The project

Systemic Risk and Systematic Value is dedicated to socially responsible macro trading strategies. Macro trading strategies are alternative investment management styles based on macroeconomic and policy trends. If the right principles and ethics are applied, social and economic benefits arise from an improved information value of market prices, increased efficiency of capital allocation and reduced risk of financial crises.

SPECIAL: Foreign exchange trading

CDS term premia and exchange rates

The term structure of sovereign credit default swaps (CDS) is indicative of country-specific financial shocks because rising country risk affects short-dated maturities more than...

How lazy trading explains FX market puzzles

Not all market participants respond to changing conditions instantaneously, not even in the FX market. Private investors in particular can take a long while...

U.S. dollar exchange rate before FOMC decisions

Since the mid-1990s the dollar exchange rate has mostly anticipated the outcome of FOMC meetings: it appreciated in the days before a rate hike...

SYSTEMIC RISK

How central banks can take nominal rates deeply negative

The popular view that nominal interest rates have a natural zero lower bound has become...

Bayesian Risk Forecasting

Portfolio risk forecasting is subject to great parameter uncertainty, particularly for longer forward horizons. This...

The duration extraction effect

Under non-conventional monetary policy central banks influence financial markets through the “portfolio rebalancing channel”. The...

Tiered reserve systems

Negative monetary policy rates can undermine financial transmission, because they encourage cash hoarding and reduce...

Signaling systemic risk

Systemic financial crises arise when vulnerable financial systems meet adverse shocks. A systemic risk indicator...

SYSTEMATIC VALUE

Crowded trades: measure and effect

One measure of the crowdedness of trades in a portfolio is centrality. Centrality is a...

Treasury basis and dollar overshooting

Safe dollar assets, such as Treasury securities, carry significant convenience yields. Their suitability for liquidity...

The quantitative path to macro information efficiency

Financial markets are not information efficient with respect to macroeconomic information because data are notoriously...

Reinforcement learning and its potential for trading systems

In general, machine learning is a form of artificial intelligence that allows computers to improve...

The low-risk effect: evidence and reason

The low-risk effect refers to the empirical finding that within an asset classes higher-beta securities...

POPULAR POSTS

VIX term structure as a trading signal

The VIX futures curve reflects expectations of future implied volatility of S&P500 index options. The slope of the curve is indicative of expected volatility...

Leverage in asset management

Asset managers can use leverage to enhance returns. Outside hedge funds, such leverage is modest as share of assets under management. However, considering the huge...

Basic theory of momentum strategies

Systematic momentum trading is a major alternative risk premium strategy across asset classes. Time series momentum motivates trend following; cross section momentum gives rise...

The four components of long-term bond yields

A BOJ paper proposes an affine terms structure model for bond yields under consideration of the zero lower bound. It estimates the contribution of...

Understanding dollar cross-currency basis

Covered interest parity is an arbitrage condition that equalizes costs of direct USD funding and of synthetic USD funding through FX swaps. Deviations are...

Understanding the correlation of equity and bond returns

The correlation of equity and high grade sovereign bond returns is a powerful driver of portfolio construction and the term premia of interest rates....