After the currency peg was suddenly given up by the Swiss National Bank, the Swiss Franc became by far the most overvalued currency among G10 currency as illustrated by the deviation from Purchasing Power Parity valuation presented in figure 1.Over the last 25 years, the Swiss Franc has presently a record positive deviation of more [...]
July 28, 2015
The purpose of this study is to run smart beta portfolios on European Stoxx 600 Sectors (EUR) and compare them to a market weighted stocks index (Stoxx 600 Europe).
All sectors are dividend-reinvested. We consider the following smart beta portfolios:
Minimum Variance (using shrinkage methods on the covariance matrix to improve conditioning, limit portfolio concentration [...]
After a sustained rally of equities and bonds since mid-2013, a simultaneous drop of assets representing all macroeconomic themes, i.e. inflation (commodities), disinflation (bonds) and growth (equities) has unfolded.
As represented in figure 1, Riskelia’s long only strategy on a universe of equities, commodities and sovereign bonds is experiencing a drawdown similar to the ones of [...]
As Greek PM Alexis Tsipras decided to submit the last proposal of its creditors to a referendum next Sunday 5th July, the Eurogroup has responded by stopping the aid program as of 30th June. As a result, Greece will be in arrears regarding the payment of its debt to the IMF but it will not [...]
It is often thought that an agreement over a Greek bailout would bolster the euro, thanks to an increased confidence in the stability of the euro zone. Conversely, a default of Greece or an accidental Grexit is expected to cause a decline in the euro.
The euro has nevertheless become one of the main funding currencies [...]
Time is running out for Greece and its creditors (IMF, euro zone countries) to find an agreement, at least one which could enable euro zone creditors to pursue the strategy carried out since 2010: “extend and pretend”. Extending the problem, by lending new money to Greece just to enable the country to pay back its [...]
Since Mid-April, all asset classes fell simultaneously: a basket of equities indices fell by 2%, a basket of sovereign bonds fell by 3.5% (i.e. a surge of 50 bps in yields) and commodities were just flat as illustrated in figure 1. An environment where all assets tumble at the same time translates a break in [...]
June 2, 2015
The VIX index is calculated as the weighted average of options on S&P 500. In March 2004, the CBOE introduced VIX futures contracts to facilitate volatility trading and encourage investors to use volatility to hedge equity portfolios, given the strong negative correlation between equity returns and implied volatility.
Reflecting the demand of markets participants, [...]
Apart from Germany, none of developed country is going to reduce the Government Debt/GDP ratio in 2015.
The Government debt dynamic depends on growth, inflation, leverage and primary balance. As a matter of fact, the variation in the debt ratio is given by the following relationship:
Therefore, the required primary balance to stabilize the Debt/GDP ratio is: [...]
Two major investment bubbles have landed since mid-April 2015: investors rushed to exit herding positions on long bonds and long dollar. For example, Bund yields increased by 60 bps and EUR/USD rose by 6% in a single month.
Both bubbles have moved in synch since 2011 and convey investors’ anticipations of a deflationary trend. The major [...]