This is a summary of links featured on Quantocracy on Monday, 03/06/2017. To see our most recent links, visit the Quant Mashup. Read on readers!
Pairs Trading with Copulas [Jonathan Kinlay]In a previous post, Copulas in Risk Management, I covered in detail the theory and applications of copulas in the area of risk management, pointing out the potential benefits of the approach and how it could be used to improve estimates of Value-at-Risk by incorporating important empirical features of asset processes, such as asymmetric correlation and heavy tails. In this post I will take a very
Visualizing the Anxiety of Active Strategies [Flirting with Models]Prospect theory states that the pain of losses exceeds the pleasure of equivalent gains. An oft-quoted ratio for this pain-to-pleasure experience is 2-to-1. Evidence suggests a similar emotional experience is true for relative performance when investors compare their performance to common reference benchmarks. The anxiety of underperforming can cause investors to abandon approaches before they
The No-Short Return Premium [Quantpedia]Theory predicts that securities with greater limits to arbitrage are more subject to mispricing and thus should command a higher return premium. We test this prediction using the unique regulatory setting from the Hong Kong stock market, in which some stocks can be sold short and others cannot. We show that no-short stocks on average earn significantly higher returns than shortable stocks and the