20170110-法国巴黎银行-BNP_Paribas_STEER_-_An_update_15页_1mb

BNP Paribas STEER™ Summary

Core Content

BNP Paribas STEER™ is a short-term FX fair value model that provides 1-2 week fair values for currencies based on daily financial market data. It incorporates relationships between exchange rates, interest rates, equity markets, and commodity markets, and has been in operation since 2012. The model covers G10 currencies and 21 most liquid emerging-market (EM) currencies.

Main Updates

• Interest Rate Handling: The model has been updated to better handle negative and low 2-year interest rates by introducing a switch between using logged and non-logged interest rates. For G10 currencies, this threshold is set at 1.00%. The transition between regimes is designed to be smooth, minimising distortion to the STEER™ estimate.
• Performance Impact: The updated specification has improved the fit of the model for certain currency pairs such as EURUSD, GBPUSD, and EURSEK. The changes are minimal for others like USDJPY, AUDUSD, and EURCHF.
• Sharpe Ratio: A portfolio of G10 and EM currencies has returned a Sharpe ratio of 1.0 since March 2014, compared to 1.4 in the backtesting period before the update.

Key Information

• Model Coverage: Includes G10 and 21 EM currencies.
• Trading Rules: Defined in July 2013, with slight differences between G10 and EM models. A pair is considered significantly overvalued if it deviates by more than 1.5 z-scores from its STEER™. Stop-loss rules ensure a 2:1 risk reward.
• Trading Strategy: A "buy cheap, sell expensive" strategy based on deviations from fair value has historically been successful, with a Sharpe ratio of 1.30 for a combined portfolio of G10 and EM currencies since 2004.
• Diversification: STEER™ has low correlation with traditional FX strategies like carry and momentum, offering diversification benefits to a portfolio.

Methodology

• Cointegration Approach: STEER™ uses cointegration theory to estimate relationships between exchange rates and financial variables in level terms, rather than daily changes. This ensures the relationships are statistically significant and not spurious.
• Variables Used: The model incorporates five main variables:
  • Interest rate differential (2y interest rate swaps)
  • Relative yield curve steepness or CDS
  • Local equity market performance
  • Global equity performance
  • Commodity prices (tailored baskets for EM currencies)

Applications of STEER™

• Short-Term Forecasting: STEER™ can be used to quantify short-term forecasts and scenario analysis, such as predicting the impact of changes in CDS on USDZAR.
• Explain Currency Movements: It assists in identifying the drivers of recent currency movements by showing the sensitivity of exchange rates to other financial variables.
• Market Insights: The model provides insights into which assets are most correlated with currency pairs, helping traders understand market dynamics.

Performance Overview

• Annual Sharpe Ratios:
  • G10: 0.65 in 2014
  • EM: 0.51 in 2014
  • Combined: 0.83 in 2014
• Historical Performance: Since mid-2014, the combined portfolio has had a Sharpe ratio of 0.93, while the backtested period (2002-2014) had a Sharpe ratio of 1.38.

Key Outputs

• Exchange Rate Deviations: Deviations from STEER™ are typically temporary and can be used to predict short-term movements.
• Coefficients: Daily updated coefficients show the sensitivity of exchange rates to underlying variables, allowing for scenario analysis and comparison across currencies.

Contacts

• Cross Asset Strategy:
  • Robert McAdie: Global Markets Head of Research and Strategy
  • Michael Sneyd: Macro Quantitative Strategist
• Emerging Markets FX & IR Strategy:
  • Wike Groenenberg: Global Head of EM Strategy
  • Piotr Chwieczak: FX & IR CEEMEA Strategist
  • Erkin Isik: FX & IR CEEMEA Strategist
  • Mirza Baig: Head of FX & IR Asia Strategy
  • Altaz Daga: AU/NZ IR Strategist
  • Kun Shan: China Strategist
  • Tianhe Ji: China Strategist
  • Gabriel Gersztein: Head FX & IR Latam Strategy
  • Samuel Castro: FX & IR Latam Strategist
  • Gustavo Mendonca: FX & IR Latam Strategist

Distribution

• Production and Distribution Contacts:
  • Barbara Consuelo: Foreign Exchange, London
  • Amanda Grantham-Hill: London
  • Anna McLauchlin: London
  • Louise Bylicki: New York

Legal Notice

• This document is non-independent research and constitutes a marketing communication.
• It is intended for Relevant Persons as defined by MiFID and other regulatory frameworks.
• The information is based on public sources and not independently verified. BNP Paribas does not accept any responsibility or liability for the accuracy or completeness of the information.