Quant Mashup - Quantpedia
Bitcoin Is Not the New Gold [Quantpedia]
Cryptocurrencies such as Bitcoin are establishing themselves as an investment asset and are often named the New Gold. This study, however, shows that the two assets could barely be more different. Firstly, we analyze and compare conditional variance properties of Bitcoin and Gold as well as other
- 5 years ago, 30 Apr 2018, 10:48am -
There Exist Two Different Accruals Anomalies [Quantpedia]
We document that several well known asset-pricing implications of accruals differ for investment and non-investment-related components. Exposure to an investment-accruals factor explains the cross-section of returns better than the accruals themselves, and this factor’s returns are negatively
- 5 years ago, 24 Apr 2018, 12:15pm -
The Day of the Week Effect in the Crypto Currency Market [Quantpedia]
This paper examines the day of the week effect in the crypto currency market using a variety of statistical techniques (average analysis, Student's t-test, ANOVA, the Kruskal-Wallis test, and regression analysis with dummy variables) as well as a trading simulation approach. Most crypto
- 5 years ago, 16 Apr 2018, 09:32am -
Problems with a Long Horizon Predictability [Quantpedia]
Long-horizon return regressions have effectively small sample sizes. Using overlapping long-horizon returns provides only marginal benefit. Adjustments for overlapping observations have greatly overstated t-statistics. The evidence from regressions at multiple horizons is often misinterpreted. As a
- 5 years ago, 10 Apr 2018, 10:25pm -
What is Bitcoin's Fair Value? [Quantpedia]
We develop a strong diagnostic for bubbles and crashes in bitcoin, by analyzing the coincidence (and its absence) of fundamental and technical indicators. Using a generalized Metcalfe’s law based on network properties, a fundamental value is quantified and shown to be heavily exceeded, on at least
- 5 years ago, 4 Apr 2018, 12:52pm -
How Algo Trading Reacts to Market Stress [Quantpedia]
A key issue raised by the rapid growth of computerised algorithmic trading is how it responds in extreme situations. Using data on foreign exchange orders and transactions that includes identification of algorithmic trading, we find that this type of trading contributed to the deterioration of
- 6 years ago, 28 Mar 2018, 10:00am -
Liquidity Creation in a Short-Term Reversal Strategies and Volatility Risk [Quantpedia]
We show, both theoretically and empirically, that liquidity creation induces negative exposure to volatility risk. Intuitively, liquidity creation involves taking positions that can be exploited by privately informed investors. These investors' ability to predict future price changes makes
- 6 years ago, 22 Mar 2018, 01:18pm -
Is Equity Pairs Trading Profitable Due to Cointegration? [Quantpedia]
We study the theoretical implications of cointegrated stock prices on the profitability of pairs trading strategies. If stock returns are fairly weakly correlated across time, cointegration implies very high Sharpe ratios. To the extent that the theoretical Sharpe ratios are "too large,"
- 6 years ago, 14 Mar 2018, 10:45am -
Solvency Risk Premia and the Carry Trades [Quantpedia]
This paper shows that currency carry trades can be rationalized by the time-varying risk premia originating from the sovereign solvency risk. We find that solvency risk is a key determinant of risk premia in the cross section of carry trade returns, as its covariance with returns captures a
- 6 years ago, 8 Mar 2018, 06:24pm -
Mixed Copula Pairs Trading Strategy [Quantpedia]
We carry out a study to evaluate and compare the relative performance of the distance and mixed copula pairs trading strategies. Using data from the S&P 500 stocks from 1990 to 2015, we find that the mixed copula strategy is able to generate a higher mean excess return than the traditional
- 6 years ago, 21 Feb 2018, 04:30pm -
Price Overreactions in the Cryptocurrency Market [Quantpedia]
This paper examines price overreactions in the case of the following cryptocurrencies: BitCoin, LiteCoin, Ripple and Dash. A number of parametric (t-test, ANOVA, regression analysis with dummy variables) and non-parametric (Mann–Whitney U test) tests confirm the presence of price patterns after
- 6 years ago, 14 Feb 2018, 01:36pm -
Low Risk Anomaly in Banking Industry and Its Implications [Quantpedia]
Traditional capital structure theory in frictionless and efficient markets predicts that reducing banks’ leverage reduces the risk and cost of equity but does not change the overall weighted average cost of capital (and thus the rates for borrowers). We test these two predictions. We confirm that
- 6 years ago, 12 Feb 2018, 11:30am -
Can Momentum Investing Be Saved? [Quantpedia]
On paper, momentum is one of the most compelling factors: simulated portfolios based on momentum add remarkable value, in most time periods and in most asset classes, all over the world. So, our title may seem unduly provocative. However, live results for mutual funds that take on a momentum factor
- 6 years ago, 3 Feb 2018, 02:37pm -
Are There Any Simple Calendar Effects in Bitcoin Market? [Quantpedia]
There is a large literature that reports time-specific anomalies in equity markets such as the Monday effect, the January effect and the Halloween effect. This study is the first to report intra-day time-of-day, day-of-week, and month-of-year effects for Bitcoin returns and trading volume. Using
- 6 years ago, 24 Jan 2018, 07:20pm -
Crash Sensitivity Explains the Momentum Effect in Stocks [Quantpedia]
This paper proposes a risk-based explanation of the momentum anomaly on equity markets. Regressing the momentum strategy return on the return of a self-financing portfolio going long (short) in stocks with high (low) crash sensitivity in the USA from 1963 to 2012 reduces the momentum effect from a
- 6 years ago, 18 Jan 2018, 11:30am -
Deep Learning Insights for Factor Investing [Quantpedia]
Deep learning is an active area of research in machine learning. I train deep feedforward neural networks (DFN) based on a set of 68 firm characteristics (FC) to predict the US cross-section of stock returns. After applying a network optimization strategy, I find that DFN long-short portfolios can
- 6 years ago, 4 Jan 2018, 09:15am -
Persistance in Cryptocurrencies [Quantpedia]
This paper examines persistence in the cryptocurrency market. Two different longmemory methods (R/S analysis and fractional integration) are used to analyse it in the case of the four main cryptocurrencies (BitCoin, LiteCoin, Ripple, Dash) over the sample period 2013-2017. The findings indicate that
- 6 years ago, 29 Dec 2017, 09:43pm -
Carry Trade Across Fixed and Floating Currency Regimes [Quantpedia]
Carry trade returns vary across fixed and floating currency regimes. Over the last century, outsized carry returns occur exclusively in the floating regime, being zero in the fixed regime. The absence of skewness in floating carry returns rules out a skewness-based explanation for this result.
- 6 years ago, 21 Dec 2017, 09:28pm -
FX Momentum Explained via Dispersion Risk [Quantpedia]
This paper studies the relation between global foreign exchange (FX) return dispersion risk and the cross-section of currency momentum returns. We find robust empirical evidence that FX return dispersion is a priced risk factor and that it contains information beyond traditional factors. Currencies
- 6 years ago, 12 Dec 2017, 09:15am -
Equity Market is Efficient - But on a Long Term [Quantpedia]
We provide further evidence that markets trend on the medium term (months) and mean-revert on the long term (several years). Our results bolster Black’s intuition that prices tend to be off roughly by a factor of 2, and take years to equilibrate. The story behind these results fits well with the
- 6 years ago, 5 Dec 2017, 09:50am -
Do Short Selling Costs Affect the Profitability of Stock Anomalies [Quantpedia]
Short selling frictions cannot explain the persistence of seven prominent stock anomalies. Long-only investing is robust and profitable and can be further enhanced by using a synthetic short. Moreover, portfolios restricted to stocks that are easy to short sell continue to have large and significant
- 6 years ago, 27 Nov 2017, 10:32am -
A Few Tips for Volatility Trading [Quantpedia]
We present some empirical evidence for short volatility strategies and for the cyclical pattern of their P&L. The cyclical pattern of the short volatility strategies produces an alpha in good times but collapses to the beta in bad times. We introduce a factor model with risk-aversion to explain
- 6 years ago, 22 Nov 2017, 09:35am -
Better Small Cap Premium [Quantpedia]
We find that when measured in terms of dollar-turnover, and once beta-neutralised and Low-Vol neutralised, the Size Effect is alive and well. With a long term t-stat of 5.1, the “Cold-Minus-Hot” (CMH) anomaly is certainly not less significant than other well-known factors such as Value or
- 6 years ago, 14 Nov 2017, 10:00am -
800 Years of Risk-Free Rate [Quantpedia]
This paper presents a new dataset for the annual risk-free rate in both nominal and real terms going back to the 13th century. On this basis, we establish for the first time a long-term comparative investigation of ‘bond bull markets’. It is shown that the global risk-free rate in July 2016
- 6 years ago, 8 Nov 2017, 09:36am -
Autumn Readings about Factor Investing [Quantpedia]
Factor returns, net of changes in valuation levels, are much lower than recent performance suggests. Value-add can be structural, and thus reliably repeatable, or situational—a product of rising valuations—likely neither sustainable nor repeatable. Many investors are performance chasers who in
- 6 years ago, 30 Oct 2017, 01:31am -
Tail Risk in Term Structure Based Strategies in Commodities [Quantpedia]
In this paper I document that carry trades in commodity markets are subject to potential large and infrequent losses, that is, tail risk. Also, I show that shocks to carry trades and volatility have persistent tail-specific effects which last from four to twelve weeks ahead. The main empirical
- 6 years ago, 23 Oct 2017, 09:43am -
How to Predict FX Carry Profitability [Quantpedia]
In this paper, we study the effectiveness of carry trade strategies during and after the financial crisis using a flexible approach to modeling currency returns. We decompose the currency returns into multiplicative sign and absolute return components, which exhibit much greater predictability than
- 6 years ago, 16 Oct 2017, 11:04am -
Suggestion of a New Currency Factor Model [Quantpedia]
We examine the ability of existing and new factor models to explain the comovements of G10-currency changes. Extant currency factors include the carry, volatility, value, and momentum factors. Using a new clustering technique, we find a clear two-block structure in currency comovements with the
- 6 years ago, 3 Oct 2017, 10:56pm -
Craftsmanship Alpha [Quantpedia]
Successful investing requires translating sound investment concepts into actual trading strategies. We study many of the implementation details that portfolio managers need to pay attention to; such choices range from portfolio construction to execution. While these kinds of decisions apply to any
- 6 years ago, 28 Sep 2017, 10:52pm -
Global Diversification Works for Multi-Factor Portfolios [Quantpedia]
The benefits of country diversification are well established. This article shows that the same benefits extend to equity factors, such as value, size, momentum, investment, and profitability. Specifically, country factor portfolios reflect both common variation, which we define as the global factor,
- 6 years ago, 25 Sep 2017, 12:02pm -
Why Machine Learning Funds Fail [Quantpedia]
The rate of failure in quantitative finance is high, and particularly so in financial machine learning. The few managers who succeed amass a large amount of assets, and deliver consistently exceptional performance to their investors. However, that is a rare outcome, for reasons that will become
- 6 years ago, 18 Sep 2017, 10:54am -
How to Combine Commodity Style Strategies [Quantpedia]
This paper develops a portfolio allocation framework to study the benefits of style integration and to compare the effectiveness of alternative integration methods in commodity markets. The framework is flexible enough to be applicable to any asset class for either long-short, long- or short-only
- 6 years ago, 8 Sep 2017, 11:08am -
The Correlation Structure of Anomaly Strategies [Quantpedia]
We investigate the correlation structure of anomaly strategy returns. From an initial 434 anomalies, we select 116 anomalies that are significant in the mean and not highly correlated with other anomalies. Cluster analysis reveals 24 clusters and 29 singleton anomalies that can be grouped into 3
- 6 years ago, 30 Aug 2017, 04:41am -
Explaining the FOMC Drift [Quantpedia]
I propose a theoretical explanation for the puzzling pre-announcement positive drift that has been empirically documented before scheduled Federal Open Market Committee (FOMC) meetings. I construct a general equilibrium model of disagreement (difference-of-opinion) where two groups of agents react
- 6 years ago, 22 Aug 2017, 12:25pm -
Supercointegrated Pairs Trading [Quantpedia]
This paper uses S&P100 data to examine the performance of pairs trading portfolios that are sorted by the significance level of cointegration between their constituents. We find that portfolios that are formed with highly cointegrated pairs, named as "supercointegrated", yield the best
- 6 years ago, 16 Aug 2017, 02:28pm -
Historical Returns of the Market Portfolio [Quantpedia]
Using a newly constructed unique dataset, this study is the first to document returns of the market portfolio for a long period and with a high level of detail. Our market portfolio basically contains all assets in which financial investors have invested. We analyze nominal, real, and excess return
- 6 years ago, 11 Aug 2017, 01:04pm -
Financialization of Crude Oil Market [Quantpedia]
The financialization of crude oil markets over the last decade has changed the behavior of oil prices in fundamental ways. In this paper, we uncover the gradual transformation of crude oil from a physical to a financial asset. Although economic demand and supply factors continue to play an important
- 6 years ago, 27 Jul 2017, 07:25am -
How to Improve Shiller's CAPE Ratio [Quantpedia]
The accuracy of U.S. stock return forecasts based on the cyclically-adjusted P/E (CAPE) ratio has deteriorated since 1985. The issue is not the CAPE ratio, but CAPE regressions that assume it reverts mechanically to its long-run average. Our approach conditions mean reversion in the CAPE ratio on
- 6 years ago, 19 Jul 2017, 10:51pm -
Is Equity Premium Predictable? [Quantpedia]
We study the performance of a comprehensive set of equity premium forecasting strategies that have been shown to outperform the historical mean out-of-sample when tested in isolation. Using a multiple testing framework, we find that previous evidence on out-of-sample predictability is primarily due
- 6 years ago, 15 Jul 2017, 12:18am -
Are REITs a Distinct Asset Class? [Quantpedia]
Real estate investment trusts (REITs) are often considered to be a distinct asset class. But, do REITs deserve this designation? While exact definitions for asset class may vary, a number of statistical methods can provide strong evidence either for or against the suitability of the designation. The
- 6 years ago, 30 Jun 2017, 08:07am -
Survey of Quality Investing [Quantpedia]
Factor investing has experienced a resurgence in popularity under the moniker “smart beta.” Several traditional factors, such as value, size, momentum, and low beta, are well defined and have been heavily researched in academia as return anomalies for many decades. These factors have also been
- 6 years ago, 21 Jun 2017, 07:35pm -
Portfolio Weighting Schemes for Commodity Futures Risk Premia [Quantpedia]
We examine whether and to what extent successful equities investment strategies are transferrable to the commodities futures market. We investigate a total of 7 investment strategies that involve optimization and mean-variance timing techniques. To account for the unique characteristics of the
- 6 years ago, 14 Jun 2017, 09:25pm -
Factors vs. Sectors in Asset Allocation [Quantpedia]
This paper compares and contrasts factor investing and sector investing, and then seeks a compromise by optimally exploiting the advantages of both styles. Our results show that sector investing is effective for reducing risk through diversification while factor investing is better for capturing
- 6 years ago, 7 Jun 2017, 10:56pm -
An Analysis of Momentum Behaviour in the Long-Term [Quantpedia]
Motivated by behavioral theories, we test whether recent past performance of the momentum strategy (Past Momentum Performance--PMP) negatively predicts the performance of stale momentum portfolios. Following periods of top-quintile PMP, momentum portfolios exhibit strong reversals 2-5 years after
- 6 years ago, 26 May 2017, 10:13am -
An Example of Trading Model Design by Richard Olsen (Founder of @OANDA) [Quantpedia]
We introduce a new approach to algorithmic investment management that yields profitable automated trading strategies. This trading model design is the result of a path of investigation that was chosen nearly three decades ago. Back then, a paradigm change was proposed for the way time is defined in
- 6 years ago, 20 May 2017, 09:20pm -
Do Mutual Fund Managers Have Stock-Picking Skill in Lottery Stocks? [Quantpedia]
Are portfolio managers skilled in stock-picking? It is a popular subject for academic research and majority of papers show that active funds underperform their respective benchmarks. But... It doesn't mean professionals do not know how to pick stocks. It can simply mean that a lot of managers
- 6 years ago, 11 May 2017, 10:26pm -
Is VIX Index Manipulated? [Quantpedia]
At the settlement time of the VIX Volatility Index, volume spikes on S&P 500 Index (SPX) options, but only in the out-of-the-money options that are used to calculate the VIX, and more so for options with a higher and discontinuous influence on VIX. We investigate alternative explanations of
- 6 years ago, 28 Apr 2017, 10:10pm -
Analysis of Commodity Futures Returns Over the Last Decade [Quantpedia]
Long-only commodity futures returns have been very disappointing over the last decade, leading some to wonder if it was a mistake to invest in commodities. The poor performance is the result of poor “income returns” and not of falling commodity prices. This observation may be surprising for many
- 6 years ago, 21 Apr 2017, 07:15pm -
The Intrinsic Value of Gold [Quantpedia]
In this paper, we propose a gold price index that enables market participants to separate the change in the ‘intrinsic’ value of gold from changes in global exchange rates. The index is a geometrically weighted average of the price of gold denominated in different currencies, with weights that
- 6 years ago, 12 Apr 2017, 07:50am -
Market State Impact on Cross-Sectional and Time-Series Momentum Strategy [Quantpedia]
Recent evidence on momentum returns shows that the time-series (TS) strategy outperforms the cross-sectional (CS) strategy. We present new evidence that this happens only when the market continues in the same state, UP or DOWN. In fact, we find that the TS strategy underperforms the CS strategy when
- 6 years ago, 7 Apr 2017, 11:58am -