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: Bond yields

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....

How convenience yields have compressed real interest rates

Real interest rates on ‘safe’ assets such as high-quality government bonds had been stationary around 2% for more than a century until the 1980s....

Multiple risk-free interest rates

Financial markets produce more than one risk-free interest rate. This is because there are several separate market segments where structured trades replicate such a...

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

Equity return anomalies and their causes

The vast range of academically researched equity return anomalies can be condensed into five categories:...

Basic factor investment for bonds

Popular factors for government bond investment are “carry”, “momentum”, “value” and “defensive”. “Carry” depends on...

Endogenous market risk: updated primer

Endogenous risk arises from the interaction of financial market participants, as opposed to traded assets’...

Dealer capital ratios and FX carry returns

When financial market intermediaries warehouse net risk positions of other market participants the marginal value...

A method for de-trending asset prices

Financial market prices and return indices are non-stationary time series, even in logarithmic form. This...

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...

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...

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 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....