Trend following as tail risk hedge

Typical returns of a trend following strategy carry features of a “long vol” position and have positive convexity. Typical returns of long only strategies,...

Momentum trading and setback risk

An empirical study suggests that momentum trades yield positive returns but carry higher downside than upside market risk. This “beta asymmetry” appears to be...

Real-time growth estimation with reinforcement learning

Survey data and asset prices can be combined to estimate high-frequency growth expectations. This is a specific form of nowcasting that implicitly captures all...

How to measure economic uncertainty

Measures of economic uncertainty help investors to track popular fear or complacency for the purpose of trading strategies. Academic papers propose various methods: keyword frequencies in...

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....

How U.S. mutual funds reallocate assets

An empirical study shows that U.S. mutual funds take two major allocation decisions: bonds versus equity and U.S. versus non-U.S. assets. Federal Reserve policy...

Systematic trading strategies: fooled by live records

Allocators to systematic strategies usually trust live records far more than backtests. Given the moral hazard issues of backtesting in the financial industry, this...

Predicting volatility with heterogeneous autoregressive models

Heterogeneous autoregressive models of realized volatility have become a popular standard in financial market research. They use high-frequency volatility measures and the assumption that...

Macro trading and macroeconomic trend indicators

Macroeconomic trends are powerful asset return factors because they affect risk aversion and risk-neutral valuations of securities at the same time. The influence of...

Liquidity events

A recent speech by Fed governor Jerome Powell highlights recurrent episodes of short-term distress and vanishing liquidity in large developed markets. Increases in trading...

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Intervention liquidity

Unsterilized central bank interventions in foreign exchange and securities markets increase base money liquidity independently from demand. Thus, they principally affect the money price...

Trading strategies based on implicit subsidies

Detecting implicit subsidies is one of the most effective principles of building macro trading strategies. Implicit subsidies manifest as expected excess returns over and...

Inflation expectations and interest rate swap returns

Inflation expectations wield great influence over fixed income returns. They determine the nominal yield required for a given equilibrium real interest rate, they influence...

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