Macro trends for trading models

Unlike market price trends, macroeconomic trends are hard to track in real-time. Conventional econometric models are immutable and not backtestable for algorithmic trading. That...

Factor momentum: a brief introduction

Standard equity factors are autocorrelated. Hence, it is not surprising that factor strategies have also displayed momentum: past returns have historically predicted future returns....

The macro forces behind equity-bond price correlation

Since the late 1990s, the negative price correlation of equity and high-grade bonds has reduced the volatility of balanced portfolios and boosted Sharpe ratios...

Macro uncertainty as predictor of market volatility

Market volatility measures the size of variations of asset returns. Macroeconomic uncertainty measures the size of unpredictable disturbances in economic activity. Large moves in...

What traders should know about seasonal adjustment

The purpose of seasonal adjustment is to remove seasonal and calendar effects from economic time series. It is a common procedure but also a...

Inflation and precious metal prices

Theory and plausibility suggest that precious metal prices benefit from inflation and negative real interest rates. This makes gold, silver, platinum, and palladium natural...

Forecasting energy markets with macro data

Recent academic papers illustrate how macroeconomic data support predictions of energy market flows and prices. Valid macro indicators include shipping costs, industrial production measures,...

Fundamental trend following

Fundamental trend following uses moving averages of past fundamental data, such as valuation metrics or economic indicators, to predict future fundamentals, analogously to the...

Understanding international capital flows and shocks

Macro trading factors for FX must foremostly consider (gross) external investment positions. That is because modern international capital flows are mainly about financing, i.e....

Market-implied macro shocks

Combinations of equity returns and yield-curve changes can be used to classify market-implied underlying macro news. The methodology is structural vector autoregression. Theoretical ‘restrictions’...

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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 be explained by exposure to a small range of...

Variance risk premia for patient investors

The variance risk premium manifests as a long-term difference between option-implied and expected realized asset price volatility. It compensates investors for taking short volatility...

Classifying market regimes

Market regimes are clusters of persistent market conditions. They affect the relevance of investment factors and the success of trading strategies. The practical challenge...

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