Clues for estimating market beta

A new empirical paper compares methods for estimating “beta”, i.e. the sensitivity of individual asset prices to changes in a broad market benchmark. It...

The downside variance risk premium

The variance risk premium of an asset is the difference between options-implied and actual expected return variation. It can be viewed as a price...

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...

FX returns and external balances

A new paper supports the view that currency excess returns can to some extent be viewed as compensation for risk to net capital flows...

FX carry trade crashes

A global historical analysis of FX carry trades shows positive long-term performance but a negative skew of returns. Large drawdowns have been associated with...

Fake alpha

Statistical alpha can be divided into fake alpha, which is a premium for non-directional systematic risk, and true alpha, which reflects the quality of the...

Lessons from long-term global equity performance

A truly global and long-term (116 years) data set for both successful and failed financial markets shows that equity has delivered positive long-term performance...

The power and origin of uncertainty shocks

Uncertainty shocks are changes in beliefs about probabilities. They are perhaps the most powerful driver of financial markets. Uncertainty comes in various forms, such...

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FX carry strategies (part 2): Hedging

There is often a strong case for hedging FX carry trades against unrelated global market factors. It is usually not difficult to hedge currency...

FX carry strategies (part 1)

FX forward-implied carry is a valid basis for investment strategies because it is related to policy subsidies and risk premia. However, it also contains...

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...

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