The project

Systemic Risk and Systematic Value is dedicated to socially responsible macro trading strategies. Macro trading strategies are defined as alternative investment management styles predicated on macroeconomic and public policy events or 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 global capital allocation and reduced risk of financial markets crises.

SPECIAL: Volatility

The “low risk effect” in financial markets

Low-beta and low-volatility securities can produce superior risk-adjusted returns. Thus, portfolios of calibrated low- versus high-vol stock positions have historically generated significant alpha. Other asset...

Volatility risk premia and FX returns

Volatility risk premia – differences between implied and realized volatility – are plausible and empirically validated predictors of directional foreign exchange returns, particularly for...

The power and origin of uncertainty shocks

Uncertainty shocks are changes in beliefs about probabilities. They are perhaps the most powerful driver of financial markets. Uncertainty comes in various forms, such...

SYSTEMIC RISK

Building international financial conditions indices

IMF staff has developed global financial conditions indices for 43 global economies. Conceptually, these indices...

Trend following and the headwinds of rising yields

The decline in bond yields over the past decades has supported profitability and diversification value...

Inflation: risk without premium

Historically, securities that lose value as inflation increases have paid a sizable risk premium. However,...

The macroeconomic impact of Basel III

The regulatory capital reform for banks increases capital costs and credit spreads charged on clients....

The global debt overhang

A new IMF report illustrates that a large share of both advanced and emerging economies...

SYSTEMATIC VALUE

Fear of drawdown

Experimental research suggests that probability of outright loss rather than volatility is the key driver...

The demographic compression of interest rates

Declining population growth and rising dependency ratios in the developed world have been one key...

Predicting asset price correlation for dynamic hedging

Dynamic hedging requires prediction of correlations and “betas” across asset classes and contracts. A new...

Global market portfolio: construction and performance

A representative market portfolio can be built as the capitalization-weighted average of global equity, real...

Cross-asset carry: an introduction

Carry can be defined as return for unchanged market prices and is easy to calculate...

POPULAR POSTS

Trend following as tail risk hedge

Typical returns of a trend following strategy carry features of a “long vol” position and have positive convexity. Typical returns of long only strategies,...

Why the covered interest parity is breaking down

Deviations in the covered interest parity have become a regular phenomenon even in developed markets. Persistent gaps between on-shore and FX-implied interest rate differentials (“cross-currency...

The world’s negative term premium

The term premium on the “world government bond yield” has turned decisively negative, according to BIS research. Investors have since 2014 accepted a long-term...

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...

The term premium of interest rate swaps

A Commerzbank paper proposes a practical way to estimate term premia across interest rate swap markets. The method adjusts conventional yield curves for median...

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...