SPECIAL: Risk Management
Bayesian Risk Forecasting
Portfolio risk forecasting is subject to great parameter uncertainty, particularly for longer forward horizons. This simply reflects that large drawdowns are observed only rarely,...
Signaling systemic risk
Systemic financial crises arise when vulnerable financial systems meet adverse shocks. A systemic risk indicator tracks the vulnerability rather than the shocks (which are...
How to estimate risk in extreme market situations
Estimating portfolio risk in extreme situations means answering two questions: First, has the market entered an extreme state? Second, how are returns likely to...
Drawdown control
Containment of drawdowns and optimization of performance ratios for multi-asset portfolios is critical for trading strategies. Alas, short data series or structural changes often...
Paper proposes method for "detecting relationship changes in financial markets [with] network visualization to support fund managers dealing with multi-assets... visualizing when and what changes are occurring and which assets play a central role." https://t.co/bVU4us36cG https://t.co/OvSNPA28gg
Joint predictability of FX and bond return: upside shocks to the rates outlook in a currency area herald positive FX and negative bond returns. This proposition has been backed by empirical evidence over the past 30 years. https://t.co/YhbOx63u7J https://t.co/ZIPxyDMsON
"We show that a risk factor linked to aggregate equity issuance conditions...subsumes investment factors in leading linear factor models...[and] improves the overall pricing performance of linear factor models." https://t.co/oAN8JJfqdA https://t.co/X8Ze8rtDRz
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asset management Asset Purchase Program banks bond returns bond yields bubbles capital regulation China collateral commodities credit returns default ECB economic data EM equity returns euro area crisis Fed financial crisis FX FX interventions FX returns government debt government deficits herding inflation information leverage liquidity market turmoil price factors regulation risk management shadow banking statistical methods term structure trend following variance risk premium volatility ZLB
SYSTEMIC RISK
Public finance risk
Fiscal expansion was the logical response to the 2020 health and economic crisis. Alas, public...
Systemic risk under non-conventional monetary policy
Central bank operations in the form of quantitative easing, qualitative easing, forward guidance and collateral...
Risk management shocks and price distortions
Risk management relies on statistical metrics that converge on common standards. These metrics can change...
Unproductive debt
Credit and related interest income have historically been viewed as service and related payment for...
How central banks can take nominal rates deeply negative
The popular view that nominal interest rates have a natural zero lower bound has become...
SYSTEMATIC VALUE
Joint predictability of FX and bond returns
When macroeconomic conditions change rational inattention and cognitive frictions plausibly prevent markets from adjusting expectations...
The predictive power score
The predictive power score is a summary metric for predictive relations between data series. Like...
Equilibrium theory of Treasury yields
An equilibrium model for U.S. Treasury yields explains how macroeconomic trends and related expectations for...
Factor timing
Factors beyond aggregate market risk are sources of alternative risk premia. Factor timing addresses the...
Macro trading and macroeconomic trend indicators
Macroeconomic trends are powerful asset return factors because they affect risk aversion and risk-neutral valuations...
POPULAR POSTS
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...
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...
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....
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...
The dangerous disregard for fat tails in quantitative finance
The statistical term ‘fat tails’ refers to probability distributions with relatively high probability of extreme outcomes. Fat tails also imply strong influence of extreme...
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...