Tuesday, February 4, 2020

risk - Indicators and research for stress-based investment strategies


In reference to this paper:


Can risk aversion indicators anticipate financial crises?



and the investable UBS Risk Adjusted Dynamic Alpha Strategy:
http://www.ibb.ubs.com/mc/strategyindices/ubsrada/downloads/rada_factsheet.pdf
(see here for their UBS Dynamic Equity Risk Indicator and here for a real track record of this product on the DAX).


My questions are:
Do you know of any other research on the topic, i.e. different levels of financial markets stress (however measured) that forecast rising, flat or falling markets?


It would also be interesting to know if there are any other strategies, products, funds etc. out there that have comparable approaches.


EDIT:
Since some of the answers are about sentiment indicators: That is not what I mean! I am more interested in "hard" measures of risk (like volatilities, swap spreads, credit spreads etc.) and their relation to future equity returns.


EDIT2:
Two of the links were broken - fixed them.




Answer



This is one index I find to quite credible (Kansas City Fed Financial Stress Indicator): http://www.kansascityfed.org/research/indicatorsdata/kcfsi/


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