The shadow of China’s banks
Unlike in the U.S., shadow banking in China is dominated by commercial banks, not securities markets. Regulated banks operate most shadow banking activity, take...
The danger of volatility feedback loops
There is evidence that the financial system has adapted to low fixed income yields through an expansion of explicit and implicit short volatility strategies....
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...
The 1×1 of risk perception measures
There are two reasons why macro traders watch risk perceptions. First, sudden spikes often trigger subsequent flows and macroeconomic change. Second, implausibly high or...
The consequences of increased financial collateralization
There has been a strong upward trend in collateralization since the great financial crisis. Suitable collateral, such as government bonds, is essential for financial...
How bank regulatory reform has changed macro trading
The great regulatory reform in global banking has altered the backdrop for macro trading. First, greater complexity and policymaker discretion means that investment managers...
Critical transitions in financial markets
Critical transitions in financial markets are shifts in prices and operational structure to a new equilibrium after reaching a tipping point. “Complexity theory” helps...
China’s internal debt overload: a refresher
According to the latest IMF China report credit to non-financial institutions has soared to over 230% of GDP, an increase of 60%-points and a...
Building international financial conditions indices
IMF staff has developed global financial conditions indices for 43 global economies. Conceptually, these indices extract the communal component of range of indicators for...
Trend following and the headwinds of rising yields
The decline in bond yields over the past decades has supported profitability and diversification value of trend followers. Returns have been boosted by a...
RECENT ARTICLES
Understanding collateral runs
In normal financial runs lenders want their money back. In collateral runs borrowers want their collateral back. In today’s highly collateralized financial system the...
How to prepare for the next systemic crisis
Systemic crises are rare. But they are make-or-break events for long-term performance and social relevance of investment managers. In systemic crises conventional investment strategies...
The passive investment boom and its consequences
Passive investment vehicles have been expanding rapidly over the past 10 years, with assets reaching about USD8 trillion or 20% of aggregate investment funds...