Equity values and credit spreads: the inflation effect

A theoretical paper shows that a downward shift in expected inflation increases equity valuations and credit default risk at the same time. The reason...

CDS term premia and exchange rates

The term structure of sovereign credit default swaps (CDS) is indicative of country-specific financial shocks because rising country risk affects short-dated maturities more than...

A simple rule for exchange rate trends

Over the past decades developed market exchange rates have displayed two important regularities. First, real exchange rates (nominal exchange rates adjusted for domestic price...

Overconfidence and inattention as asset return factors

Overconfidence in personal beliefs and inattention to new trends are widespread in financial markets. If specific behavioural biases become common across investors they constitute...

Policy rates and equity volatility

Measures of monetary policy rate uncertainty significantly improve forecasting models for equity volatility and variance risk premia. Theoretically, there is a strong link between...

Monetary policy stance in one indicator

New research proposes to condense policy rates and balance sheet actions into a single implied short-term interest rate. To this end the term premium...

How to use financial conditions indices

There are two ways to use financial conditions indicators for macro trading. First, the tightening of aggregate financial conditions helps forecasting macroeconomic dynamics and...

The latent factors behind commodity price indices

A 35-year empirical study suggests that about one third of the monthly changes in a broad commodity price index can be attributed to a...

Hedging FX trades against unwanted risk

When FX forward positions express views on country-specific developments one can shape the trade to its rationale by hedging against significant unrelated global influences....

Treasury yield curve and macro trends

There is a strong logical and empirical link between the U.S. Treasury yield curve and long-term economic trends, particularly expected inflation and the equilibrium...

RECENT ARTICLES

Natural language processing for financial markets

News and comments are major drivers for asset prices, maybe more so than conventional price and economic data. Yet it is impossible for any...

A theory of hedge fund runs

Hedge funds’ capital structure is vulnerable to market shocks because most of them offer high liquidity to loss-sensitive investors. Moreover, hedge fund managers form...

Market noise

The term “market noise” refers to transactions that are erratic and unrelated to fundamental value. Theory suggests that without market noise profitable trading would...

POPULAR ARTICLES