Pinheiro, Miguel A. Ferreira,

Auditing, Earnings Management, Governance

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.