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...

Modern financial system leverage

Leverage in modern financial systems arises from bank balance sheets and off-balance sheet transactions that involve banks and other financial institution. Non-bank funding of...

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...

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The importance of volatility of volatility

Options-implied volatility of U.S. equity prices is measured by the volatility index, VIX. Options-implied volatility of volatility is measured by the volatility-of-volatility index, VVIX....

Low rates troubles for insurances and pension funds

A CGFS report highlights the pressure of a ‘low for long’ interest rate environment on life insurance companies and defined-benefit pension funds. This pressure...

Seasonal effects in commodity futures curves

Seasonal fluctuations are evident for many commodity prices. However, their exact size can be quite uncertain. Hence, seasons affect commodity futures curves in two...

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