What You Don’t Know CAN Hurt You: Why Macro & Market Structure Matters
What you don’t know CAN hurt you:
Why macro & market structure matters
In the next arc in this series, I will be making a sharp departure from my typical corporate treasury and hedging focus and returning to my first love, capital markets.
A lot of hot air and brain power is spent trying to explain why financial markets do what they do, what stocks might outperform, what the Fed is likely to decide at their next meeting and on and on.
The reality is that there is an element of entertainment and obfuscation at play in a great deal of financial market commentary. As a result, larger structural, mechanical, and behavioural factors that shape markets can go unnoticed by many. In the next few articles in our Market Structure series, , I will endeavour to outline and explain dynamics that shape the financial markets that are often missed by all but the nerdiest of participants.
Returning to First Loves
What drew me to this field in the first place was a deep intellectual curiosity into economics and financial markets. Realizing this interest late into a sociology undergraduate major, I didn’t wish to prolong my stay in university by switching to a commerce major. I decided to enter the labour force just as the 2008 global financial crisis started, get a job as an accountant, and complete a CFA designation. The latter of those two decisions turned out to be a decent choice.
Over the course of my career this intellectual curiosity has only grown. Fortunately, my work in sales has allowed me to indulge this curiosity, as it has proven valuable in providing useful insights in my work with fund managers, treasurers, and CFOs.
What's to Come
To understand financial markets at a deeper level, it's important to understand the dynamics -- beyond the day-to-day headlines. Over the course of the next few months, I will be covering the following.
The rise of quantitative investing, the ‘efficient markets’ hypothesis, and the emergence of factor investing, as quantitative methods.
Reasons why the trend can be your friend, its relation to the momentum anomaly (my favourite), and the features of that anomaly that can contribute to outperformance....as well as the obvious downsides which lead to its persistence.
The rise of behavioural finance, which coincided with the development of quantitative investing and the efficient markets hypothesis. We’ll explore what behavioural finance asserts about human behaviour and how that behaviour can shape markets.
Market structure, market participants, and some reasons why markets can behave in strange ways.
Building on the market structure theme, the last three pieces in this series will examine why the US dollar is the principal reserve currency, and the mechanics of how that came to be. I’ll also explore how the factors that make it so tend to influence its value throughout the business cycle, and what this cyclical behaviour might mean for foreign direct investment into the United States.
Why it Matters
A wise person learns from the mistakes of others: much of what I have learned in these areas came from missteps I made, and grew from, in my personal investments.
Beyond that, there is a dearth of information about the structural factors that shape price action in capital markets, particularly for the lay person who is not professionally involved in a capital market-facing role. All this is in spite of the fact that these phenomena directly impact investors, businesses and anyone who has credit, cash, or investments, which is essentially all of us.
Read the previous article in the series: FX Risk Management and Corporate Valuation
Read the next article in the series: Momentum, Efficient Market Hypothesis & Factor Investing
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DISCLAIMER: Opinions expressed in this article are those of the author. This article is for informational purposes only and does not constitute advice. Hedging products involve trade-offs, risks, and costs, and results may vary. Before making any decisions, consult an independent advisor not affiliated with Corpay to ensure that the solutions discussed are suitable for your business needs. A comprehensive under-standing of the complexities, benefits, and drawbacks of each hedging product is essential.
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