Two Sigma Research: Forecasting Inflation like a Data Scientist, 2021 Edition

One way market participants can improve their inflation forecasts is to analyze it from many perspectives, just as a data scientist would. In a recent Street View, our colleagues on the Two Sigma Portfolio Management team use that approach to analyze both historical and forward-looking U.S. inflation forecasts. 

The Two Sigma Factor Lens ^TM  includes a Local Inflation factor, which is intended to help subscribers understand their exposure to the long-term inflation risk premium and short-term inflation surprises within the local currency area.¹ You can read more about Venn’s Local Inflation factor in our three part Inflation Series:

1. Local Inflation Factor Primer: In this blog post, we cover how the factor is constructed, what it means to have exposure to the factor as we’ve built it, and a summary of the factor’s historical performance.
2. Factor InVe(nn)stigator: Inflation: We analyze several inflation-sensitive assets and their exposure to the Local Inflation factor and other factors.
3. Managing Inflation Risk in the Current Environment: We discuss current inflation expectations and how investors can incorporate their inflation views into their portfolio construction and asset allocation decisions.

Read the full article entitled “Forecasting Inflation like a Data Scientist: 2021 Edition” here.

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¹ The Local Inflation factor is available in the USD and GBP versions of the factor lens only, where there are liquid markets for inflation-linked securities.

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