Wanna hear a counterintuitive but well known secret? Every asset trades at a price such that the expected return is the risk-free rate. If you don’t believe it, try to find someone that will offer you more than the risk free rate. You won’t. Hint: ask for a forward price
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Replying to @MarkGutman9
This is the pure expectations hypothesis, and it is very not true!
3 replies 0 retweets 26 likes -
Replying to @macrocephalopod @MarkGutman9
“A long spot/short forward portfolio earns the risk free rate” is true, but very different from “a long spot position earns the risk free rate”.
3 replies 0 retweets 22 likes
Replying to @macrocephalopod @MarkGutman9
I mean, even “a long spot/short forward portfolio earns the risk free rate” is not true, the proof is the continued existence of fixed income cash and carry trades (or crypto cash and carry if you want to be spicy)
2:14 PM - 26 May 2021
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