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....
"Optimal Trend-Following With Transaction Costs": "We show that the [mathematically] optimal trend-following rule is very much like the popular simple moving average crossover rule." https://t.co/NTUSLJPit7 🇺🇦 https://t.co/xbThAL9QoD
"Hurst Exponent to Identify Trading Strategies": "The Hurst exponent...measures..a financial time series [deviation] from a random walk...[and] the long-term memory of a time series, characterizing it as mean-reverting, trending, or a random walk." https://t.co/YKKeY9h8WE 🇺🇦 https://t.co/3ajsy6Ksgt
"A convenience yield represents a difference between yield on a safe bond and yield on a synthetic safe bond...combining a risky bond with a CDS contract...Changes in convenience yields [are] a key [effect] of unconventional monetary policy." https://t.co/0v5bG0yU2a 🇺🇦 https://t.co/5RrEv0WsHE
TAGS
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
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...
Identifying market regimes via asset class correlations
A recent paper suggests identifying financial market regimes through the correlations of asset class returns....
Jobs growth as trading signal
Employment growth is an important and underestimated macro factor of financial market trends. Since the...
Transaction costs and portfolio strategies
Transaction costs are a key consideration for the development of trading strategies; and not just...
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...