Modern financial system risk for macro trading
Financial system risk is the main constraint and disruptor of macro trading strategies. There are four key areas of modern systemic risk. In...
Public finance risk
Fiscal expansion was the logical response to the 2020 health and economic crisis. Alas, public deficit and debt ratios had already been historically high...
Systemic risk under non-conventional monetary policy
Central bank operations in the form of quantitative easing, qualitative easing, forward guidance and collateral policies wield great influence over market prices of risk....
Risk management shocks and price distortions
Risk management relies on statistical metrics that converge on common standards. These metrics can change drastically alongside market conditions. A risk management shock is...
Unproductive debt
Credit and related interest income have historically been viewed as service and related payment for lending productively. However, in a highly collateralized and risk-averse...
How central banks can take nominal rates deeply negative
The popular view that nominal interest rates have a natural zero lower bound has become obsolete in modern financial systems. It may be more...
Bayesian Risk Forecasting
Portfolio risk forecasting is subject to great parameter uncertainty, particularly for longer forward horizons. This simply reflects that large drawdowns are observed only rarely,...
The duration extraction effect
Under non-conventional monetary policy central banks influence financial markets through the “portfolio rebalancing channel”. The purchase of assets changes the structure of prices. A...
Tiered reserve systems
Negative monetary policy rates can undermine financial transmission, because they encourage cash hoarding and reduce the profitability of traditional banking. This danger increases with...
Signaling systemic risk
Systemic financial crises arise when vulnerable financial systems meet adverse shocks. A systemic risk indicator tracks the vulnerability rather than the shocks (which are...
RECENT ARTICLES
Classifying market states
Typically, we cannot predict a meaningful portion of daily or higher-frequency market returns. A more realistic approach is classifying the state of the market...
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...