Apparatus, method and system for a designing and trading macroeconomic investment views

• US 20060004653A1
• Filed: 04/15/2005
• Published: 01/05/2006
• Est. Priority Date: 04/16/2004
• Status: Active Grant

• Current Assignee: Goldman Sachs & Co. LLC (Goldman Sachs Group Incorporated)
• Original Assignee: Goldman Sachs & Company (Goldman Sachs Group Incorporated)
• Inventors: Strongin, Steven Harris II
• Granted Patent: US 7,949,590 B2
• Time in Patent Office: Days
• US Class Current: 705/39
• CPC Class Codes: G06Q 20/10 specially adapted for electronic funds transfer [EFT] systems; specially adapted for home banking systems
• CPC Class Codes: G06Q 30/0202 Market predictions or forecasting for commercial activities
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

The disclosure details the implementation of an apparatus, method, and system for a macroeconomic equity investment design and trade system (the Wavefront system). The disclosure teaches a set of quantitative tools to help investors design trades around macro themes. Part of the approach is a linked set of models called Wavefronts, which describe how economic shocks ripple through the economy into company performance, market value and equity returns in the US market. In one embodiment, the modeling may be viewed as having in three parts. The first converts an economic shock into a comprehensive set of shifts in the economy. The second takes those economic shifts and drives them into company fundamentals. The third values those fundamentals based on what the market normally pays. As a consequence, the Wavefront system maps economic views and risks into predictions of what the market will pay for those changes, and the industries and companies that will over-and under-perform, which allows for and results in the construction of more risk-efficient portfolios. In an alternative embodiment, the Wavefront system may also inverse the progression of the three parts to uncover and move industry specific information to uncover macroeconomic themes.

Claims

1. A computer-implemented method for designing securities transactions, comprising:

receiving data regarding a securities portfolio on a computer system;

analyzing said portfolio for a plurality of risks and exposures to economic and market factors, wherein said analysis includes;

linking economic and valuation modeling data using said computer system to gauge an impact of macro-economic events on security valuation, said economic and valuation modeling data comprising macro wavefront data based on a plurality of macro-economic variables, valuation wavefront data based on anticipated impact data on industry performance, and anticipated impact data on company fundamentals,

receiving macro wavefront data on said computer system, said macro wavefront data including data based on a macro-economic event and anticipated impact data on a plurality of macro-economic variables,

receiving valuation wavefront data on said computer system, said valuation wavefront data including anticipated impact data on industry performance, anticipated impact data on company fundamentals, and

aggregating company-level results on an industry level to develop macro-positions that are diversified away from specific company risk and focused on desired macro-economic exposures; and

reconfiguring said portfolio to account for a desired exposure and to isolate an undesired exposure, wherein a composite exposure results, and wherein each economic exposure includes economic scenarios.

2. A computer-implemented method for designing securities transactions, comprising:

receiving data regarding a securities portfolio on a computer system;

analyzing said portfolio for a plurality of risks and exposures to economic and market factors; and

reconfiguring said portfolio to account for a desired exposure and to isolate an undesired exposure, wherein a composite exposure results, and wherein each economic exposure includes economic scenarios.

3. The method of claim 2 wherein said analysis comprises:

linking economic and valuation modeling data using said computer system to gauge an impact of macro-economic events on security valuation, said economic and valuation modeling data comprising macro wavefront data based on a plurality of macro-economic variables, valuation wavefront data based on anticipated impact data on industry performance, and anticipated impact data on company fundamentals.

4. The method of claim 2 wherein said analysis comprises:

receiving macro wavefront data on said computer system, said macro wavefront data including data based on a macro-economic event and anticipated impact data on a plurality of macro-economic variables;

receiving valuation wavefront data on said computer system, said valuation wavefront data including anticipated impact data on industry performance, anticipated impact data on company fundamentals; and

aggregating company-level results on an industry level to develop macro-positions that are diversified away from specific company risk and focused on desired macro-economic exposures.

5. A computer-implemented method for designing securities transactions, comprising:

receiving, on a computer system, primary data regarding a desired exposure for a securities portfolio;

receiving secondary data regarding an undesired exposure for said securities portfolio, wherein each economic exposure includes economic scenarios;

analyzing said primary and secondary data to construct a proposed securities portfolio, wherein a composite exposure results; and

transmitting data regarding said proposed securities portfolio to generate said proposed securities portfolio.

6. The method of claim 5 wherein said analysis comprises:

linking economic and valuation modeling data using said computer system to gauge an impact of macro-economic events on security valuation, said economic and valuation modeling data comprising macro wavefront data based on a plurality of macro-economic variables, valuation wavefront data based on anticipated impact data on industry performance, and anticipated impact data on company fundamentals.

7. The method of claim 5 wherein said analysis comprises:

receiving macro wavefront data on said computer system, said macro wavefront data including data based on a macro-economic event and anticipated impact data on a plurality of macro-economic variables;

receiving valuation wavefront data on said computer system, said valuation wavefront data including anticipated impact data on industry performance;

anticipated impact data on company fundamentals; and

aggregating company-level results on an industry level to develop macro-positions that are diversified away from specific company risk and focused on desired macro-economic exposures.

8. A computer-implemented method for trading securities, comprising:

generating an economic model on a computer system, including, tracking economic triggering events;

tracking other economic events;

generating a measure of impact of an economic triggering event on all economic events throughout the economic triggering event;

generating a valuation model, including;

tracking economic sector performance,

tracking company performance,

generating a measure of impact of the economic triggering event on economic sector performance throughout the economic triggering event,

generating a measure of impact of the economic triggering event on company performance throughout the economic triggering event;

linking the economic and valuation models, wherein valuation performance is aggregated back into the economic model; and

transmitting an execution order to execute at least one securities trade based on linked economic and valuation model forecasts.

9. The method of claim 8, wherein valuation performance is a performance measure.

10. The method of claim 9, wherein the performance measure is company performance.

11. The method of claim 8, wherein valuation performance is aggregated back into economic events.

12. The method of claim 11, wherein the economic events are economic triggering events.

13. The method of claim 11, wherein the economic events are other economic events.

14. The method of claim 11, wherein the economic events are all economic events.

15. The method of claim 8, wherein the all economic events are economic triggering events.

16. The method of claim 8, wherein the all economic events are other economic events, wherein the other economic events include all economic events except the economic triggering event.

17. The method of claim 8, wherein the aggregation is made into economic sector performance.

18. The method of claim 17, wherein economic sector performance is industry performance.

19. The method of claim 8, wherein the models are reversed to generate themes.

20. The method of claim 8, wherein other economic events are used instead of all economic events, and other economic events include all economic events except the economic triggering event.

21. The method of claim 20, wherein combinations other economic events approximate new economic triggering events.

22. The method of claim 21, wherein a pattern of response of other economic events correlates to the economic triggering event.

23. The method of claim 22, wherein the correlation of the economic triggering event to the pattern of response of other economic events is an economic wavefront.

24. The method of claim 8, wherein the measure of the triggering event captures the impact as an average deviation from what had been anticipated across all economic events simultaneously.

25. The method of claim 8, further, comprising:

modifying S&

P GIC codes to provide mapping of economic events to valuation performance.

26. The method of claim 8, wherein economic sector performance is forecast on a smoothed basis.

27. The method of claim 8, further, comprising:

delineating specific channels for economic sector performance.

28. The method of claim 27, wherein the measure of impact on economic sector performance is measured relatively between channels.

29. The method of claim 28, further, comprising:

mapping the measure of impact to delineated channels to a company level.

30. The method of claim 29, wherein relative economic sector measures are used to measure the impact on economic sector performance.

31. The method of claim 8, wherein the measure of impact on economic sector performance is cross-sectional across sectors.

32. The method of claim 8, wherein the measure of impact on economic sector performance is cross-sectional within sectors.

33. The method of claim 8, wherein the valuation model observes a relationship between observable fundamentals and realized prices.

34. The method of claim 33, wherein the relationship is measured based on panel regression.

35. The method of claim 34, wherein the regression includes a momentum term.

36. The method of claim 35, wherein economic events are used as regressors.

37. A computer-implemented method for trading securities, comprising:

linking economic and valuation modeling data using a computer to gauge an impact of macro-economic events on security valuation, said economic and valuation modeling data comprising macro wavefront data based on a plurality of macro-economic variables, valuation wavefront data based on anticipated impact data on industry performance, and anticipated impact data on company fundamentals; and

executing trades based on said economic and valuation modeling data.

38. A computer-implemented method for trading securities, comprising:

obtaining information of an economic event;

identifying a source for the economic event;

identifying economic variables affected by the economic event;

identifying pattern of response to the affected economic variables;

determining a time interval that the economic event affects the affected economic variables;

calculating a total impact for the affected economic variables for the determined time interval.

39. The method of claim 38, further, comprising:

determining correlations of the impacted economic variables with industry sales impacts;

identifying most predictive impacted economic variables to be economic drivers;

mapping impacted variables to the economic drivers.

40. The method of claim 39, further, comprising:

determining correlations of actual and predicted industry sales growth;

ranking the economic drivers and microeconomic variables that are most predictive of sales forecasts;

deriving company margin from the best ranked economic drivers and microeconomic variables.

41. The method of claim 40, wherein Pearson and Spearman rank orders determine rankings.

42. The method of claim 40, further, comprising:

determining valuations based on the derived company margins.

43. The method of claim 40, wherein the valuations are determined using market-based valuation.

44. The method of claim 42, wherein the economic event is predicted by working in reverse to determine the economic event and starting with provided valuations.

45. The method of claim 40, wherein the valuation is used to build a trade.

46. The method of claim 40, wherein the valuation is used to manage risk.

47. The method of claim 40, wherein the valuation is used to read the market.

48. The method of claim 47, wherein the market is read by starting with provided valuations and working in reverse to determine the economic event.

49. A system for designing securities transactions, comprising:

means to receive data regarding a securities portfolio on a computer system;

means to analyze said portfolio for a plurality of risks and exposures to economic and market factors, wherein said analysis includes;

means to link economic and valuation modeling data using said computer system to gauge an impact of macro-economic events on security valuation, said economic and valuation modeling data comprising macro wavefront data based on a plurality of macro-economic variables, valuation wavefront data based on anticipated impact data on industry performance, and anticipated impact data on company fundamentals,

means to receive macro wavefront data on said computer system, said macro wavefront data including data based on a macro-economic event and anticipated impact data on a plurality of macro-economic variables,

means to receive valuation wavefront data on said computer system, said valuation wavefront data including anticipated impact data on industry performance, anticipated impact data on company fundamentals, and

means to aggregate company-level results on an industry level to develop macro-positions that are diversified away from specific company risk and focused on desired macro-economic exposures; and

means to reconfigure said portfolio to account for a desired exposure and to isolate an undesired exposure, wherein a composite exposure results, and wherein each economic exposure includes economic scenarios.

50. A system for designing securities transactions, comprising:

means to receive data regarding a securities portfolio on a computer system;

means to analyze said portfolio for a plurality of risks and exposures to economic and market factors; and

means to reconfigure said portfolio to account for a desired exposure and to isolate an undesired exposure, wherein a composite exposure results, and wherein each economic exposure includes economic scenarios.

51. A system for trading securities, comprising:

means to generate an economic model on a computer system, including,

means to track economic triggering events;

means to track other economic events;

means to generate a measure of impact of an economic triggering event on all economic events throughout the economic triggering event;

means to generate a valuation model, including;

means to track economic sector performance,

means to track company performance,

means to generate a measure of impact of the economic triggering event on economic sector performance throughout the economic triggering event,

means to generate a measure of impact of the economic triggering event on company performance throughout the economic triggering event;

means to link the economic and valuation models, wherein valuation performance is aggregated back into the economic model; and

means to transmit an execution order to execute at least one securities trade based on linked economic and valuation model forecasts.

52. A system for trading securities, comprising:

means to link economic and valuation modeling data using a computer to gauge an impact of macro-economic events on security valuation, said economic and valuation modeling data comprising macro wavefront data based on a plurality of macro-economic variables, valuation wavefront data based on anticipated impact data on industry performance, and anticipated impact data on company fundamentals; and

means to execute trades based on said economic and valuation modeling data.

53. A system for trading securities, comprising:

means to obtain information of an economic event;

means to identify a source for the economic event;

means to identify economic variables affected by the economic event;

means to identify pattern of response to the affected economic variables;

means to determine a time interval that the economic event affects the affected economic variables;

means to calculate a total impact for the affected economic variables for the determined time interval;

means to determine correlations of the impacted economic variables with industry sales impacts;

means to identify most predictive impacted economic variables to be economic drivers;

means to map impacted variables to the economic drivers;

means to determine correlations of actual and predicted industry sales growth;

means to rank the economic drivers and microeconomic variables that are most predictive of sales forecasts;

means to derive company margin from the best ranked economic drivers and microeconomic variables.

54. A system for trading securities, comprising:

means to obtain information of an economic event;

means to identify a source for the economic event;

means to identify economic variables affected by the economic event;

means to identify pattern of response to the affected economic variables;

means to determine a time interval that the economic event affects the affected economic variables;

means to calculate a total impact for the affected economic variables for the determined time interval.

55. A medium readable by a processor to design securities transactions, comprising:

instruction signals in the processor readable medium, wherein the instruction signals are issuable by the processor to;

receive data regarding a securities portfolio on a computer system;

analyze said portfolio for a plurality of risks and exposures to economic and market factors, wherein said analysis includes;

link economic and valuation modeling data using said computer system to gauge an impact of macro-economic events on security valuation, said economic and valuation modeling data comprising macro wavefront data based on a plurality of macro-economic variables, valuation wavefront data based on anticipated impact data on industry performance, and anticipated impact data on company fundamentals,

receive macro wavefront data on said computer system, said macro wavefront data including data based on a macro-economic event and anticipated impact data on a plurality of macro-economic variables,

receive valuation wavefront data on said computer system, said valuation wavefront data including anticipated impact data on industry performance, anticipated impact data on company fundamentals, and

aggregate company-level results on an industry level to develop macro-positions that are diversified away- from specific company risk and focused on desired macro-economic exposures; and

reconfigure said portfolio to account for a desired exposure and to isolate an undesired exposure, wherein a composite exposure results, and wherein each economic exposure includes economic scenarios.

56. A medium readable by a processor to design securities transactions, comprising:

instruction signals in the processor readable medium, wherein the instruction signals are issuable by the processor to;

receive data regarding a securities portfolio on a computer system;

analyze said portfolio for a plurality of risks and exposures to economic and market factors; and

reconfigure said portfolio to account for a desired exposure and to isolate an undesired exposure, wherein a composite exposure results, and wherein each economic exposure includes economic scenarios.

57. A medium readable by a processor to trade securities, comprising:

instruction signals in the processor readable medium, wherein the instruction signals are issuable by the processor to;

generate an economic model on a computer system, including,

track economic triggering events;

track other economic events;

generate a measure of impact of an economic triggering event on all economic events throughout the economic triggering event;

generate a valuation model, including;

track economic sector performance,

track company performance,

generate a measure of impact of the economic triggering event on economic sector performance throughout the economic triggering event,

generate a measure of impact of the economic triggering event on company performance throughout the economic triggering event;

link the economic and valuation models, wherein valuation performance is aggregated back into the economic model; and

transmit an execution order to execute at least one securities trade based on linked economic and valuation model forecasts.

58. A medium readable by a processor to trade securities, comprising:

instruction signals in the processor readable medium, wherein the instruction signals are issuable by the processor to;

link economic and valuation modeling data using a computer to gauge an impact of macro-economic events on security valuation, said economic and valuation modeling data comprising macro wavefront data based on a plurality of macro-economic variables, valuation wavefront data based on anticipated impact data on industry performance, and anticipated impact data on company fundamentals; and

execute trades based on said economic and valuation modeling data.

59. A medium readable by a processor to trade securities, comprising:

instruction signals in the processor readable medium, wherein the instruction signals are issuable by the processor to;

obtain information of an economic event;

identify a source for the economic event;

identify economic variables affected by the economic event;

identify pattern of response to the affected economic variables;

determine a time interval that the economic event affects the affected economic variables;

calculate a total impact for the affected economic variables for the determined time interval;

determine correlations of the impacted economic variables with industry sales impacts;

identify most predictive impacted economic variables to be economic drivers;

map impacted variables to the economic drivers;

determine correlations of actual and predicted industry sales growth;

rank the economic drivers and microeconomic variables that are most predictive of sales forecasts;

derive company margin from the best ranked economic drivers and microeconomic variables.

60. A medium readable by a processor to trade securities, comprising:

instruction signals in the processor readable medium, wherein the instruction signals are issuable by the processor to;

obtain information of an economic event;

identify a source for the economic event;

identify economic variables affected by the economic event;

identify pattern of response to the affected economic variables;

determine a time interval that the economic event affects the affected economic variables;

calculate a total impact for the affected economic variables for the determined time interval.

61. An apparatus to design securities transactions, comprising:

a memory;

a processor disposed in communication with said memory, and configured to issue a plurality of processing instructions stored in the memory, wherein the instructions issue signals to;

receive data regarding a securities portfolio on a computer system;

analyze said portfolio for a plurality of risks and exposures to economic and market factors, wherein said analysis includes;

link economic and valuation modeling data using said computer system to gauge an impact of macro-economic events on security valuation, said economic and valuation modeling data comprising macro wavefront data based on a plurality of macro-economic variables, valuation wavefront data based on anticipated impact data on industry performance, and anticipated impact data on company fundamentals,

receive macro wavefront data on said computer system, said macro wavefront data including data based on a macro-economic event and anticipated impact data on a plurality of macro-economic variables,

receive valuation wavefront data on said computer system, said valuation wavefront data including anticipated impact data on industry performance, anticipated impact data on company fundamentals, and

aggregate company-level results on an industry level to develop macro-positions that are diversified away from specific company risk and focused on desired macro-economic exposures; and

reconfigure said portfolio to account for a desired exposure and to isolate an undesired exposure, wherein a composite exposure results, and wherein each economic exposure includes economic scenarios.

62. An apparatus to design securities transactions, comprising:

a memory;

a processor disposed in communication with said memory, and configured to issue a plurality of processing instructions stored in the memory, wherein the instructions issue signals to;

receive data regarding a securities portfolio on a computer system;

analyze said portfolio for a plurality of risks and exposures to economic and market factors; and

reconfigure said portfolio to account for a desired exposure and to isolate an undesired exposure, wherein a composite exposure results, and wherein each economic exposure includes economic scenarios.

63. An apparatus to trade securities, comprising:

a memory;

a processor disposed in communication with said memory, and configured to issue a plurality of processing instructions stored in the memory, wherein the instructions issue signals to;

generate an economic model on a computer system, including,

track economic triggering events;

track other economic events;

generate a measure of impact of an economic triggering event on all economic events throughout the economic triggering event;

generate a valuation model, including;

track economic sector performance,

track company performance,

generate a measure of impact of the economic triggering event on economic sector performance throughout the economic triggering event,

generate a measure of impact of the economic triggering event on company performance throughout the economic triggering event;

link the economic and valuation models, wherein valuation performance is aggregated back into the economic model; and

transmit an execution order to execute at least one securities trade based on linked economic and valuation model forecasts.

64. An apparatus to trade securities, comprising:

a memory;

a processor disposed in communication with said memory, and configured to issue a plurality of processing instructions stored in the memory, wherein the instructions issue signals to;

link economic and valuation modeling data using a computer to gauge an impact of macro-economic events on security valuation, said economic and valuation modeling data comprising macro wavefront data based on a plurality of macro-economic variables, valuation wavefront data based on anticipated impact data on industry performance, and anticipated impact data on company fundamentals; and

execute trades based on said economic and valuation modeling data.

65. An apparatus to trade securities, comprising:

a memory;

a processor disposed in communication with said memory, and configured to issue a plurality of processing instructions stored in the memory, wherein the instructions issue signals to;

obtain information of an economic event;

identify a source for the economic event;

identify economic variables affected by the economic event;

identify pattern of response to the affected economic variables;

determine a time interval that the economic event affects the affected economic variables;

calculate a total impact for the affected economic variables for the determined time interval;

determine correlations of the impacted economic variables with industry sales impacts;

identify most predictive impacted economic variables to be economic drivers;

map impacted variables to the economic drivers;

determine correlations of actual and predicted industry sales growth;

rank the economic drivers and microeconomic variables that are most predictive of sales forecasts;

derive company margin from the best ranked economic drivers and microeconomic variables.

66. An apparatus to trade securities, comprising:

a memory;

a processor disposed in communication with said memory, and configured to issue a plurality of processing instructions stored in the memory, wherein the instructions issue signals to;

obtain information of an economic event;

identify a source for the economic event;

identify economic variables affected by the economic event;

identify pattern of response to the affected economic variables;

determine a time interval that the economic event affects the affected economic variables;

calculate a total impact for the affected economic variables for the determined time interval.