The global economy and financial markets are interdependent and evolving complex systems - populated by people (not economists) - generating enormous amounts of new information, subject to ongoing ‘creative destruction’ and subject to periodic massive shocks. The challenge from a research perspective is to extract the information and signals that can help guide specific business and investment decisions. That challenge requires an ability to source and combine disparate packets of information to create a complete picture. Cullen Global has been created to meet that challenge.
Combining global macroeconomic and financial market research requires an understanding of the different approaches that are used in each field. Macroeconomic research is based on low-frequency, somewhat messy, economic data (yearly, quarterly, monthly and weekly) that is subject to staggered reporting dates and can be subject to substantial revision and definitional change over time. By contrast, financial market research is based on high-frequency, cleaned, market data (daily and intra-day) that is not subject to revision or change. The challenge from a research perspective is to determine the best way to combine economic and market variables, especially when working with historical data; most attempts ignore the issue that some economic data sets change and are no longer representative of the data that was contemporaneous with past financial market data. A potentially useful approach is to combine financial market data with economic surveys that are contemporaneous with historical market data. This is a key research focus at Cullen Global.
The following sections illustrate various aspects of our global research framework:
1. MACROECONOMICS AND QUANTITATIVE FINANCE REPRESENT
TWO DISTINCT DISCIPLINES IN PRACTICE
2. IDENTIFYING THE MACRO AND MARKET VARIABLES THAT MATTER
3. CREATING A GLOBAL MACRO YIELD CURVE MODEL
4. SOURCING EXTERNAL MACRO VIEWS
AN EXAMPLE: THE GREENSPAN FED MACRO VIEW
5. CREATING AN INTERNAL GLOBAL MACRO VIEW
6. ONGOING SYSTEMATIC DATA AND NEWS MANAGEMENT
The greatest value of a picture is when it forces us to notice what we never expected to see.
John W. Tukey
Exploratory Data Analysis, 1977
If you are going to use probability to model a financial market, then you had better use the right kind of probability. Real markets are wild. In a financial market, volatility is concentrated. Big news causes big market action. And that action concentrates in small slices of time.
Benoit B. Mandelbrot,
The (mis)Behaviour of Markets, 2004
"Everybody knows that macroeconomic forecasts are not terribly accurate. But everyone also knows that they are indispensable to monetary policymaking. Given the long lags, there is little choice but to act on the basis of a forecast, however fallible. So every central bank makes forecasts, generally quite frequently."
Alan S. Blinder,
Former Fed Vice Chairman