SPECIAL: Bond yields
Analyzing global fixed income markets with tensors
Roughly speaking, a tensor is an array (generalization of a matrix) of numbers that transform according to certain rules when the array’s coordinates change....
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...
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....
How convenience yields have compressed real interest rates
Real interest rates on ‘safe’ assets such as high-quality government bonds had been stationary around 2% for more than a century until the 1980s....
"We propose a stock market anomaly indicator that gives investors an objective, real-time view of whether future stock pricing can be said to be either anomalously high or low...Methodologically, we only analyze data." https://t.co/5VzbLlAvPN 🇺🇦 https://t.co/Qk5WAHFOKG
"Pricing of regime shifts and [related] nonlinearities... generates a strong connection between bond risk premia and the macroeconomy as summarized by variables such as inflation, industrial production, and unemployment." https://t.co/T9ODUmdhwr 🇺🇦 https://t.co/pnIL6Fd58W
A brief post demonstrates "how a long short-term memory model can...predict stock prices with PyTorch. As a recurrent neural network, LSTMs are [principally]...well-suited to time series data." https://t.co/olzEX1DIZc 🇺🇦 https://t.co/QFoFUEF8hM
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asset management Asset Purchase Program banks bond returns bond yields bubbles capital regulation China collateral commodities credit returns default ECB economic data EM equity returns euro area crisis Fed financial crisis FX FX interventions FX returns government debt government deficits herding inflation information leverage liquidity market turmoil price factors regulation risk management shadow banking statistical methods term structure trend following variance risk premium volatility ZLB
SYSTEMIC RISK
Crashes in safe asset markets
A new theoretical paper illustrates the logic behind runs and crashes in modern safe asset...
Copulas and trading strategies
Reliance on linear correlation coefficients and joint normal distribution of returns in multi-asset trading strategies...
How to manage systemic risk in asset management
Systemic crises are rare but critical for long-term performance records. When the financial system fails,...
Classifying market regimes
Market regimes are clusters of persistent market conditions. They affect the relevance of investment factors...
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...
SYSTEMATIC VALUE
Detecting trends and mean reversion with the Hurst exponent
The Hurst exponent is a statistical measure of long-term memory of time series. The existence...
Modified and balanced FX carry
There are two simple ways to enhance FX carry strategies with economic information. The first...
FX trades after volatility shocks
Currency areas with negative external balances are – all other things equal – more vulnerable...
Identifying the drivers of the commodity market
Commodity futures returns are correlated across many different raw materials and products. Research has identified...
Macro factors of the risk-parity trade
Risk-parity positioning in equity and (fixed income) duration has been a popular and successful investment...
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...