Economic growth and FX forward returns
Economic growth differentials are plausible predictors of foreign exchange return trends because they are related to differences in monetary policy and return on investment....
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...
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...
Equity factor timing with macro trends
Plausibility and empirical evidence suggest that the prices of equity factor portfolios are anchored by the macroeconomy in the long run. A new paper...
Macro trends for trading models
Unlike market price trends, macroeconomic trends are hard to track in real-time. Conventional econometric models are immutable and not backtestable for algorithmic trading. That...
Factor momentum: a brief introduction
Standard equity factors are autocorrelated. Hence, it is not surprising that factor strategies have also displayed momentum: past returns have historically predicted future returns....
The macro forces behind equity-bond price correlation
Since the late 1990s, the negative price correlation of equity and high-grade bonds has reduced the volatility of balanced portfolios and boosted Sharpe ratios...
Macro uncertainty as predictor of market volatility
Market volatility measures the size of variations of asset returns. Macroeconomic uncertainty measures the size of unpredictable disturbances in economic activity. Large moves in...
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...
RECENT ARTICLES
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...
Trend following: combining market and macro information
Classic trend following is based on market prices or returns. Market trends are relatively cheap to produce, popular, and plausibly generate value in the...