Macrosynergy Research

Macrosynergy Research is dedicated to educating the investment and academic communities on the importance of constructing and employing macro quantamental trading strategies into investment portfolio construction. These 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.

Thematic collection: variance risk premium

Duration volatility risk premia

Jupyter Notebook The analysis of this post has been updated on June 22, 2023 Duration volatility risk premium means compensation for bearing return volatility risk of an...

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...

The risk-reversal premium

The risk reversal premium manifests as an overpricing of out-of-the-money put options relative to out-of-the-money call options with equal expiration dates. The premium apparently...

Measures of market risk and uncertainty

In financial markets, risk refers to the probability distribution of future returns. Uncertainty is a broader concept that encompasses ambiguity about the parameters of...

Realistic volatility risk premia

The volatility risk premium compensates investors for taking volatility risk. Conceptually it is based on the difference between options-implied and expected realized volatility. In...

SYSTEMIC RISK

Tracking systematic default risk

Systematic default risk is the probability of a critical share of the corporate sector defaulting simultaneously. It can be analyzed through a corporate default...

A model for bond risk premia and the macroeconomy

An empirical analysis of the U.S. bond market since the 1960s emphasizes occasional abrupt regime changes, as defined by yield levels, curve slopes, and...

Crashes in safe asset markets

A new theoretical paper illustrates the logic behind runs and crashes in modern safe asset markets. Safe assets are characterized by stable value and...

Copulas and trading strategies

Reliance on linear correlation coefficients and joint normal distribution of returns in multi-asset trading strategies can be badly misleading. Such conventions often overestimate diversification...

How to manage systemic risk in asset management

Systemic crises are rare but critical for long-term performance records. When the financial system fails, good trades become bad trades and many sensible investment...

SYSTEMATIC VALUE

Regression-based macro trading signals

Jupyter Notebook Regression is one method for combining macro indicators into a single trading signal. Specifically, statistical learning based on regression can optimize model parameters...

Generic derivative returns and carry (for strategy testing)

Backtesting of macro trading strategies requires good approximate profit-and-loss data for standard derivatives positions, particularly in equity, foreign exchange, and rates markets. Practical calculation...

Equity market timing: the value of consumption data

Jupyter Notebook The dividend discount model suggests that stock prices are negatively related to expected real interest rates and positively to earnings growth. The economic...

Advanced FX carry strategies with valuation adjustment

Jupyter Notebook FX forward-implied carry is a popular ingredient in currency trading strategies because it is related to risk premia and implicit policy subsidies. Its...

Tracking systematic default risk

Systematic default risk is the probability of a critical share of the corporate sector defaulting simultaneously. It can be analyzed through a corporate default...

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...

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...

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....