Macrosynergy Research

Macrosynergy Research (formerly Systemic Risk and Systematic Value) is a free educational site dedicated to responsible macro trading strategies. 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: Equity returns

Excess inflation and asset class returns

Excess inflation means consumer price trends over and above the inflation target. In a credible inflation targeting regime, positive excess inflation skews the balance...

Macro factors of the risk-parity trade

Risk-parity positioning in equity and (fixed income) duration has been a popular and successful investment strategy in past decades. However, part of that success...

Jobs growth as trading signal

Employment growth is an important and underestimated macro factor of financial market trends. Since the expansion of jobs relative to the workforce is indicative...

Inflation as equity trading signal

Academic research suggests that high and rising consumer price inflation puts upward pressure on real discount rates and is a headwind for equity market...

Equity convexity and gamma strategies

Equity convexity means that a stock outperforms in times of large upward or downward movements of the broad market: its elasticity to the market...

SYSTEMIC RISK

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...

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...

How to construct a bond volatility index and extract market information

Volatility indices, based upon the methodology of the Cboe volatility index (VIX), serve as measures of near-term market uncertainty across asset classes. They are...

SYSTEMIC VALUE

FX trend following and macro headwinds

Trend following can benefit from consideration of macro trends. One reason is that macroeconomic data indicate headwinds (or tailwinds) for the continuation of market...

Macroeconomic cycles and asset class returns

Indicators of growth and inflation cycles are plausible and successful predictors of asset class returns. For proof of concept, we propose a single balanced...

Rational inattention and trading strategies

The theory of rational inattention supports the development of trading strategies by providing a model of how market participants manage the scarcity of attention....

Terms of trade as FX trading signal

All other things equal, an improvement in a country's terms of trade, the ratio of export to import prices, translates into increased demand for...

Excess inflation and asset class returns

Excess inflation means consumer price trends over and above the inflation target. In a credible inflation targeting regime, positive excess inflation skews the balance...

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....

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...