The project

Systemic Risk and Systematic Value is dedicated to socially responsible macro trading strategies. Macro trading strategies are alternative investment management styles based on macroeconomic and policy trends. If the right principles and ethics are applied, social and economic benefits arise from an improved information value of market prices, increased efficiency of capital allocation and reduced risk of financial crises.

SPECIAL: Liquidity

How market liquidity causes price distortions

Liquidity is a critical force behind market price distortions (and related trading opportunities). First, the cost of trading in and out of a contract...

The price effects of order flow

Order flow means buyer- or seller-initiated transactions at electronic exchanges. Order flow consumes liquidity provided by market makers and drives a wedge between transacted...

Endogenous market risk: updated primer

Endogenous risk arises from the interaction of financial market participants, as opposed to traded assets’ fundamental value. It often manifests as feedback loops after...

A theory of hedge fund runs

Hedge funds’ capital structure is vulnerable to market shocks because most of them offer high liquidity to loss-sensitive investors. Moreover, hedge fund managers form...

Twitter Feed

How to estimate factor exposure, risk premia, and discount factors:
The statistical toolkit to estimate factor models has grown in recent years.
https://t.co/knnJVYCFkF https://t.co/KrbJUMhCCD
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Paper "derives an optimal portfolio based on trend-following signals...depending on covariance matrix of returns, covariance matrix of trends and risk premia...[and] implements the formula to gauge the performance of 5 well-established portfolios" https://t.co/M6dcgkOcMp https://t.co/d3Q4N6BBou macro_srsv photo
"The Rest of the World's Dollar-Weighted Return on U.S. Treasurys": "Since 1980, foreign investors timed their purchases and sales [poorly] to yield particularly low returns...around 3% lower than a buy-and-hold return." https://t.co/cLYdRevgrN https://t.co/Ri6SiHqZa7 macro_srsv photo

TAGS

SYSTEMIC RISK

Classifying market regimes

Market regimes are clusters of persistent market conditions. They affect the relevance of investment factors...

How to construct a bond volatility index and extract market information

Volatility indices, based upon the methodology of the Cboe volatility index (VIX), serve as measures...

Market dynamics: belief, risk, and ambiguity effects

To understand financial market dynamics, it is helpful to distinguish beliefs, attitudes towards risk, and...

Building a real-time market distress index

A new Fed paper explains how to construct a real-time distress index, using the case...

The financial stability interest rate

The financial stability interest rate is a threshold above which the real interest rate in...

SYSTEMATIC VALUE

How to estimate factor exposure, risk premia, and discount factors

The basic idea behind factor models is that a large range of assets’ returns can...

Variance risk premia for patient investors

The variance risk premium manifests as a long-term difference between option-implied and expected realized asset...

Classifying market regimes

Market regimes are clusters of persistent market conditions. They affect the relevance of investment factors...

The risk-reversal premium

The risk reversal premium manifests as an overpricing of out-of-the-money put options relative to out-of-the-money...

Fundamental value strategies

Value opportunities arise when market prices deviate from contracts’ present values of all associated entitlements...

POPULAR POSTS

The dangerous disregard for fat tails in quantitative finance

The statistical term ‘fat tails’ refers to probability distributions with relatively high probability of extreme outcomes. Fat tails also imply strong influence of extreme...

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....

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....

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...