Macrosynergy Research is dedicated to educating the investment and academic communities on the importance of macro quantamental trading strategies. These are alternative investment management styles based on macroeconomic and policy trends. Social and economic benefits arise from an improved information value of market prices, increased efficiency of capital allocation and reduced risk of financial crises.
The variance risk premium manifests as a long-term difference between option-implied and expected realized asset price volatility. It compensates investors for taking short volatility risk, which typically comes with a
The risk reversal premium manifests as an overpricing of out-of-the-money put options relative to out-of-the-money call options with equal expiration dates. The premium apparently arises from equity investors’ demand for
In financial markets, risk refers to the probability distribution of future returns. Uncertainty is a broader concept that encompasses ambiguity about the parameters of this probability distribution. There are various
The volatility risk premium compensates investors for taking volatility risk. Conceptually it is based on the difference between options-implied and expected realized volatility. In equity markets this premium should be
The variance risk premium manifests as a long-term difference between option-implied and expected realized asset price volatility. It compensates investors for taking short volatility risk, which typically comes with a
The risk reversal premium manifests as an overpricing of out-of-the-money put options relative to out-of-the-money call options with equal expiration dates. The premium apparently arises from equity investors’ demand for
In financial markets, risk refers to the probability distribution of future returns. Uncertainty is a broader concept that encompasses ambiguity about the parameters of this probability distribution. There are various
The volatility risk premium compensates investors for taking volatility risk. Conceptually it is based on the difference between options-implied and expected realized volatility. In equity markets this premium should be
A crowded trade is a position with a high ratio of active institutional investor involvement relative to its liquidity. Crowding is a form of endogenous
Systematic default risk is the probability of a critical share of the corporate sector defaulting simultaneously. It can be analyzed through a corporate default model
An empirical analysis of the U.S. bond market since the 1960s emphasizes occasional abrupt regime changes, as defined by yield levels, curve slopes, and related
A new theoretical paper illustrates the logic behind runs and crashes in modern safe asset markets. Safe assets are characterized by stable value and high
Jupyter Notebook Macro-quantamental scorecards are systematic enhancements of discretionary portfolio management. They offer (a) information efficiency by structuring and condensing key macroeconomic data series, and
Jupyter Notebook Macro trading factors are information states of economic developments that help predict asset returns. A single factor is typically represented by multiple indicators,
Jupyter Notebook Central banks regularly adjust the economy’s monetary base through foreign exchange interventions and open market operations. Point-in-time information on such intervention-based liquidity expansion
Jupyter Notebook This post demonstrates that country allocation with macroeconomic factors can materially enhance the returns on international equity portfolios in dollar terms. We identify
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 and
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. Importantly,
The statistical term ‘fat tails’ refers to probability distributions with relatively high probability of extreme outcomes. Fat tails also imply strong influence of extreme observations
The correlation of equity and high grade sovereign bond returns is a powerful driver of portfolio construction and the term premia of interest rates. This
Covered interest parity is an arbitrage condition that equalizes costs of direct USD funding and of synthetic USD funding through FX swaps. Deviations are called
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 volume
