U.S. dollar exchange rate before FOMC decisions

August 15, 2018

Since the mid-1990s the dollar exchange rate has mostly anticipated the outcome of FOMC meetings: it appreciated in the days before a rate hike and depreciated in the days before a rate cut. This suggests that since fixed income markets usually predict policy rate moves early and correctly their information content can be used to trade the exchange rate. A recent paper proposes a systematic trading rule for trading USD before FOMC meetings based upon what is priced into the each Fed meeting from Fed fund futures and claims that such a strategy would have delivered a respectable Sharpe ratio.

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FX returns and external balances

March 29, 2017

A new paper supports the view that currency excess returns can to some extent be viewed as compensation for risk to net capital flows in imperfect markets. An increase in current account uncertainty can be approximated by economists’ forecast dispersion. Historically, a rise in current account uncertainty has reduced returns on carry currencies and investment currencies, i.e. those of countries with net capital inflows. There is also evidence that markets have been sluggish in adapting to higher uncertainty.

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The importance of statistical programming for investment managers

November 1, 2016

Almost every portfolio manager uses some form of quantitative analysis. Most still rely on Excel spreadsheets, but this popular tool constrains the creativity of analysis and struggles to cope with large data sets. Statistical programming in R and Python both facilitates and widens the scope of analysis. In particular, it allows using high-frequency data, alternative data sets, textual information and machine learning. And it greatly enhances the display and presentation of analytical findings.

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What made FOMC members hawkish or dovish?

September 14, 2016

An empirical analysis based on transcripts of the U.S. Federal Open Market Committee from 1994 to 2008 suggests that differences in committee members’ policy differences can partly be explained by differences in regional data, particularly unemployment rates. Also, personal background may play some role: FOMC members with experience in the non-financial private and public sectors have historically been more dovish.

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Trend following as tail risk hedge

July 18, 2016

Typical returns of a trend following strategy carry features of a “long vol” position and have positive convexity. Typical returns of long only strategies, such as risk parity, rather exhibit a “short vol” profile and negative convexity. This makes trend following a useful complement of long-only portfolios, by mitigating tail risks that manifest as escalating trends. Options are naturally a cleaner hedge for tail risk, but have over the past two decades been prohibitively expensive.

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asset management Asset Purchase Program banks bond returns bond yields bubbles capital regulation central counterparty clearing China collateral commodities credit returns default ECB economic data EM equity returns euro area crisis Fed financial crisis FX FX interventions FX returns government debt government deficits herding inflation information insurances Japan leverage liquidity machine learning market turmoil price factors regulation risk management shadow banking statistical methods term structure trend following variance risk premium VIX volatility ZLB
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Macrosynergy is a London based macroeconomic research and technology company whose founders have developed and employed macro quantamental investment strategies in liquid, tradable asset classes, across many markets and for a variety of different factors to generate competitive, uncorrelated investment returns for institutional investors for two decades. Our quantitative-fundamental (quantamental) computing system tracks a broad range of real-time macroeconomic trends in developed and emerging countries, transforming them into macro systematic quantamental investment strategies. In June 2020 Macrosynergy and J.P. Morgan started a collaboration to scale the quantamental system and to popularize tradable economics across financial markets.

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