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Working Paper

Economics with Market Liquidity Risk

We discuss the effects of market liquidity risk on asset pricing, investment management, corporate finance, banking, financial crises, macroeconomics, monetary policy, fiscal policy, and other economic areas.

Macro Wrap-Up

All That Glitters

Silver once ruled the world of markets. Now it can rally by 25%, and no one seems to care. Well, we care! Silver remains one of the most compelling and elusive commodities for investors. This week we look at why it has rallied and what that tells us about investor sentiment in other markets.

Alternative Thinking

Inversion Anxiety: Yield Curves, Economic Growth, and Asset Prices

We evaluate the ability of the yield curve slope to forecast future economic conditions, as well as returns on stocks and bonds, using over 50 years of data across six countries.

Macro Wrap-Up

What to Expect When You’re Brexiting

In many ways, Brexit is like canceling your cable tv service. The main difference is that Brexit is much easier. This week we look at why markets fear a no-deal outcome. It has little to do with the long-term effects of leaving the EU and more to do with the short-term challenges that abrupt changes in regulation create. The EU isn’t offering any promotional packages to keep the UK in.

Working Paper

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

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.

Macro Wrap-Up

A Black Zero Sum Game

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.

Perspective

Bonds Are Frickin' Expensive

When something as important as the U.S. bond yield hits historical extremes, it’s worth at least a discussion. Cliff examines the long-term relationships between real bond yields, real T-bill yields, the slope of the yield curve, and economic conditions.

Macro Wrap-Up

Phone A Friend

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.

Data Set

Factor Premia and Factor Timing: A Century of Evidence, Factor Data Monthly

This is the updated data set related to the paper “Factor Premia and Factor Timing: A Century of Evidence,” in which we examine four prominent factor premia – value, momentum, carry, and defensive – over a century from six asset classes.

Macro Wrap-Up

No Quick Fix for FX

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.