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: Price bubbles

Identifying asset price bubbles

A new paper proposes a practical method for identifying asset price bubbles. First, one estimates deviations of prices from fundamentals based on three different...

Why financial markets misprice fundamental value

Experimental research has produced robust evidence for mispricing of assets relative to their fundamental values even with active trading and sufficient information. Academic studies...

Explosive dynamics in exchange rates

Explosiveness in financial markets means that prices display exponential growth. In recent years statistical tests have been developed to locate mildly explosive bubble periods...

Pension funds and herding

Pension funds have three types of motivations for herding: rebalancing rules, the effects of regulatory changes and peer pressure of senior executives. A new...

Twitter Feed

Simple example code for "applying Monte Carlo simulation to price both a European Call and Put Option [in Python], following the Black-Scholes Market Model using Risk-Neutral Pricing." https://t.co/LytZItFS4p 🇺🇦 https://t.co/ZGsIbM5Vnt macro_srsv photo
"A Machine Learning Framework for Asset Pricing": "Building on [mathematical] representations of asset prices…we develop a solution strategy using neural networks and further machine learning techniques." https://t.co/PRi9bVza7k 🇺🇦 https://t.co/1JAajXFkm0 macro_srsv photo
"While investors demand a premium to hold stocks with high illiquidity...they underreact to stock-level liquidity shocks... A long-short [idiosyncratic] liquidity shocks strategy earns significantly high returns during abnormal market states." https://t.co/SCslAvJyN5 🇺🇦 https://t.co/EHwNgPIlp1 macro_srsv photo

TAGS

SYSTEMIC RISK

How to manage systemic risk in asset management

Systemic crises are rare but critical for long-term performance records. When the financial system fails,...

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...

SYSTEMATIC VALUE

Inflation as equity trading signal

Academic research suggests that high and rising consumer price inflation puts upward pressure on real...

Economic growth and FX forward returns

Economic growth differentials are plausible predictors of foreign exchange return trends because they are related...

How to use FX carry in trading strategies

FX forward-implied carry is a valid basis for trading strategies because it is related to...

Equity convexity and gamma strategies

Equity convexity means that a stock outperforms in times of large upward or downward movements...

Predicting volatility with neural networks

Predicting realized volatility is critical for trading signals and position calibration. Econometric models, such as...

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...