Publications: Gavekal Portfolio Solutions

A Simple Rule - PART II - Cash Remuneration

 

Monetary zones compete to attract and safeguard excess savings denominated in their own currency. From an investor’s standpoint, the attractiveness of a currency resides in the total remuneration proposed by its monetary zone, i.e. the interest payments on cash deposits and the appreciation or depreciation of the currency vis-à-vis other competitors.

We analyse below this competition over time and show that currency remunerations, or ranking across zones, reveal the ‘Best of Breed’. A simple rule to allocate cash, based on trusting currency leaders over currency losers, generates significant alpha over time.

 

 

 

A Simple Rule - PART I - Arbitrage Principle

 

There exists a theoretical trade-off between two types of remuneration: cash and risk. An economic and monetary zone cannot simultaneously favour both ‘the rentier’ and ‘the entrepreneur’. However, we believe that a flexible investor can in fact benefit from such a situation. By investing their cash into the best cash-remunerating zone and their risk into the best risk-remunerating zone, the investor can do what has rarely been done before; reap the benefits of both.

The presentation of our model is split into three parts: (I) Arbitrage Principle, (II) Cash Remuneration, (III) Risk Remuneration. Through our new method of analysing global investment portfolios, our model devises a simple rule that leads to the generation of significant long-term alpha

 

Publications: Quant Corner Notes

Mission Impossible (January 2019)

Casino Roulette (December 2018)

The Penultimate One (November 2018)

Energy, Power, and the Price of Oil (October 2018)

The Oxymoron of World Trade (September 2018)

In TrackMacro, the Ordinal Rules (August 2018)

Flashback (July 2018)

Memory Sticks! (June 2018)

The Bayesian Surprize (May 2018)

Wisdom of Crowds-or Madness (April 2018)

The Mirror Crack’d (March 2018)

Al Stands for Amazing Intelligence! (August 2017)

World Equity Risks in A One Shot View (February 2017)

Gavekal Intelligence Software

© Copyright 2015 by G.I.S. All rights reserved.