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: Market 'bubbles'

Why financial markets misprice fundamental value

Experimental research has produced robust evidence for mispricing of assets relative to their fundamental values even with active trading and sufficient information. Academic studies...

Explosive dynamics in exchange rates

Explosiveness in financial markets means that prices display exponential growth. In recent years statistical tests have been developed to locate mildly explosive bubble periods...

Pension funds and herding

Pension funds have three types of motivations for herding: rebalancing rules, the effects of regulatory changes and peer pressure of senior executives. A new...

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

The power of R for trading (part 2)

The R environment makes statistical estimation and learning accessible to portfolio management beyond the traditional...

Retail investor beliefs

Survey evidence suggests that retail investors adjust positions rather sluggishly to changing beliefs and the...

Commodity trends as predictors of bond returns

Simple commodity price changes may reflect either supply or demand shocks. However, filtered commodity price...

The relation between value and momentum strategies

Simple value and momentum strategies often end up with opposite market positions. One strategy succeeds...

The mighty “long-long” trade

One of the most successful investment strategies since the turn of the century has been...

POPULAR POSTS

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...

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...

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...

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...

Understanding market beta in FX

The beta of an investment measures its sensitivity to “market returns”. Unlike in equity, in FX the relevant benchmark for a beta cannot be a...

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....