Equity trend-following with market and macro data

May 10, 2025

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The popularity of trend-following bears the risk of market excesses. Medium-term market price trends often fuel economic trends that eventually oppose them (”macro headwinds”). Fortunately, relevant point-in-time economic indicators can provide critical information on the sustainability of medium-term market movements and are a natural complement to standard trend signals.
This post illustrates the benefit of combining market and macro trends in equity markets. Since the 1990s, “robust” market price trend signals alone have created value for equity index future strategies in developed markets. However, risk-adjusted returns would have been enhanced materially if one adjusted market signals for natural macro headwinds, such as the state of the business cycle, inflation, and equity valuations.

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Boosting macro trading signals

April 26, 2025

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Boosting is a machine learning ensemble method that combines the predictions of a chain of basic models, whereby each model seeks to address the shortcomings of the previous one. This post applies adaptive boosting (Adaboost) to trading signal optimisation. Signals are constructed with macro factors to guide positioning in a broad range of global FX forwards.
Boosting is beneficial for learning from a wide and heterogeneous set of markets over time, because it is well-suited for exploiting the diversity of experiences across countries and global economic states. Empirically, we generate machine learning-based signals that use regularized regression and random forest regression, and compare processes with and without adaptive boosting methods. For both regression types, machine learning prefers boosting as datasets get larger and, by doing so, creates more profitable signals.

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Quantamental economic surprise indicators: a primer

April 12, 2025

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Quantamental economic surprises are point-in-time measures of deviations of economic indicators from expected values. There are two types of surprises: first-print events and pure revisions. First-print events feature new observation periods, and the surprise element depends on market expectations of the indicator. Market surveys can approximate such expectations, but only for a limited number of indicators. Quantamental surprises use econometric prediction models and can be calculated for all indicators and transformations, principally using the whole information state.
This post introduces economic surprises in global industry and construction and shows how they can be transformed into short-term macro trading signals for commodities. There is clear empirical evidence for the predictive power of such surprises for a basket of industrial commodity futures at a daily and weekly frequency. Related simulated PnL generation produces risk-adjusted alpha, albeit mainly in seasons of large swings in manufacturing and construction.

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Cross-country equity risk allocation with statistical learning

February 1, 2025

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Macroeconomic factors plausibly cause divergences in equity market returns across countries. Factors related to monetary policy, financial conditions, and competitiveness should all systematically help detect such divergences. In the presence of rational inattention, point-in-time indicators should also have predictive power.
We apply statistical learning to investigate the signalling value of nine candidate macro factors for cross-country excess returns within major equity sectors for a set of 12 countries. Most factors turn out to be relevant predictors. Cross-country trading signals based on point-in-time macro factors and models would have added material uncorrelated PnL value to an equity portfolio.

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Conditional short-term trend signals

January 18, 2025

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There are plausible relations between past and future short-term trends across and within financial markets. This is because market returns affect expected physical payoffs, risk premia, and the monetary policy outlook. However, the relations between past and future returns are unstable and often depend on the economic environment. As an example, this post shows that the impact of short-term commodity future trends on subsequent S&P500 future returns depends on the inflationary pressure in the U.S. economy. Empirical analysis suggests that macro-conditional trend signals outperform unconditional short-term trend signals regarding predictive power, accuracy and naïve PnL generations.

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FX trading signals: Common sense and machine learning

December 21, 2024

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Two valid methods to combine macro trading factors into a single signal are “conceptual parity” and machine learning. Conceptual parity takes a set of conceptually separate normalized factors and gives them equal weights. Machine learning optimizes models and derives weights sequentially, potentially with theoretical restrictions. Both methods support realistic backtests. Conceptual parity works best in the presence of strong theoretical priors. Machine learning works best with large homogenous data sets.
We apply conceptual parity, and two machine learning methods to combine 11 macro-quantamental trading factors for developed and emerging market FX forwards in 16 currencies since 2000. The signals derived by all methods have been highly significant predictors and produced material and uncorrelated risk-adjusted trading returns. Machine learning methods have failed to outperform conceptual parity, probably reflecting that theoretical priors in the FX space are abundant while data are limited and heterogeneous.

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U.S. Treasuries and macro-enhanced trend following

December 7, 2024

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Trend-following strategies rely on the persistence of market trends. Such persistence can arise from the gradual dissemination of information or behavioural biases. In light of these inefficiencies, trends that coincide with supporting economic information (macro tailwinds) are more likely to persist than those accompanied by opposing macro information (macro headwinds). As a result, a macro-enhancement of standard trend-following signals should produce better investment returns.
This post supports this proposition for the U.S. Treasury market over the past 32 years. It tests simple macro enhancement types for directional return trends and curve-flattening return trends. In all cases, macro enhancement would have materially improved predictive power and backtested trading profits. This echoes previous research for other asset classes that illustrated the complementarity of price and economic information in systematic trading.

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Using principal components to construct macro trading signals

October 26, 2024

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Principal Components Analysis (PCA) is a dimensionality reduction technique that condenses the key information from a large dataset into a smaller set of uncorrelated variables called “principal components.” This smaller set often functions better as features for predictive regressions, stabilizing coefficient estimates and reducing the influence of noise. In this way, principal components can improve statistical learning methods that optimize trading signals.

This post shows how principal components can serve as building blocks of trading signals for developed market interest rate swap positions, condensing the information of macro-quantamental indicators on inflation pressure, activity growth, and credit and money expansion. Compared to a simple combination of these categories, PCA-based statistical learning methods have produced materially higher predictive accuracy and backtested trading profits. PCA methods have also outperformed non-PCA-based regression learning. PCA-based statistical learning in backtesting leaves little scope for data mining or hindsight, and the discovery of trading value has high credibility.

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Macro information changes as systematic trading signals

September 28, 2024

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Macro information state changes are point-in-time updates of recorded economic developments. They can refer to a specific indicator or a broad development, such as growth or inflation. The broader the economic concept, the higher the frequency of changes. Information state changes are valuable trading indicators. They provide daily or weekly signals and naturally thrive in periods of underestimated escalatory economic change, adding a layer of tail risk protection.
This post illustrates the application of information state changes to interest rate swap trading across developed and emerging markets, focusing on six broad macro developments: economic growth, sentiment, labour markets, inflation, and financing conditions. For trading, we introduce the concept of normalized information state changes that are comparable across economic groups and countries and, hence, can be aggregated to local and global signals. The predictive power of aggregate information state changes has been strong, with material and consistent PnL generation over the past 25 years.

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Cross-country equity futures strategies

August 17, 2024

Jupyter Notebook

Developing macro strategies for cross-country equity futures trading is challenging due to the diverse and dynamic nature of equity indices and the global integration of corporations. This complexity makes it difficult to align futures prices with country-specific economic factors. Therefore, success in cross-country macro trading often relies on differentiating indicators related to monetary policy and corporate earnings growth in local currency. Additionally, cross-country strategies benefit from a broad and diverse set of countries to generate value consistently.
We tested five simple, thematic, and potentially differentiating macro scores across a panel of 16 developed and emerging markets. Our findings suggest that a straightforward, non-optimized composite score could have added significant value beyond a risk-parity exposure to global equity index futures. Furthermore, a purely relative value equity index futures strategy would have produced respectable long-term returns, complementing passive equity exposure.

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asset management Asset Purchase Program banks bond returns bond yields bubbles capital regulation carry 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
ABOUT US

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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