I have been asked the question of whether systematic global is different from other forms of global macro investing. The answer is yes. We can break global macro into four types and two dimensions: those that are price-based and those that are fundamental data based and those that are systematic and those discretionary.
The price-based global macro managers will rely on market information to make decisions. This could be prices within or across markets and is based on the belief that prices reflect the aggregation of market opinions and discount quickly any change in the macroeconomic environment. Prices are an aggregation of all opinions both good and bad. If there is macro evidence affecting price, it is discounted quickly and efficiently although the discounting process by the market as a whole may not always be correct. There is the assumption that the manager is no better at discounting information than others but may have an advantage at finding prices signals within the noise of daily trading.
These price-based managers can either be discretionary or systematic. The majority of price-based managers are systematic. There are few discretionary price-based managed. Those who are discretionary may use price models as signals and then use their expertise to decide whether to execute the signal. The discretion may also come in a form of weighing alternative prices signals under the assumption the weighing system may change with market conditions
The fundamental based managers will use macro information to help make decisions under the belief that information about the macro economy is not fully discounted in prices or the form of discounting in the market is not correct. The market may form rational beliefs, but those beliefs may not always be correct. Using insight, the manager believe he can better discount this information. The systematic manager will measure tine varying risk premium along with fundamental factors to help skew bets to those which have a higher chance of success. Discretionary trading will adapt or change with the news presented and will focus on the discounting or interpreting news stories surrounding macro events. Clearly, there will be a focus on what policy-makers are thinking to make forward-looking judgments. The systematic managers will focus more on factor analysis and risk premiums.
Of course, many managers are hybrids of these strategies and incorporate sentiment and flows with their analysis. However, one of the key drivers is momentum in asset classes and global macro fundamentals. Momentum is a critical component of both price and fundamental managers and cannot be overlooked. Price relatives across asset classes and through time will always be a key tool for any macro manager.
The price-based global macro managers will rely on market information to make decisions. This could be prices within or across markets and is based on the belief that prices reflect the aggregation of market opinions and discount quickly any change in the macroeconomic environment. Prices are an aggregation of all opinions both good and bad. If there is macro evidence affecting price, it is discounted quickly and efficiently although the discounting process by the market as a whole may not always be correct. There is the assumption that the manager is no better at discounting information than others but may have an advantage at finding prices signals within the noise of daily trading.
These price-based managers can either be discretionary or systematic. The majority of price-based managers are systematic. There are few discretionary price-based managed. Those who are discretionary may use price models as signals and then use their expertise to decide whether to execute the signal. The discretion may also come in a form of weighing alternative prices signals under the assumption the weighing system may change with market conditions
The fundamental based managers will use macro information to help make decisions under the belief that information about the macro economy is not fully discounted in prices or the form of discounting in the market is not correct. The market may form rational beliefs, but those beliefs may not always be correct. Using insight, the manager believe he can better discount this information. The systematic manager will measure tine varying risk premium along with fundamental factors to help skew bets to those which have a higher chance of success. Discretionary trading will adapt or change with the news presented and will focus on the discounting or interpreting news stories surrounding macro events. Clearly, there will be a focus on what policy-makers are thinking to make forward-looking judgments. The systematic managers will focus more on factor analysis and risk premiums.
Of course, many managers are hybrids of these strategies and incorporate sentiment and flows with their analysis. However, one of the key drivers is momentum in asset classes and global macro fundamentals. Momentum is a critical component of both price and fundamental managers and cannot be overlooked. Price relatives across asset classes and through time will always be a key tool for any macro manager.
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