Quantocracy

Quant Blog Mashup

Recent Quant Links from Quantocracy as of 10/28/2025

This is a summary of links recently featured on Quantocracy as of Tuesday, 10/28/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Features Selection in the Age of Generative AI [Gatambook]

    Features are inputs to machine learning algorithms. Sometimes also called independent variables, covariates, or just X, they can be used for supervised or unsupervised learning, or for optimization. For example, at QTS, we use more than 100 of them as inputs to dynamically calibrate the allocation between our Tail Reaper strategy and E-mini S&P 500 futures. In general, modelers have no idea
  • Sensitivity Analysis 101 [Factor Research]

    SUMMARY Sensitivity analysis can highlight portfolio risks However, it is sensitive to data availability and assumptions Focusing on tail betas is sensible INTRODUCTION The U.S. stock market is currently being driven by a small group of stocks, creating a concentration risk not seen in decades. While comparisons to the 2000 tech bubble are common, a key difference is that todays leading
  • Weekly Research Recap [Quant Seeker]

    The Term Structure of Stock-Bond Covariances (Gandhi) After 2009, the term structure of stockbond covariances turned downward-sloping, with long-maturity bonds providing a stronger equity hedge than short-maturity bonds. A new stockbond factor based on these covariances predicts bond excess returns (R > 20%) after 2010. Key takeaway: Unconventional monetary policy post-GFC affected the
  • How does inflation impact trading? [Alpha Architect]

    A growing body of research suggests that inflation doesnt just erode purchasing power it reshapes how financial markets function. This paper shows that when inflation rises, trading behavior changes in systematic ways: liquidity deteriorates, bid-ask spreads widen, and investors trade less on fundamentals and more on short-term noise. These effects amplify volatility and reduce
  • Modeling Gold for Prediction and Portfolio Hedging [Relative Value Arbitrage]

    Gold prices have risen sharply in recent months, prompting renewed debate over whether the market has reached its peak. In this post, we examine quantitative models used to forecast gold prices and evaluate their effectiveness in capturing volatility and market dynamics. However, gold is not only a speculative vehicle, it also functions as an effective hedging instrument. We explore both aspects

Recent Quant Links from Quantocracy as of 10/26/2025

This is a summary of links recently featured on Quantocracy as of Sunday, 10/26/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Envision Your Financial Future and Plan How to Get There with a Portfolio of Portfolios [Engineered Portfolio]

    How much money do you aim to have by when and why? How will you achieve that goal? In this post I will share my vision and plan with specific investment strategies while posing questions to you to help you envision your own financial future and take steps to get there. At the age of 28 when I started this blog with my former boss, Chris, and lifelong friend, I aimed to find an optimal investment
  • Cryptocurrency as an Investable Asset Class 10 Lessons [Quantpedia]

    Cryptocurrencies have matured from experimental curiosities into a viable investable asset class whose return-generation and risk characteristics merit treatment within empirical asset pricing. A recent paper by Nicola Borri, Yukun Liu, Aleh Tsyvinski, Xi Wu summarizes ten facts from the literature that show cryptocurrencies share important similarities with traditional marketscomparable
  • Where Factors Speak Loudest: Why Size Matters in Factor Investing [Alpha Architect]

    The Curious Case of the Disappearing Size Premium The size effect was first documented by Rolf Banz in his 1981 paper The Relationship Between Return and Market Value of Common Stocks, which was published in the Journal of Financial Economics. After the 1992 publication of Eugene Fama and Kenneth Frenchs paper The Cross-Section of Expected Stock Returns, the size effect was
  • Research Review | 24 October 2025 | Risk Analysis [Capital Spectator]

    The case for low-risk equity investing: evidence from 2011-2025 Raul Leote de Carvalho (BNP Paribas), et al. July 2025 This paper investigates the performance of equity low-risk strategies since 2011, highlighting their ability to deliver strong risk-adjusted returns across diverse market conditions. We introduce a composite risk score that extends beyond volatility and demonstrate its

Recent Quant Links from Quantocracy as of 10/22/2025

This is a summary of links recently featured on Quantocracy as of Wednesday, 10/22/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The End-Of-Month Effect in Value Growth and Real Estate Equity Spreads [Quantpedia]

    The clustering of excess returns on the final trading days of the month constitutes a robust empirical regularity with significant implications for portfolio construction. We document a month-end premium that is both statistically and economically significant, distinct from the canonical turn-of-the-month (ToM) effect. Our strategy highlights systematic style rotationsparticularly shifts in
  • Optimization: Adaptive regret for regime-shifting markets [Trading the Breaking]

    In our preceding discourse, we talked about the features of parameter-free optimization, a methodology designed to liberate quantitative strategists from the sinister task of parameter tuning. The allure was undeniable: escape the perilous cycle of tweaking lookback windows, volatility thresholds, and rebalancing frequenciesa process that often culminates in overfitted models, brittle
  • Weekly Research Recap [Quant Seeker]

    Cryptocurrency as an Investable Asset Class: Coming of Age (Borri, Liu, Tsyvinski, and Wu) This paper describes 10 stylized facts about cryptocurrencies, including their 5 higher volatility but similar Sharpe ratios to equities, a rising correlation with stocks (2% to 37% post-2020) yet strong diversification benefits, frequent large jumps that complicate risk management, and the declining
  • Effectiveness of Covered Call Strategy in Developed and Emerging Markets [Relative Value Arbitrage]

    Covered call strategies are often promoted as an income-generation tool for investors seeking steady returns with reduced risk. But how effective are they in practice? In this post, we take a closer look at their real-world performance across different markets. Do Covered Calls Deliver Superior Returns? The covered call strategy is a popular and conservative options trading approach. It involves
  • Can Machine Learning Predict Factor Returns? [Alpha Architect]

    Nusret Cakici, Christian Fieberg, Carlos Osorio, Thorsten Poddig, and Adam Zaremba, authors of the study Picking Winners in Factorland: A Machine Learning Approach to Predicting Factor Returns, published in the April 2025 issue of The Journal of Portfolio Management, set out to answer a critical question: Can machine learning techniques improve the prediction of cross-sectional factor
  • Can Technology Sector Leadership Be Systematically Exploited? [Quantpedia]

    The U.S. equity market has periodically been dominated by a few technology-driven stocks, most recently the so-called Magnificent Seven. Historically, similar dominance occurred during the Nifty Fifty era in the 1960s1970s and the dot-com boom in the 1990s. These periods of concentrated leadership often led to temporary outperformance, but systematically capturing such gains has proven
  • The crucial difference in price momentum vs. earnings momentum [Klement on Investing]

    Sometimes, you dont know what you know until somebody spells it out crystal clear for you. At least thats how I felt when I read the analysis of Kewei Hou and his colleagues on price momentum and earnings momentum. Most investors know that both price momentum and earnings momentum are factors that can be employed to create outperformance vs. the market and to select attractive stocks. Price

Recent Quant Links from Quantocracy as of 10/14/2025

This is a summary of links recently featured on Quantocracy as of Tuesday, 10/14/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Why You Can t Tell if Your Strategy Stopped Working (Statistically Speaking) [Robot Wealth]

    Traders love the illusion of precision. A few bad weeks go by, and you think, Lets run a t-test and see if the strategy stopped working. It sounds rigorous. It isnt. Imagine a strategy that, in truth, earns 10% per year with 20% volatility roughly the S&Ps long-term profile. Well simulate five years of daily returns, about 1,260 observations, from a geometric Brownian
  • The Points-and-Line Chart [Financial Hacker]

    -and-Line Chart Traders like special bars on a chart, since they let the price curve appear smoother and more predictable as it really is. Some types of bars, such as Renko bars, even use fake prices for generating curves that appear to move straight upwards or downwards. In the TASC November issue, Mohamed Ashraf and Mohamed Meregy presented the Points and Line Chart that avoids this problem. At
  • Weekly Research Recap [Quant Seeker]

    Analyzing over 1,500 bond funds (20152024) shows that active returns, performance relative to benchmarks, are driven mainly by systematic risk exposures, not manager skill. For Aggregate and Corporate funds, about 55% of active returns come from underweighting duration and overweighting credit risk, while high-yield funds often reduce credit exposure. Key takeaway: Active return is not alpha;
  • Identifying and Characterizing Market Regimes Across Asset Classes [Relative Value Arbitrage]

    Identifying market regimes is essential for understanding how risk, return, and volatility evolve across financial assets. In this post, we examine two quantitative approaches to regime detection. Hedge Effectiveness Under a Four-State Regime Switching Model Identifying market regimes is important for understanding shifts in risk, return, and volatility across financial assets. With the

Recent Quant Links from Quantocracy as of 10/12/2025

This is a summary of links recently featured on Quantocracy as of Sunday, 10/12/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Asset Embeddings [Quantitativo]

    You shall know a word by the company it keeps. John Rupert Firth. John Rupert Firth was a British linguist and one of the pioneers of modern semantics. In the 1950s, he proposed a simple yet revolutionary idea: You shall know a word by the company it keeps. More than half a century later, this insight became the foundation for a breakthrough at Google, where Tomas Mikolov and his
  • Is the degradation of trend following performance a cohort effect, instrument decay or environmental problem? [Investment Idiocy]

    It's probably bad luck to say this, but the most recent poor performance of CTAs and trend following managers this year appears to have been reversed. My own system is up over 12% since the nadir of the summer drawdown, and is now up for year; admittedly by only by 5.5%. Nevetheless, it's true to say that trend following performance appears to have been degrading over the last few
  • Weekly Research Recap [Quant Seeker]

    Music as an Asset Class (Stoikov, Singla, Cetin, Cendra Villalobos) Analyzing 1,295 transactions from the Royalty Exchange, a marketplace for music royalties, the authors calibrate three discounted cash flow models to value music rights. The best-fitting model shows that Life of Rights assets earn 12.8% median annual net returns, comparable to the S&P 500s 12.2% annualized. 10-year

Recent Quant Links from Quantocracy as of 10/06/2025

This is a summary of links recently featured on Quantocracy as of Monday, 10/06/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Book and Workshop Introduction: Generative AI for Trading and Asset Management [EP Chan]

    The world of finance is no stranger to artificial intelligence. Most quantitative asset managers are already familiar with discriminative models, for example, given yesterdays return, what is the probability that todays return will be positive? Many are also familiar with reinforcement learning, used for tasks like optimizing order execution or figuring out how to set the best capital
  • Gold s Rally and the Gold Mining Stocks Trap [Quantpedia]

    Gold has been in the headlines lately as it climbs to new highs, prompting many investors to look for ways to benefit from the rally. However, many institutional investors such as mutual funds and pension funds face restrictions on buying physical gold or gold-backed ETFs. Instead, they often turn to gold mining stocks to gain indirect exposure to golds price. That approach seems
  • The Role of Data in Financial Modeling and Risk Management [Relative Value Arbitrage]

    Much emphasis has been placed on developing accurate and robust financial models, whether for pricing, trading, or risk management. However, a crucial yet often overlooked component of any quantitative system is the reliability of the underlying data. In this post, we explore some issues with financial data and how to address them. How to Deal with Missing Financial Data? In the financial
  • Employing volatility of volatility in long-term volatility forecasts [Outcast Beta]

    We demonstrate how simple long-term volatility forecasts can be improved by incorporating the volatility of short-term volatility into forecasting models. The theoretical framework for modelling volatility of short-term volatility, along with its role in long-term forecasts, will be outlined. Empirical tests will then illustrate the value of including volatility of volatility measures in practice.
  • Weekly Research Recap [Quant Seeker]

    State-Dependent Market (In)Efficiency in Cryptocurrency Markets (Barak, Razmi, and Mousavi) Cryptocurrency return predictability is regime-dependent. This paper tests strategies based on Directional Change events, where a new trend is confirmed only once price moves a fixed percentage from the last extreme. A machine-learning model adaptively selects the optimal threshold each day. From

Recent Quant Links from Quantocracy as of 09/29/2025

This is a summary of links recently featured on Quantocracy as of Monday, 09/29/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Hedging Tail Risk with Robust VIXY Models [Quantpedia]

    Extreme market events, once perceived as statistical outliers, have become a central concern for investors. The persistence of sharp drawdowns and volatility spikes demonstrates that the cost of ignoring tail risks is not tolerable for long-term portfolio resilience. While diversification can mitigate ordinary fluctuations, it often fails when markets move in unison under stress. This makes
  • Parameter-free optimization [Trading the Breaking]

    Lets talk plainly. Quant finance has spent years chasing complexitylayering indicators, stacking models, scaling clustersanything that might tease out an edge. Weve built whole infrastructures around that chase: faster data, bigger grids, deeper nets. Yet under all that polish sits an awkward truth we rarely lead with: most strategies lean on hand-picked knobs. Call them
  • Cross-Sectional and Dollar Components of Currency Risk Premia [Quantpedia]

    Currency strategies often appear simple on the surface go long high-yielding currencies, short low-yielding ones, or take a position on the U.S. dollar. But these trades actually mix two distinct components: a Dollar component, which bets on broad movements of the U.S. dollar against all others, and a Cross-Sectional (CS) component, which exploits relative differences across countries. The
  • A scorecard for global equity allocation [Macrosynergy]

    Macro-quantamental scorecards are systematic enhancements of discretionary portfolio management. They offer (a) information efficiency by structuring and condensing key macroeconomic data series, and (b) empirical validation of predictive power and trading value using historic point-in-time information. Scorecards can be readily built in Python, with pandas and existing classes and methods.
  • Volatility Risk Premium Across Different Asset Classes [Relative Value Arbitrage]

    The volatility risk premium has been studied extensively in the equity space, but less so in other asset classes. In this post, we are going to examine the VRP across different asset classes. Volatility Risk Premium Across Different Asset Classes The volatility risk premium (VRP) is the compensation investors receive for bearing the risk associated with fluctuations in market volatility, typically

Recent Quant Links from Quantocracy as of 09/25/2025

This is a summary of links recently featured on Quantocracy as of Thursday, 09/25/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Refining The 0DTE SPX Breakout Strategy with Evidence-Based Exclusions [Quantish]

    Every quant has been there. Youre backtesting a strategy, the overall results look good, but something feels off when you dig into the day-by-day breakdown. You keep digging while your gut says this feels like data mining, but the statistics keep pointing to the same uncomfortable truth some trading days are just bad for business. Thats where I found myself with the SPX opening
  • Weekly Research Recap [Quant Seeker]

    The Term Structure of European Carbon Futures and the Predictive Power of Speculators and Hedgers (Lautner, Dudda, and Klein) Shifts in the carbon futures term structure are driven by hedgers, not speculators. Using ESMA Commitment of Traders data, the authors show that a 1% increase in commercial long hedging demand predicts a 0.21% rise in the curve level one month ahead. Speculator activities,
  • Intelligent Concentration: A Synopsis of Warren Buffett and Diversification [Alpha Architect]

    Warren Buffetts diversification practices have been back in the spotlight over the past few years. Specifically, the level of concentration in his portfolio has come under scrutiny due to the size of the largest stock holding in Berkshire Hathaways marketable equities portfolio. A historical review of Buffetts implementation of diversification and concentration in practice, as well as his
  • A Golden Opportunity to Upgrade a 60/40? [Alpha Architect]

    Our friends Corey Hoffstein and Rodrigo Gordillo over at Return Stacked have done some interesting research on the potential for gold to improve your run-of-the-mill 60/40. Youll need to hit them directly on their site to get their full report. However, I read their very detailed white paper, and I thought the concept was intriguing and worth a look for Alpha Architect readers seeking tactical

Recent Quant Links from Quantocracy as of 09/22/2025

This is a summary of links recently featured on Quantocracy as of Monday, 09/22/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Leveraged ETFs in Low-Volatility Environments [Quantpedia]

    Leveraged ETFs (such as SPXL (Direxion Daily S&P 500 Bull 3X Shares) offer amplified exposure to the S&P 500, promising high returns but exposing investors to volatility drag caused by daily rebalancing. This effect can significantly erode performance over longer horizons, particularly during periods of elevated market volatility. Inspired by recent research, The Volatility Edge, A
  • When Trading Systems Break Down: Causes of Decay and Stop Criteria [Relative Value Arbitrage]

    Decay and Stop Criteria Subscribe to newsletter A key challenge in system development is that trading performance often deteriorates after going live. In this post, we look at why this happens by examining the post-publication decay of stock anomalies, and we address a practical question faced by every trader: when a system is losing money, is it simply in a drawdown or has it stopped working
  • What Drives the Excess Bond Premium? [Quantpedia]

    The Excess Bond Premium (EBP the portion of corporate bond spreads not explained by default risk), a key metric in quantitative finance for gauging credit spreads, has long been a subject of intense scrutiny. Recent research sheds new light on its dynamics, moving beyond traditional macroeconomic factors to explore the role of information flow. By analyzing news attention across 180 topics, a

Recent Quant Links from Quantocracy as of 09/17/2025

This is a summary of links recently featured on Quantocracy as of Wednesday, 09/17/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Robust optimization protocol [Trading the Breaking]

    Parameter optimization is where good ideas go to either earn their keep or quietly fail. Given a fixed modeling recipe, the optimizer will always return a winner; what it cannot tell youunless you force it tois whether that winner is real. Financial data are dependent, heteroskedastic, regime-prone, and thin on signal. In that environment, any single backtest split can crown a parameter
  • Weekly Research Recap [Quant Seeker]

    News Sentiment and Commodity Futures Investing (Yeguang, El-Jahel, and Vu) Media news sentiment is a priced factor in commodity futures. A weekly longshort strategy, buying commodities with the most positive sentiment and shorting those with the most negative, delivers an 8.3% annualized return with a Sharpe ratio of 0.45, after costs. The premium remains significant after controlling for
  • Macro trading factors: dimension reduction and statistical learning [Macrosynergy]

    Macro trading factors are information states of economic developments that help predict asset returns. A single factor is typically represented by multiple indicators, just as a trading signal often combines several factors. Like signal generation, factor construction can be supported by regression-based statistical learning. Dimension reduction is particularly useful for factor discovery. It is
  • Volatility Targeting Across Asset Pricing Factors and Industry Portfolios [Relative Value Arbitrage]

  • Profitably Trading the SPX Opening Range. Code Included. [Quantish]

    This promising strategy comes from Option Alphas comprehensive research on trading SPX breakouts with zero-day-to-expiration (0DTE) credit spreads selling one option while buying a further OTM option for protection, collecting premium with defined risk. If youre not famliar with Option Alpha, and are serious about trading options, I highly recommend you check them out! (Disclosure: Im
  • Weekly Research Recap [Quant Seeker]

    The trade imbalance network and currency returns (Hou, Sarno, and Ye) While past work links a countrys trade balance to predictability of FX returns, this study shows that its position in the global network of deficits and surpluses matters too. The authors create a centrality-based measure (CBC), finding that going long highly central currencies and shorting peripheral ones delivers a Sharpe