The VIX, a common proxy for financial uncertainty, does not adequately capture macroeconomic uncertainty—a separate entity with its own impacts on asset prices.
An analysis of the market impacts of NAFTA renegotiations suggests pronounced correlations with the USD/MXN exchange rate, as well as WTI crude prices.
Entering 2018, it may be worth keeping an eye on “unconventional” risks, including monetary policy risk, political risk, and geopolitical risk. This article examines one way of measuring such risks and shows how they may interact with both equity prices and volatility.
With U.S. tax reform legislation seemingly poised for enactment, one might assume that policy uncertainty generally—and tax policy uncertainty, specifically—is falling. The reality is more complicated.
One way allocators can improve their inflation forecasts is to analyze it from as many perspectives as possible—just as a data scientist would.
The cost of rolling futures contracts, rather than the decline in commodity prices, has been the largest drag on commodity index performance over the past 10 years. Although difficult to implement, asset allocators’ best response may be to develop dynamic execution strategies to mitigate the roll return “tax.”
Momentum has been a consistent component of CTAs since 2004, but its influence on CTA performance remains lower than it once was. This highlights the potential importance of measuring both manager-specific and overall portfolio exposures in risk terms.
Just four factors collectively explain an outsized fraction of the SG CTA Index’s current risk, while elevated long equity and bond exposures may compromise the amount of diversification CTAs now offer.
While the effects of monetary policy shocks are not directly observable, an analysis of historical evidence can help quantify the potential impact of such shocks on asset prices.
Investors seem to expect benign market conditions to continue, but they should remain aware of the historical tendency for rapid, positive shifts in volatility measures to occur.