Tradable Data from Market Chatter

Transcription

1 Tradable Data from Market Chatter

2 Executive Summary Who is Prattle? + Evan A. Schnidman Ph.D. (Harvard University), Founder + William D. MacMillan Ph.D. (Univ. of Michigan), Founder What is the Fed Index? + Unbiased, quantitative, tradable data on central bank communications Why Quantitative Central Bank Data? + Fed watching has become increasingly important in recent years + Existing Fed watching methods are biased and qualitative + Qualitative assessments are difficult to integrate into investing models

3 Table of Contents + Letter From CEO 1 + Methodology 2 + Banks We Watch 3 + Application Data Delivery 28 + Additional Features 29 + Leadership Team Legal Disclaimer 32 + Contact Information 33

4 Letter from the CEO Combining cutting-edge technology with domain expertise, the Prattle Central Bank Sentiment Index represents the next generation of Fed watching. Attached to the minute details of Central Bank communications, current Fed watchers are unable to comprehensively and objectively examine central bank communications. Utilizing automated language interpretation, our methodology produces the first ever quantitative, unbiased and comprehensive data on central bank sentiment data that provides dozens of macro market indicators wrapped into one signal. Thank you for your time and interest, and if you have any questions or requests, please do not hesitate to contact us. Sincerely, Evan A. Schnidman 1

5 Methodology + The Fed Index is generated from an unbiased evaluation of all central bank communications + This includes: FOMC meeting minutes, FOMC press releases, Congressional testimony by Board members, speeches by Fed senior staff + Communications are algorithmically evaluated using the history of the market s reaction to the Fed s language + The resulting signal is the first ever quantitative Fed Watching data 2

6 Banks We Watch (so you don t have to) + Central Bank of Brazil + European Central Bank + Bank of Japan + Reserve Bank of New Zealand + Bank of Korea + Banco de México + Central Bank of Russia + Bank of England + Reserve Bank of Australia + Bank of Canada + The Swiss National Bank + Central Bank of Taiwan + South African Reserve Bank + Reserve Bank of India + Bank of Israel + Swedish Riksbank + U.S. Federal Reserve + Central Bank of Turkey + Norges Bank + Central Bank of Indonesia 3

7 Application Prattle Central Banks Sentiment Indexes are... + Strong buy-signals across asset classes + Superb sell/short signal across asset classes + Excellent for financial forecasting + Easily integrated into existing models 4

8 Buy Signal 5

9 + Our data serves as a strong trade signal based on established correlations to international equity benchmarks

10 + This is also true of domestic stocks

11 + Using the relationship between our data and individual securities, custom trade signals can be generated

12 + Our data serves as a strong trade signal for benchmark currencies

13 + As with equities, custom currency trade signals can be built with our data using correlations between individual currencies and their native central bank sentiment indexes

14 + Since the Fed Funds Rate (FFR) has been pinned to zero, Fed communications are far more indicative of market yields + Because of this, our data is a powerful fixed-income trade signal

15 Sell Signal 12

16 + Central Banks excel at detecting downside risk, making our Indexes excellent sell/short signals + Our Indexes are statistically significant leading indicators for equity market drops internationally 13

17 + Stateside, the Fed Index is a very effective indicator of equity market declines making it a great sell/short signal for domestic stocks 14

18 + The Fed Index correlates with Apple above.7 (on a -1 to 1 scale) + Given how many non-macro variables (product releases, lawsuits, etc.) impacted the price during this time, this correlation is robust 15

19 + Our data can also make sense of opaque markets. Even notoriously non-transparent economies, like China s, can be understood using other international Central Bank Sentiment Indexes 16

20 + Our Central Bank Indexes are also a statistically significant leading indicators for fixedincome market declines all over the world 17

21 + Especially since the financial crisis, the Fed Index serves as a leading indicator for currency market sell-offs 18

22 Forecasting Tool 19

23 The Fed Index can... + Reliably forecast future scores + Predict market movements + Identify which central bankers move the market most enabling speakerdriven investment strategies 20

24 Case Study 21

25 Navigating the Taper Tantrum + In September of 2013, the consensus was that the Fed would soon taper asset purchases + Our assessment of Fed communications revealed a less hawkish central bank than had been historically consistent with tapering measures, and we contended that the Fed would not change policy + As we predicted, the Fed did not taper asset purchasing in September + In December, our scoring of the Fed s sentiment reflected an increasingly hawkish central bank, and, because of this, we predicted that the Fed would soon begin tapering + As with our previous policy projection, our December predictions also came to fruition 22

26 + September s mood is clearly below May s, when the Fed began discussing asset tapering, making the hawkish move unlikely + December reaches hawkish highs similar to May, indicating that tapering was imminent + Because our data is a leading indicator of policy, we can reliably forecast market reaction 23

27 Backtesting Results 24

28 S&P 500: market benchmark Volatility Strategy: low dropdown during the financial crisis and low returns Fed Index Strategy: low dropdown and maximum returns: 121% Alpha/2.9 Sharpe Ratio Combined Strategy: low dropdown during the financial crisis and steady returns 25

29 Carry Trade Strategy: low dropdown during the financial crisis and steady returns Fed Index Strategy: low dropdown during the financial crisis and maximum returns: 105% Alpha/1.6 Sharpe Ratio 26

30 Buy and Hold Strategy: low dropdown during the financial crisis and steady returns Fed Index Strategy: low dropdown during the financial crisis and maximum returns: 87% Alpha/1.8 Sharpe Ratio 27

31 Data Delivery + Direct API, Pub/Sub and FTP to a user/trading desk + Direct API, Pub/Sub and FTP to an entire corporate entity 28

32 Additional Features + Data available at set time intervals, ranging from real time to weekly + Metadata available on: speaker, type of communication, subject matter and direct link to central bank communication + Automated updates are available + Data can be pulled from our database on demand + All data transfer and storage is secure + Custom data development and analytics services are also available 29

33 Leadership Team Evan A. Schnidman, Ph.D. (Harvard University) Founder and Chief Executive Officer + Faculty at Brown University from Frequent contributor to Bloomberg News + Research featured in The Wall Street Journal, Bloomberg View, academic journals and edited volumes + Author of forthcoming Palgrave book How the Fed Moves Markets + Experienced consultant for large corporations, small and midsize financial institutions 30

34 Leadership Team William D. MacMillan, Ph.D. (Univ. of Michigan) Founder and Chief Technology Officer + Lecturer at the University of Michigan and Washington University in St. Louis + Frequent contributor to Bloomberg News + Author of original software that estimates trade flows, exchange rates, government policy and policy regimes + Author of forthcoming Palgrave book How the Fed Moves Markets + Former corporate data scientist and fraud analyst 31

35 Legal Disclaimer THE MATERIALS IN THIS PRESENTATION ARE FOR INFORMATIONAL PURPOSES ONLY. THESE MATERIALS ARE PROVIDED AS IS WITH ALL FAULTS, WITHOUT ANY EXPRESS OR IMPLIED WARRANTY OF ANY KIND INCLUDING, WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY, OWNERSHIP, NON-INFRINGEMENT OF INTELLECTUAL PROPERTY, ABSENCE OF VIRUSES OR DAMAGING OR DISABLING CODE, OR OTHER HARMFUL COMPONENTS OR FITNESS FOR ANY PARTICULAR PURPOSE, INCLUDING ANY WARRANTY FOR THE USE OR THE RESULTS OF THE USE OF SERVICES OR PRODUCTS WITH RESPECT TO THEIR CORRECTNESS, QUALITY, ACCURACY, COMPLETENESS, RELIABILITY, PERFORMANCE, TIMELINESS OR CONTINUED AVAILABILITY. NEITHER PRATTLE ANALYTICS LLC (PRATTLE) NOR ITS THIRD PARTY PROVIDERS SHALL BE RESPONSIBLE FOR INVESTMENT DECISIONS, DAMAGES, OR OTHER LOSSES RESULTING FROM USE OF THIS INFORMATION. PAST PERFORMANCE OF A MUTUAL FUND, STOCK, OR OTHER INVESTMENT VEHICLE DOES NOT GUARANTEE FUTURE PERFORMANCE. NEITHER PRATTLE NOR ITS THIRD PARTY PROVIDERS SHALL BE CONSIDERED AN EXPERT UNDER THE SECURITIES ACT OF NEITHER PRATTLE NOR ITS THIRD PARTY PROVIDERS WARRANT THAT THESE PRESENTATION MATERIALS COMPLY WITH THE REQUIREMENTS OF THE NATIONAL ASSOCIATION OF SECURITIES DEALERS (NASD), THE FINANCIAL INDUSTRY REGULATORY AUTHORITY (FINRA) OR ANY SIMILAR ORGANIZATION OR WITH THE SECURITIES LAWS OF ANY JURISDICTION. LIMITATION OF LIABILITY: NEITHER PRATTLE NOR ITS THIRD PARTY PROVIDERS NOR ANY PERSON THROUGH WHOM PRATTLE MAKES THIS INFORMATION AVAILABLE SHALL BE LIABLE FOR ANY DAMAGES OF ANY KIND ARISING FROM OR RELATING TO THESE TERMS, THE INFORMATION PROVIDED, OR THE USE OF, OR RELIANCE ON, PRATTLE ANALYTICS DATA PRODUCTS, WHETHER IN CONTRACT OR TORT OR OTHERWISE.

36 Contact for free trial Tradable Data from Market Chatter prattle.co