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: Liqudity

Volcker Rule and liquidity risk

The Volcker Rule has banned proprietary trading of banks with access to official backstops. Also, market making has become more onerous as restrictions and...

The illiquidity risk premium

The illiquidity risk premium is an excess return paid to investors for tying up capital. The premium compensates the investor for forfeiting the options...

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...

SYSTEMIC RISK

The shadow of China’s banks

Unlike in the U.S., shadow banking in China is dominated by commercial banks, not securities...

The danger of volatility feedback loops

There is evidence that the financial system has adapted to low fixed income yields through...

Policy rates and equity volatility

Measures of monetary policy rate uncertainty significantly improve forecasting models for equity volatility and variance...

The 1×1 of risk perception measures

There are two reasons why macro traders watch risk perceptions. First, sudden spikes often trigger...

The consequences of increased financial collateralization

There has been a strong upward trend in collateralization since the great financial crisis. Suitable...

SYSTEMATIC VALUE

The danger of volatility feedback loops

There is evidence that the financial system has adapted to low fixed income yields through...

Information inefficiency in market experiments

Experimental research illustrates the mechanics of market inefficiency. If information is costly traders will only...

Basic theory of momentum strategies

Systematic momentum trading is a major alternative risk premium strategy across asset classes. Time series...

Clues for estimating market beta

A new empirical paper compares methods for estimating “beta”, i.e. the sensitivity of individual asset...

The point of volatility targeting

Volatility targeting adjusts the leverage of a portfolio inversely to predicted volatility. Since market volatility...

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,...

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...

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...

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 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...