Term premia in the times of “lift-off”

Equilibrium models suggest that as long as the policy rate is firmly near zero, the term premium on longer-dated yields is compressed by a...

Statistical remedies against macro information overload

"Dimension reduction" condenses the information content of a multitude of data series into small manageable set of factors or functions. This reduction is important...

Self-fulfilling and self-destructing FX carry trades

When foreign exchange trading meets inflation-targeting self-fulfilling investment strategies are possible. A technical paper by Plantin and Shin shows that positive FX carry encourages...

Volatility surprises

Volatility surprises are market moves outside the scope of expected volatility. They often bring to attention an underestimated type of risk. A paper by...

The secular decline in the global equilibrium real interest rate

A new Bank of England paper finds a 450 bps decline in global equilibrium real interest rates over the past 35 years, due to a...

Modern backtesting with integrity

Machine learning offers powerful tools for backtesting trading strategies. However, its computational power and convenience can also be corrosive for financial investment due to...

Large currency moves and equity performance

Citi equity research investigates the relation between currencies and equity markets. It suggests that typically large currency appreciation (depreciation) coincides with underperformance (outperformance) of...

Why fund managers share trade ideas

Through sharing research and ideas fund managers can increase both the number and quality of their trading strategies. Empirical evidence suggests that managers share ideas...

Gold: risk premium and expected return

An empirical paper suggests that the risk premium and excess return on gold have been time-varying and predictable, also out-of-sample. The key predictors have...

Interest rate swap returns: empirical lessons

Interest rate swaps trade duration risk across developed and emerging markets. Since 2000 fixed rate receivers have posted positive returns in 26 of 27...

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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...

The dollar as barometer for credit market risk

The external value of the USD has become a key factor of U.S. and global credit conditions. This reflects the surge in global USD-denominated...

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