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Quantocracy’s Daily Wrap for 11/06/2023

This is a summary of links featured on Quantocracy on Monday, 11/06/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • NEW CONTRIBUTOR: Improving Trend With Mean Reversion [Return Sources]

    In a 2011 paper, To Trade or Not to Trade? Informed Trading with Short-Term Signals for Long-Term Investors, Roni Israelov discusses how investors could use short-term trading signals that are normally too costly to trade, such as short-term reversal. He describes using the short-term signal as a filter to some longer-term signal, and only trading when both signals agree. Heres a very
  • Using Exponentially Weighted Moving Averages to navigate trade-offs in systematic trading [Robot Wealth]

    A big part of the job of the indie trader is data analysis. Were always looking in the past data to validate (or more often, invalidate) a hypothesis about what might predict future returns. And one could argue that recent data is more useful than past data, since it may reflect the current state of affairs more accurately. Or it might not market data are inherently noisy, and so theres
  • Sovereign debt sustainability and CDS returns [SR SV]

    Selling protection through credit default swaps is akin to writing put options on sovereign default. Together with tenuous market liquidity, this explains the negative skew and heavy fat tails of generic CDS (short protection or long credit) returns. Since default risk depends critically on sovereign debt dynamics, point-in-time metrics of general government debt sustainability for given market
  • Organization Capital and the Cross-Section of Expected Returns [Alpha Architect]

    This paper focuses on organization capital, representing intangible assets in a firms key employees that is not captured by classic value measures such as book-to-market. The authors propose a structural model to analyze the impact of organizational capital on asset prices and argue that shareholders perceive firms with high levels of organizational capital to be riskier than those with
  • CLOs – Diversifier, or another Equity Clone? [Finominal]

    Multiple collateralized loan obligation (CLO) ETFs have been launched since 2020 CLOs are promoted as low-risk fixed-income products However, these simply represent diluted equity exposure and offer limited diversification benefits INTRODUCTION The U.S. leveraged loan market has increased from $100 billion in 2000 to $1.4 trillion in 2022, according to data from S&P Global, which is remarkable
  • Technology Spillover Impacts Stock Returns [Alpha Architect]

    The increasing role of intangible assets compared to physical assets in our economy has been accompanied by increased research into their impact on asset prices and returns. Studies such as the 2020 papers Explaining the Recent Failure of Value Investing, Intangible Capital and the Value Factor: Has Your Value Definition Just Expired?, and Equity Investing in the Age of

Quantocracy’s Daily Wrap for 11/03/2023

This is a summary of links featured on Quantocracy on Friday, 11/03/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Inflation and Stock/Treasury Correlation [Allocate Smartly]

    There has been a surge in correlation between US stocks and Treasuries over the last couple of years. To illustrate, below weve shown the rolling 3-year correlation between US stocks and 10-year Treasuries since 1900 (based on monthly returns). Note the spike at the far right of the chart. What is correlation? In this context, it measures the strength of the relationship between US stocks and

Quantocracy’s Daily Wrap for 11/02/2023

This is a summary of links featured on Quantocracy on Thursday, 11/02/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Big boost for quant_rv going long/short SPY/SH (Part 11) [Babbage9010]

    sum: quant_rv was already beating SPY in our last post, with a long-only approach. Testing the remaining (flat) days finds that theyre dominated by losers, so if we go short (using SH ETF) instead of flat, boom! performance jumps again recap quant_rv is a simple quant strategy written in R that goes long SPY when volatility is low, and flat when vol is high. The current quant_rv version

Quantocracy’s Daily Wrap for 11/01/2023

This is a summary of links featured on Quantocracy on Wednesday, 11/01/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Index Tracking: Reproducing the Performance of a Financial Market Index (and more) [Portfolio Optimizer]

    An index tracking portfolio1 is a portfolio designed to track as closely2 as possible a financial market index when its exact replication3 is either impractical or impossible due to various reasons4 (transaction costs, liquidity issues, licensing requirements). In this blog post, after reviewing the underlying mathematics described in Hallerbach5, I will review a couple of applications of index
  • Higher Volatility, Higher Alpha? [Finominal]

    Intuitively fund managers should create more alpha when volatility is higher However, neither mutual nor hedge fund managers have been able to do so Likely explained by fund managers being less rational than assumed INTRODUCTION However, a period of higher volatility is a good environment for alpha generation and provides opportunities. Robert Prince, CIO Bridgewater Associates,

Quantocracy’s Daily Wrap for 10/29/2023

This is a summary of links featured on Quantocracy on Sunday, 10/29/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Dissecting the Idiosyncratic Volatility Puzzle [Alpha Architect]

    Idiosyncratic volatility (IVOL) is the volatility of a security that cannot be explained by overall market volatilityit is the risk unique to a particular security. IVOL contrasts with systematic risk, which is the risk that affects all securities in a market (such as changes in interest rates or inflation) and, therefore cannot be diversified away. On the other hand, the risks of high IVOL

Quantocracy’s Daily Wrap for 10/25/2023

This is a summary of links featured on Quantocracy on Wednesday, 10/25/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Part 10 quant_rv: getting somewhere now, by adding normalized ATR [Babbage9010]

    TL;DR ~ This post explores adding a normalized Average True Range (nATR) measure that behaves in a similar fashion to other volatility measures, including a low volatile anomaly and nATR gives quant_rv a nice boost in backtesting performance. Not all goals for quant_rv are met yet, but were definitely seeing improvements. So, Im getting nearer to a solution for all the quant_rv goals.
  • Demystifying Equity Market Neutral Investing [Simplify]

    The 60/40 portfolio, the bread-and-butter portfolio of todays wealth management industry, is limited to just two core drivers of returns: equities and bonds. Is there someplace else we can turn to for a compelling yet distinct source of returns? Yes, there are several places to look in fact, one of the most interesting being Equity Market Neutral (EMN) investing. EMN strategies can not only

Quantocracy’s Daily Wrap for 10/23/2023

This is a summary of links featured on Quantocracy on Monday, 10/23/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Unmasking Insights through Human-AI Differences in Earnings Conference Q&A [Alpha Architect]

    This paper acknowledges the pivotal role of earnings calls in disseminating value-relevant information, with particular emphasis on the Q&A segment. However, it confronts the inherent challenge posed by the unstructured nature of language in these calls, complicating quantitative analysis. In response, the authors innovate by introducing a novel measure designed to grasp the subtleties of
  • Determining the Optimal Benchmark for Funds [Finominal]

    SUMMARY Identifying the right benchmark for a fund or portfolio can be difficult Many common metrics like correlation or betas do poorly for benchmark selection Combining metrics is more effective INTRODUCTION Is gold the right benchmark for gold miners? Although these companies focus on excavating the precious metal, there are plenty of operational issues like staff strikes, collapsing mines, or

Quantocracy’s Daily Wrap for 10/22/2023

This is a summary of links featured on Quantocracy on Sunday, 10/22/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Market Cap vs Dollar Volume: Which to Use for Universe Selection? [Quant Rocket]

    Market cap and dollar volume are two commonly used metrics for filtering a trading universe by size of security. Does it matter which one you use? In this post, I quantify the difference between market cap and dollar volume and explain the kinds of stocks that may unexpectedly appear in your universe with each metric. Overview of market cap and dollar volume Market cap and dollar volume are both
  • Macro demand-based rates strategies [SR SV]

    The pace of aggregate demand in the macroeconomy exerts pressure on interest rates. In credible inflation targeting regimes, excess demand should be negatively related to duration returns and positively to curve-flattening returns. Indeed, point-in-time market information states of various macro demand-related indicators all have helped predict returns of directional and curve positions in
  • How an old Nintendo baddie boosts portfolio analysis [PyQuant News]

    Todays newsletter is based on a readers suggestion. We look at k-medoids which is a villain in the popular Nintendo game Metroid. No its not. But if you know Metroid, you have to agree: It sounds like one! Its actually a powerful method used in data science to cluster similar data together. Its robust to outliers so super useful when clustering features of a portfolio of financial

Quantocracy’s Daily Wrap for 10/20/2023

This is a summary of links featured on Quantocracy on Friday, 10/20/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 10/18/2023

This is a summary of links featured on Quantocracy on Wednesday, 10/18/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Hello ChatGPT, Can You Backtest Strategy for Me? [Quantpedia]

    You may remember our blog post from the end of March, where we tested the current state-of-the-art LLM chatbot: Time flies fast. More than six months have passed since our last article, and half a year in a fast-developing field like Artificial intelligence feels like ten times more. So, we are here to revisit our article and try some new hacks! Has the OpenAI chatbot made any significant