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 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....
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....
Why and when “equity duration” matters
A new HSBC report suggests that if and when Quantitative Easing is being reversed it could be a watershed event for sectoral equity performance....
Understanding market beta in FX
The beta of an investment measures its sensitivity to “market returns”. Unlike in equity, in FX the relevant benchmark for a beta cannot be a...
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...
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...
Using SVAR for macro trading strategies
Structural vector autoregression may be the most practical model class for empirical macroeconomics. Yet, it can also be employed for macro trading strategies, because...
The predictive power score
The predictive power score is a summary metric for predictive relations between data series. Like correlation, it is suitable for quick data exploration. Unlike...
Term premia and macro factors
The fixed income term premium is the difference between the yield of a longer-maturity bond and the average expected risk-free short-term rate for that...
RECENT ARTICLES
The power of macro trends in rates markets
Broad macroeconomic trends, such as inflation, economic growth, and credit creation are critical factors of shifts in monetary policy. Above-target trends support monetary tightening....
Six ways to estimate realized volatility
Asset return volatility is typically calculated as (annualized) standard deviation of returns over a sequence of periods, usually daily from close to close. However,...
Duration volatility risk premia
Duration volatility risk premium means compensation for bearing return volatility risk of an interest rate swap (IRS) contract. It is the scaled difference between...