SPECIAL: Market Turmoil
The correlation risk premium
The correlation risk premium is a premium for uncertainty of future correlation of securities among each other or with a benchmark. A rise in...
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 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...
"Attention is a necessary condition for behavioral biases...Using Google search volume...we find that aggregated retail attention to individual stocks strongly and negatively predicts future returns, especially in down markets and during high VIX periods." https://t.co/rG7SXZyzYs https://t.co/miDX74yd7R
Statistical learning for macro trading involves model training, model validation and learning method testing. A convenient technology is the ‘list-column workflow’ based on the tidyverse packages in R. Introductory post: https://t.co/nN5L9QfQdj https://t.co/LWVrd1ezhS
"We extend systematic investment approaches to emerging market hard currency bonds...We find that a systematic long/short portfolio designed to capture themes linked to carry, defensive, momentum and valuation themes [is] well compensated." https://t.co/2BGPbNv59k https://t.co/3KOcqKesrY
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asset management Asset Purchase Program banks bond returns bond yields bubbles capital regulation China collateral commodities credit returns default ECB economic data EM equity returns euro area crisis Fed financial crisis FX FX interventions FX returns government debt government deficits herding inflation information leverage liquidity market turmoil price factors regulation risk management shadow banking statistical methods term structure trend following variance risk premium volatility ZLB
SYSTEMIC RISK
Systemic risk under non-conventional monetary policy
Central bank operations in the form of quantitative easing, qualitative easing, forward guidance and collateral...
Risk management shocks and price distortions
Risk management relies on statistical metrics that converge on common standards. These metrics can change...
Unproductive debt
Credit and related interest income have historically been viewed as service and related payment for...
How central banks can take nominal rates deeply negative
The popular view that nominal interest rates have a natural zero lower bound has become...
Bayesian Risk Forecasting
Portfolio risk forecasting is subject to great parameter uncertainty, particularly for longer forward horizons. This...
SYSTEMATIC VALUE
A statistical learning workflow for macro trading strategies
Statistical learning for macro trading involves model training, model validation and learning method testing. A...
The basics of low-risk strategies
Low-risk investment strategies prefer leveraged low-risk assets over high-risk assets. The measure of risk can...
How loss aversion increases market volatility and predicts returns
Loss aversion means that people are more sensitive to losses than to gains. This asymmetry...
Reward-risk timing
Reward-risk timing refers to methods for allocating between a risky market index and a risk-free...
Lagged correlation between asset prices
Efficient market theory assumes that all market prices incorporate all information at the same time....
POPULAR POSTS
Understanding dollar cross-currency basis
Covered interest parity is an arbitrage condition that equalizes costs of direct USD funding and of synthetic USD funding through FX swaps. Deviations are...
VIX term structure as a trading signal
The VIX futures curve reflects expectations of future implied volatility of S&P500 index options. The slope of the curve is indicative of expected volatility...
Understanding the correlation of equity and bond returns
The correlation of equity and high grade sovereign bond returns is a powerful driver of portfolio construction and the term premia of interest rates....
Leverage in asset management
Asset managers can use leverage to enhance returns. Outside hedge funds, such leverage is modest as share of assets under management. However, considering the huge...
Basic theory of momentum strategies
Systematic momentum trading is a major alternative risk premium strategy across asset classes. Time series momentum motivates trend following; cross section momentum gives rise...
The four components of long-term bond yields
A BOJ paper proposes an affine terms structure model for bond yields under consideration of the zero lower bound. It estimates the contribution of...