SPECIAL: Foreign exchange strategies
Joint predictability of FX and bond returns
When macroeconomic conditions change rational inattention and cognitive frictions plausibly prevent markets from adjusting expectations for futures interest rates immediately and fully. This is...
Dealer capital ratios and FX carry returns
When financial market intermediaries warehouse net risk positions of other market participants the marginal value of their capital should affect the expected and actual...
FX trading strategies based on output gaps
Macroeconomic theory suggests that currencies of countries in a strong cyclical position should appreciate against those in a weak position. One metric for cyclical...
Treasury basis and dollar overshooting
Safe dollar assets, such as Treasury securities, carry significant convenience yields. Their suitability for liquidity management and collateralization means that they provide value over...
"The impact of...OPEC and Russia...on the oil market [2017-2020] was quite limited, owing to significant deviations from the assigned quotas. On average, without the OPEC+ cuts, the price of oil would have been 6 percent (4 USD) lower." https://t.co/o9jX1bBxrX https://t.co/GRFP6dwpvI
R tidyverse: a powerful technology for macro trading research that supports efficient deployment of R’s vast universe of econometric models, nested data structures for data vintages and visually clean code for chains of statistical operations. https://t.co/8TkN1Vqid8 https://t.co/9NbDuiCVfV
"Primary contributor [to] systematic liquidity risk premia...is common variation [of] shocks to liquidity and market portfolio returns...due to [correlation of] liquidity and dividends...Premia are significant only for top quintile of illiquid stocks." https://t.co/5I2cvsE0BR https://t.co/Swp6jihQME
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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
Measures of market risk and uncertainty
In financial markets, risk refers to the probability distribution of future returns. Uncertainty is a...
Modern financial system risk for macro trading
Financial system risk is the main constraint and disruptor of macro trading strategies. There are...
Public finance risk
Fiscal expansion was the logical response to the 2020 health and economic crisis. Alas, public...
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...
SYSTEMATIC VALUE
R tidyverse for macro trading research
The tidyverse is a collection of packages that facilitate data science with R. It is...
Nowcasting with MIDAS regressions
Nowcasting macro-financial indicators requires combining low-frequency and high-frequency time series. Mixed data sampling (MIDAS) regressions...
Market-implied macro shocks
Combinations of equity returns and yield-curve changes can be used to classify market-implied underlying macro...
Measures of market risk and uncertainty
In financial markets, risk refers to the probability distribution of future returns. Uncertainty is a...
Nowcasting for financial markets
Nowcasting is a modern approach to monitoring economic conditions in real-time. It makes financial market...
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...
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 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...
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....