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Quantocracy’s Daily Wrap for 04/02/2021

This is a summary of links featured on Quantocracy on Friday, 04/02/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Not so soft softmax [OSM]

    Our last post examined the correspondence between a logistic regression and a simple neural network using a sigmoid activation function. The downside with such models is that they only produce binary outcomes. While we argued (not very forcefully) that if investing is about assessing the probability of achieving an attractive risk-adjusted return, then it makes sense to model investment decisions

Quantocracy’s Daily Wrap for 04/01/2021

This is a summary of links featured on Quantocracy on Thursday, 04/01/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Bitcoin: An Asset Allocation Perspective [Light Finance]

    Its no secret that 2021 has started off well for Bitcoin. Having breached a new all time high of $61,788.45 on March 13th it seems that each passing month brings with it a new milestone, new players, and greater acceptance. Recently, significant news has focused on the pace of institutional adoption. In fact, in a survey of 800 institutional clients, investment giant Fidelity reported that a
  • Conditional Parameter Optimization: Adapting Parameters to Changing Market Regimes via Machine Learning [EP Chan]

    Every trader knows that there are market regimes that are favorable to their strategies, and other regimes that are not. Some regimes are obvious, like bull vs bear markets, calm vs choppy markets, etc. These regimes affect many strategies and portfolios (unless they are market-neutral or volatility-neutral portfolios) and are readily observable and identifiable (but perhaps not predictable).
  • Fixed Income when you re Between a Rock and a Hard Place – Part 1/2 [Alpha Architect]

    Investors are stuck between a rock and a hard place. On one hand, it is painful to buy bonds that deliver paltry yields near all-time lows (Figure 2). On the other hand, many investors risk tolerance, compliance guidelines or liabilities preclude them from reducing their fixed income allocations. While there is likely no panacea for this dilemma, fixed income factors may offer incremental
  • What is Mutual Information? [Quant Dare]

    In the field of machine learning, when it comes to extracting relationships between variables, we often use Pearson correlation. The problem is that this measure only finds linear relationships, which can lead sometimes to a bad interpretation of the relation between two variables. Nevertheless, other statistics measure non-linear relationships, such as mutual information. Therefore, in this post,

Quantocracy’s Daily Wrap for 03/30/2021

This is a summary of links featured on Quantocracy on Tuesday, 03/30/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Minimum Profit Optimization: Mean-reversion Trading [Hudson and Thames]

    In my previous articles, I introduced how to construct long-short asset pairs according to the concept of cointegration and how to build a sparse mean-reverting multi-asset portfolio. Now that we are able to answer the question what to trade with confidence, it is time to get down to the nitty-gritty of the implementation of a mean-reversion strategy. The crux of implementing a

Quantocracy’s Daily Wrap for 03/29/2021

This is a summary of links featured on Quantocracy on Monday, 03/29/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • An Investigation of R&D Risk Premium Strategies [Quantpedia]

    A firm as an independent entity is engaged in a wide range of activities that affect its value. While the impact of some activities on the firms value is immediate and indisputable, there also exists a variety of activities that might impact the firms value in the future, while their outcome is yet uncertain. A similar logical approach can be used when evaluating the firms assets. The
  • How Active Mutual Funds Use ETFs [Alpha Architect]

    As of 2017, and in spite of the documented negative relationship between fund performance and use of ETFs, approximately one-third of US-domiciled, actively managed mutual funds held ETFs at one time or another. Active managers justifiably make use of ETFs to improve their portfolio management operations. But is their use for cash management, liquidity, improved returns, or risk reduction? The

Quantocracy’s Daily Wrap for 03/28/2021

This is a summary of links featured on Quantocracy on Sunday, 03/28/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Market Consequences of Investment Advice on Reddit’s Wallstreetbets [SSRN]

    We examine the market consequences of due diligence (DD) reports on Reddits Wallstreetbets (WSB) platform. We find average buy recommendations result in two-day announcement returns of 1.1%. Further, the returns drift upwards by 2% over the subsequent month and nearly 5% over the subsequent quarter. Retail trading increases sharply in the intraday window following publication, and retail
  • Market/Volume Profile and Matrix Profile [Dekalog Blog]

    A quick preview of what I am currently working on: using Matrix Profile to search for time series motifs, using the R tsmp package. The exact motifs I'm looking for are the various "initial balance" set ups of Market Profile charts. To do so, I'm concentrating the investigation around both the London and New York opening times, with a custom annotation vector (av). Below is a

Quantocracy’s Daily Wrap for 03/26/2021

This is a summary of links featured on Quantocracy on Friday, 03/26/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • More on the Factor Investing Replication Debate [Alpha Architect]

    There has been a wave of articles (and press) suggesting that academic research suffers from a replication crisis. A replication crisis simply means that other researchers are unable to replicate the results from prior research using similar experimental conditions. Psychology seems to be the field that has received the most scrutiny, but financial economics has also received criticism.
  • New Feature: Optimized Model Portfolios [Allocate Smartly]

    We track more than 60 Tactical Asset Allocation strategies. Members can combine those strategies into what we call Model Portfolios. Combining strategies in this way reduces the risk of any single strategy going off the rails and helps to provide smoother, more consistent investment returns. But deciding which strategies to trade in your Model Portfolio and how much to allocate to each can
  • Democratize Quant Conference Recap and Materials [Alpha Architect]

    COVID is killing conference mojo overall, but we were able to host a short and sweet Democratize Quant conference this morning. The speakers were terrific and I personally learned a lot from them. This post is a recap of what we heard and some resources we can make available to the public. Session 1: State of the Asset Management Industry (with a focus on the ETF aspect) We started the day

Quantocracy’s Daily Wrap for 03/24/2021

This is a summary of links featured on Quantocracy on Wednesday, 03/24/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • In Search of Lost Covered Interest Parity [Quant Dare]

    The puzzle of Covered Interest Parity (CIP) began in 2008 and has remained as such for many years. There have been multiple attempts to solve the mystery but none of them has reached a complete consensus and the debate is still ongoing. Nevertheless, the discussion has lead to a fair amount of interesting insights. CIP is one of the backbones of international finance and the basic tool for FX

Quantocracy’s Daily Wrap for 03/23/2021

This is a summary of links featured on Quantocracy on Tuesday, 03/23/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Is There a Replication Crisis in Finance? [Alpha Architect]

    In recent years the field of empirical finance has faced challenges from papers arguing that there is a replication crisis because the majority of studies cannot be replicated and/or their findings are the result of multiple testing of too many factors. For example, Paul Calluzzo, Fabio Moneta, and Selim Topaloglu, authors of the 2015 study When Anomalies Are Publicized Broadly, Do Institutions

Quantocracy’s Daily Wrap for 03/22/2021

This is a summary of links featured on Quantocracy on Monday, 03/22/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Modelling Slippage for Limit Orders using Adaptive KDE-based Loss Severity Distribution [Quant at Risk]

    Placing limit orders for trade execution is both quite popular and handy method in (algo)trading. A trader expects that the executed price of his buy/sell trade will ideally match the one requested in his limit order. Unfortunately, depending on a momentary market/asset liquidity, the difference between both prices can vary or vary significantly. This difference, by many known as an executed
  • An Economic Framework for ESG Investing [Alpha Architect]

    The 2018 Global Sustainable Investment Review reports over $30 trillion invested with explicit ESG goals as of the beginning of 2018. In the words of the authors: There is a clear tendency for many investors to own ethical companies in a saintly effort to promote good corporate behavior while hoping to do so in a guiltless way that does not sacrifice returns. To empower future investors in the ESG
  • Building a real-time market distress index [SR SV]

    A new Fed paper explains how to construct a real-time distress index, using the case of the corporate bond market. The index is based on metrics that describe the functioning of primary and secondary markets and, unlike other distress measures, does not rely on prices and volatility alone. Thus, it includes issuance volumes and issuer characteristics on the primary side and trading volumes and

Quantocracy’s Daily Wrap for 03/21/2021

This is a summary of links featured on Quantocracy on Sunday, 03/21/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Conditional Volatility Targeting [Alpha Architect]

    Financial economists have long known that volatility and returns are negatively correlated. Fischer Black documented this in his 1976 paper Studies of Stock Price Volatility Changes. This relationship results in the tendency to produce negative equity returns in times of high volatility. In addition, the research, including the 2017 study Tail Risk Mitigation with Managed Volatility
  • Research Review | 19 March 2021 | Forecasting [Capital Spectator]

    Predictable Financial Crises Robin Greenwood (Harvard University), et al. March 2021 Using historical data on post-war financial crises around the world, we show that crises are substantially predictable. The combination of rapid credit and asset price growth over the prior three years, whether in the nonfinancial business or the household sector, is associated with about a 40% probability of