The financial stability interest rate

The financial stability interest rate is a threshold above which the real interest rate in an economy triggers financial constraints and systemic instability. It...

Contagion and self-fulfilling dynamics

Contagion and self-fulfilling feedback loops are propagation mechanisms at the heart of systemic financial crises. Contagion refers to the deterioration of fundamentals through the...

Macro uncertainty as predictor of market volatility

Market volatility measures the size of variations of asset returns. Macroeconomic uncertainty measures the size of unpredictable disturbances in economic activity. Large moves in...

Understanding international capital flows and shocks

Macro trading factors for FX must foremostly consider (gross) external investment positions. That is because modern international capital flows are mainly about financing, i.e....

Measures of market risk and uncertainty

In financial markets, risk refers to the probability distribution of future returns. Uncertainty is a broader concept that encompasses ambiguity about the parameters of...

Modern financial system risk for macro trading

Financial system risk is the main constraint and disruptor of macro trading strategies. There are four key areas of modern systemic risk. In...

Public finance risk

Fiscal expansion was the logical response to the 2020 health and economic crisis. Alas, public deficit and debt ratios had already been historically high...

Systemic risk under non-conventional monetary policy

Central bank operations in the form of quantitative easing, qualitative easing, forward guidance and collateral policies wield great influence over market prices of risk....

Risk management shocks and price distortions

Risk management relies on statistical metrics that converge on common standards. These metrics can change drastically alongside market conditions. A risk management shock is...

Unproductive debt

Credit and related interest income have historically been viewed as service and related payment for lending productively. However, in a highly collateralized and risk-averse...

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Accounting data as investment factors

Corporate balance sheet data are important building blocks of quantitative-fundamental (“quantamental”) investment factors. However, accounting terms are easily misunderstood and confused with economic concepts....

Diversified reward-risk parity

Risk parity is a portfolio construction technique that seeks to equalize risk contributions from the different components of the portfolio. Risk parity with respect...

A market-to-book formula for equity strategies

A new proxy formula for equity market-to-book ratios suggests that (the logarithm of) such a ratio is equal to the discounted expected value of...

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