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Quantocracy’s Daily Wrap for 10/09/2018

This is a summary of links featured on Quantocracy on Tuesday, 10/09/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Managing Equity Risk When Rates Rise [Flirting with Models]

    Last week was a good reminder that there is no ironclad law that rates and equities cant sell-off at the same time. Strategic diversification with bonds is akin to an uncertain insurance policy whose price and ultimate payoff in the event of a market crash is highly dependent on the level and path of interest rates. Diversifying your diversifiers with complementary risk management strategies
  • Test of Equality Between Two Densities [Eran Raviv]

    Are returns this year actually different than what can be expected from a typical year? Is the variance actually different than what can be expected from a typical year? Those are fairly light, easy to answer questions. We can use tests for equality of means or equality of variances. But how about the following question: is the profile\behavior of returns this year different than what can be
  • Fixed Income Factors: An Overlooked Corner of the Market [Alpha Architect]

    Factors, or style investing, seems to be all the rage these days, including the use of factors in fixed income (here, here and here are good places to start). However, many of these strategies focus on CUSIP level bond selection. This means executing a strategy with a fair amount of turnover in a bond market that can (at times) be illiquid and expensive to trade. Sadly, this means that

Quantocracy’s Daily Wrap for 10/08/2018

This is a summary of links featured on Quantocracy on Monday, 10/08/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Bonus Episode: Wes Gray Factor Investing is More Art, and Less Science [Meb Faber]

    Author: Wes Gray. Wes is the CEO/CIO of Alpha Architect. He has published multiple academic papers and four books, including Quantitative Value (Wiley, 2012), DIY Financial Advisor (Wiley, 2015), and Quantitative Momentum (Wiley, 2016). After serving as a Captain in the United States Marine Corps, Wes earned an MBA and a PhD in finance from the University of Chicago where he studied under Nobel
  • Factor Investing in Micro & Small Caps [Factor Research]

    This research note was originally published by the CFA Institutes Enterprising Investor blog. Here is the link. SUMMARY Micro caps are commonly perceived as highly risky, but potentially also highly rewarding Smalls caps generate more attractive risk-return ratios than micro caps on index level Focusing on factors improves risk-adjusted returns across market cap segments INTRODUCTION FAANG
  • Investment Factor Timing: Challenging, but Not Impossible [Alpha Architect]

    Is it possible to time factors? (An old blog on the topic here and Jack discussing on a podcast here) Are there financial and economic indicators that can be used to predict factor returns? Are timing models just luck? What are the Academic Insights? YES. The authors use Fama-French 5 Factors calculated over the period 1972-2015 and forward time horizons of 1,2 and 3 months and 1,2,3 and 5 years

Quantocracy’s Daily Wrap for 10/06/2018

This is a summary of links featured on Quantocracy on Saturday, 10/06/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Multiple risk-free interest rates [SR SV]

    Financial markets produce more than one risk-free interest rate. This is because there are several separate market segments where structured trades replicate such a rate. Differences in remuneration arise for two reasons. First, financial frictions can prevent arbitrage. Second, some risk-free assets pay additional convenient yields, typically by virtue of their liquidity and suitability as
  • Trend Following in September [Wisdom Trading]

    September 2018 Trend Following: DOWN -1.41% / YTD: -8.85% Please find this months report of the Wisdom State of Trend Following. Performance is hypothetical. Chart for September: Wisdom State of Trend Following – September 2018 And the 12-month chart:

Quantocracy’s Daily Wrap for 10/04/2018

This is a summary of links featured on Quantocracy on Thursday, 10/04/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Summing up the Potential Benefits and Pitfalls of Diversification in 3 Slides [Alpha Architect]

    Not long ago I used to teach investment management courses to Masters students (MBAs and MS Finance types). A core aspect of my course was so-called modern portfolio theory. We did a lot of math and problem-sets to make it feel like we were doing something useful. But I can summarize the core muscle movements of portfolio theory in 3 slides. Slide 1: The Math Works. Why do academics love
  • How can the Investment CAPM Price Momentum? [Alpha Architect]

    How can a q-theoretic model price momentum? is a new paper by Robert Novy-Marx and goes right to the heart of an intense debate ongoing in empirical asset pricing can neoclassic economic models explain the so-called momentum anomaly? A quote from the start of the paper, which answers the question of Can the investment CAPM price momentum? The answer, of course, is that it

Quantocracy’s Daily Wrap for 10/03/2018

This is a summary of links featured on Quantocracy on Wednesday, 10/03/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Asset Allocation Roundup [Allocate Smartly]

    Recent asset allocation articles (tactical or otherwise) that you might have missed: Market Timing the Credit Cycle (EconomPic) Jake looks at forward returns based on the width and direction of the credit quality spread (high yield minus investment grade OAS). Below weve reproduce Jakes results and added an equity curve showing SPY returns in the month following bullish conditions in
  • Erratic correlation: an illustration through Chord diagrams [Quant Dare]

    Lets start with a simple question: what is the first thing to think about when you create a portfolio? Im sure several ideas spring to mind, but lets go to the heart of the matter: what is the relationship between the assets in a portfolio? That is one of the greatest managers concerns. They want to be sure that if some assets fall, the others could make up for losses. That is, baskets

Quantocracy’s Daily Wrap for 10/02/2018

This is a summary of links featured on Quantocracy on Tuesday, 10/02/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • When Diversification Fails [Alpha Architect]

    The paper investigates the following research question: Are left-tail vs. right-tail correlations symmetric for the majority of risky assets (including size and styles)? Is left-tail vs. right-tail correlations between stocks and hedge funds styles symmetric? Is left-tail vs. right-tail correlations between stocks and private assets 8direct real estate and private equity) symmetric? Is left-tail

Quantocracy’s Daily Wrap for 10/01/2018

This is a summary of links featured on Quantocracy on Monday, 10/01/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Measuring Risk Tolerance [Flirting with Models]

    Risk tolerance, capacity, and need all factor into determining whether a portfolio is appropriate for an investor. Capacity and need are generally straightforward to quantify and map to an appropriate portfolio, but risk tolerance is more difficult, with many questionnaires potentially oversimplifying the process of mapping an investor into a portfolio. Companies like Riskalyze have striven to
  • Factor Olympics Q3 2018 [Factor Research]

    Global factor performance in the first three quarters of 2018 is comparable to 2017 However, regional factor performance diverges, reflecting changes in monetary and trade policies Low Volatility leads and Value lags INTRODUCTION We present the performance of seven well-known factors on an annual basis for the last 10 years and the first three quarters of 2018. It is worth mentioning that not all

Quantocracy’s Daily Wrap for 09/30/2018

This is a summary of links featured on Quantocracy on Sunday, 09/30/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Tactical Asset Allocation in September [Allocate Smartly]

    This is a summary of the recent performance of a wide range of excellent tactical asset allocation strategies, net of transaction costs. These strategies are sourced from books, academic papers, and other publications. While we dont (yet) include every published TAA model, these strategies are broadly representative of the TAA space. Learn more about what we do or let AllocateSmartly help you
  • How lazy trading explains FX market puzzles [SR SV]

    Not all market participants respond to changing conditions instantaneously, not even in the FX market. Private investors in particular can take a long while to adapt to changes in global interest rate conditions and even institutional investors may be constrained by rules and lengthy process. A theoretical paper shows that delayed trading goes a long way in explaining many empirical puzzles in

Quantocracy’s Daily Wrap for 09/28/2018

This is a summary of links featured on Quantocracy on Friday, 09/28/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Bitcoin Seasonality: Fooled by Randomness [Quant Fiction]

    Autumn is my favorite time of year. Football (and more importantly as a Bills fan, fantasy football) is back, everything tastes like pumpkin, and I dont get sweaty walking around outside. Its also the start of the cryptocurrency bull season! Or is it? Lets find out. Its already started: Twitter gurus posting that the coming months are the most bullish for Bitcoin. Many still remember
  • Value at Risk or Expected Shortfall [Quant Dare]

    Value at Risk and Expected Shortfall are related to the risk taken by a portfolio but Which one is the best? Lets learn together the differences between these two measures. Risk measures Coherence is really important when defining a risk measurement. If the measure is not coherent, it will not give us adequate information about the risk of our portfolio. For that reason, there are four

Quantocracy’s Daily Wrap for 09/25/2018

This is a summary of links featured on Quantocracy on Tuesday, 09/25/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Value and Momentum and Risk [Alpha Architect]

    Early in the summer, I was on a podcast with Corey Hoffstein discussing momentum investing. During the discussion, Corey asked me a question regarding risk versus mispricing, specific to the momentum anomaly. We frequently cite the behavioral explanation for momentuminvestors tend to underreact to new informationwhereby winning stocks do not go up by as much as they should, given the new
  • Portfolio Optimization and the Sharpe Multiplier [Invest ReSolve]

    Weve spent a great deal of time in past articles discussing the merits of portfolio optimization. In this article we will examine the merits and challenges of portfolio optimization in the context of one of the most challenging investment universes: Managed Futures. Futures exhibit several features that make them challenging from a portfolio optimization perspective. In particular, there can be