Research

Working Paper

Risk Parity Is Not Short Volatility (Not That There's Anything Wrong with Short Volatility)

August 21, 2019 - Benjamin Hood John J. Huss Roni Israelov Matthew Klein

Are risk parity strategies hiding an implicit short volatility? To find out, we simulated stylized versions of three asset-class (equity, fixed income, and commodities) risk parity and short volatility strategies, and we compared the trading behavior and returns of each.

Macroeconomics

A Black Zero Sum Game

August 16, 2019

Black zero may sound like a bad diet cola, but it is the literal translation of Germany’s Schwarze Null zero deficit policy. While many other developed countries have been running up government debt, Germany has been a model of fiscal discipline. This has led to calls for reform…in Germany. This week, we look at why Germany is so German and what a change in policy would mean for markets.

Macroeconomics

Phone A Friend

August 9, 2019

Unexpected market moves have been around as long as Who wants to be a Millionaire? Whenever they occur, we get almost as many questions as a contestant on that show. As always we appreciate your input – unlike some contestants we won’t walk away from any questions. We sometimes change the exact text of the questions, but we try to capture their tone.

Synchronicity

August 2, 2019

This week we’re putting the global back in global macro. It may seem as though the paths of economies around the world are diverging, with the U.S. outperforming and others lagging, but a closer look reveals more similarities than differences. It’s a new kind of global synchronization.

Macroeconomics

No Quick Fix for FX

July 26, 2019

Currency intervention has all but disappeared as a tool for U.S. policymakers. This week, we look at why it remains a popular topic of discussion for macro investors, even though officials claim they’ve ruled it out. It’s quite the trilemma for investors.

Macroeconomics

The Fed is Signaling a Cut. But Why Though?

July 19, 2019

There is a strong consensus among market participants that the Fed will cut rates at its next meeting. There is an almost equally strong consensus that they don’t understand why the Fed will cut rates. This week we look at the confusing, contradictory logic which is driving the Fed’s convoluted communication. We hope it will seem a little more clear.

Macroeconomics

Feels So Good Being Bad

July 12, 2019

Charging fees for ATM usage. Closing early on Saturdays. Making customers say "representative" ten times before getting a real person for customer service. These are all things bad banks do. That is not what we’re covering this week. Instead we’re looking at the use of so called "bad banks" as a tool for restructuring and maintaining financial stability. In this case bad banks may be a good thing.

Factor/Style Investing

Factor Premia and Factor Timing: A Century of Evidence

July 2, 2019 - Antti Ilmanen Ronen Israel Tobias J. Moskowitz Ashwin Thapar Franklin Wang

We examine four prominent factor premia – value, momentum, carry, and defensive – over a century from six asset classes. The results offer support for time-varying risk premia models with important implications for theory seeking to explain the sources of factor returns.

Fixed Income

Looking Under the Hood of Active Credit Managers

July 1, 2019 - Diogo Palhares Scott A. Richardson

We find that credit long/short managers tend to have high passive exposure to the credit risk premium. In contrast, we find that high-yield-focused long-only managers provide less exposure to the credit risk premium than their respective benchmarks.

Macroeconomics

Don’t Run from the Yield Curve

June 28, 2019

This week we revisit one of our favorite topics: the yield curve. We look at some of the differences between the current inversion and past cycles. We also note that the current shape of the yield curve resembles a well-known company’s logo.