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...

A brief history of quantitative equity strategies

Understanding quantitative equity investments means understanding a significant portion of market positions. Motivated by the apparent failure of the capital asset pricing model and...

The q-factor model for equity returns

Investment-based capital asset pricing looks at equity returns from the angle of issuers, rather than investors. It is based on the cost of capital...

Explaining FX forward bias

Forward bias in foreign exchange markets means that a positive interest rate differential precedes currency appreciation. It has been an empirical regularity in developed...

How to use FX carry in trading strategies

FX forward-implied carry is a valid basis for trading strategies because it is related to divergences in monetary and financial conditions. However, nominal carry...

The correlation of equity and bond returns

History shows that the correlation of equity and bond returns has been either positive or negative for prolonged periods of time. Monetary policy has...

Understanding convenience yields

Convenience yield represents the implied interest paid for borrowing physical commodity. Holding physical inventories carries benefits of flexibility for industrial consumers. The value of...

Machine learning and macro trading strategies

Machine learning can improve macro trading strategies, mainly because it makes them more flexible and adaptable, and generalizes knowledge better than fixed rules or...

The illiquidity risk premium

The illiquidity risk premium is an excess return paid to investors for tying up capital. The premium compensates the investor for forfeiting the options...

A simple rule for exchange rate trends

Over the past decades developed market exchange rates have displayed two important regularities. First, real exchange rates (nominal exchange rates adjusted for domestic price...

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Identifying the drivers of the commodity market

Commodity futures returns are correlated across many different raw materials and products. Research has identified various types of factors behind this commonality: macroeconomic...

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...

Identifying market regimes via asset class correlations

A recent paper suggests identifying financial market regimes through the correlations of asset class returns. The basic idea is to calculate correlation matrixes for...

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