Strategies · Library · Global macro
§19.2Trend
Fundamental macro momentum
Markets underreact to changes in growth, trade, monetary policy and risk mood. Rank countries on these four trends, buy the top group and sell the bottom group, combining asset classes with equal weights.
- Asset class
- Global macro
- Held for
- Months
- Data
- ARCANE has part of the data
- Symphony
- Cannot be built as a symphony
The rule
- Signal
- Changes in growth and inflation forecasts, exchange rates, short rates and equity excess returns
- Entry and exit
- Rebalance about every three to six months
- Sizing
- Equal weights across asset-class portfolios
How it fails
- Data revisions
- Shorting needed
- Regimes change
Data it needs
- macro forecasts
- FX rates
- short rates
- index returns
Index and FX prices yes, macro forecasts no.
How ARCANE uses it
Alpha could reference macro trend direction when answering a Call on a country index. Paper only.
Needs macro forecast data and short positions.
Filed under the trend card
Hold each market in the direction of its own return over the past year, and size every position to the same expected volatility.
A paper plan from this card holds 21 to 252 days, stops at 2× the expected move and uses at most 100% of your risk budget. The card
Source: Kakushadze and Serur (2018), 151 Trading Strategies, §19.2, p. 122 of the SSRN version. Described in our words. Trend is ARCANE’s filing, not the book’s.