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Quantocracy’s Daily Wrap for 07/16/2024

This is a summary of links featured on Quantocracy on Tuesday, 07/16/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Pragmatic Asset Allocation from Vojtko and Javorska of Quantpedia [Allocate Smartly]

    This is a test of Pragmatic Asset Allocation from Vojtko and Javorsk of Quantpedia. While the strategy is tactical (i.e. changes allocation over time in response to market conditions), its also designed to ensure tax efficiency. We track many tactical strategies that have been tax efficient, but none that enforce that efficiency through explicit rules (more on this later). Backtested
  • Managed Futures versus Market-Neutral Multi-Factor Investing [Finominal]

    Managed futures and market-neutral factor investing offered uncorrelated returns to stocks However, these two alternative strategies exhibited similar trends in correlations to equities Having exposure to both does not generate superior diversification benefits INTRODUCTION At first glance, the universe of alternative strategies is large and full of wonders. However, deeper analysis often reveals

Quantocracy’s Daily Wrap for 07/14/2024

This is a summary of links featured on Quantocracy on Sunday, 07/14/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Diversification for Trend Following Models [Algorithmic Advantage]

    In the realm of trend following, one prevailing assumption is that highly correlated assets should not be traded together, as they are unlikely to provide diverse opportunities. However, this article will challenge this notion by delving into the nuances of trade correlations versus price correlations. By examining the behavior of different trend following systems applied to highly correlated
  • A portfolio of strategies [Quantitativo]

    Don't look for the needle in the haystack. Just buy the haystack. Jack Bogle. Harry Markowitz's Modern Portfolio Theory (MPT) revolutionized the field of investment management by providing a quantitative framework for portfolio construction and diversification. He is considered the father of the MPT. However, it was Jack Bogle who popularized the practical application of these

Quantocracy’s Daily Wrap for 07/12/2024

This is a summary of links featured on Quantocracy on Friday, 07/12/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Lifting Power of Outliers [Algorithmic Advantage]

    In previous posts, weve explored how massive diversification serves as a crucial tool for outlier huntersnot only to provide correlation benefits in chaotic regimes but also to increase our chances of capturing rare market events. Its the frequency of these outliers in our trade distribution that significantly enhances our long-term performance. In this post, well delve into a classic
  • Extracting Structured Datasets for Systematic Strategies from Unstructured Textual Sources [Quant Rocket]

    Natural Language Processing (NLP) is a broad field that enables computers to process and analyze unstructured textual data. In this article, we present several proprietary Brain datasets derived from news articles, SEC regulatory filings, and earnings calls, along with case studies implemented in QuantRocket. For more details about the content discussed and the Brain methodology please refer to
  • Low-priced stocks: do they impair performance? [Alpha Architect]

    It is well documented in the literature that retail investors have an irrational preference (from a traditional finance perspective) for investing in high-volatility stocks which have lottery-like distributionsthose that exhibit positive skewness and excess kurtosis (fat tails). Studies, such as the 2023 papers Lottery Preference and Anomalies and Do the Rich Gamble in the Stock

Quantocracy’s Daily Wrap for 07/10/2024

This is a summary of links featured on Quantocracy on Wednesday, 07/10/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Capital Market Assumptions: Combining Forecasts for Improved Accuracy [Portfolio Optimizer]

    Capital market assumptions1 (CMAs) are forecasts of future risk/return characteristics for broad asset classes over the next 5 to 20 years produced by leading investment managers, consultants and advisors2. These forecasts are well-reasoned, analytically rigorous assumptions about uncertain future market movements2 and are used almost universally among institutional investors2, for example as
  • Unified Approach for Hedging Impermanent Loss of Liquidity Provision [Artur Sepp]

    Let me introduce our research paper co-authored with Alexander Lipton and Vladimir Lucic for hedging of impermanent loss of liquidity provision (LP) staked at Decentralised Exchanges (DEXes) which employ Uniswap V2 and V3 protocols. Uniswap V3 protocol allows liquidity providers to concentrate liquidity in specified ranges. As a result, the liquidity of the pool can be increased in certain ranges
  • Multi-Strategy Hedge Funds & Replication ETFs [Finominal]

    Despite stellar returns of some multi-strategy hedge funds, the category has not gained market share Multi-strategy hedge funds are highly correlated to equities, offering limited diversification benefits Replication ETFs offer the same unfavorable characteristics INTRODUCTION In 2022 multi-strategy hedge funds were hot. Citadel generated a return of 38.1%, DE Shaw 24.7%, and Millennium 12.4%,

Quantocracy’s Daily Wrap for 07/07/2024

This is a summary of links featured on Quantocracy on Sunday, 07/07/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Portfolio Optimization with PyBroker [Ed West]

    Portfolio optimization is a method for allocating assets in a portfolio in order to meet specific objectives. For example, it can be used to construct a portfolio of assets with the objective of minimizing risk while also maximizing returns. Portfolio optimization can be a useful technique for periodically rebalancing a portfolio of stocks. This approach allows us to buy and sell shares in the

Quantocracy’s Daily Wrap for 07/06/2024

This is a summary of links featured on Quantocracy on Saturday, 07/06/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Momentum-based Long & Short Equities Portfolio [Quant Trading Rules]

    I can calculate the motion of heavenly bodies but not the madness of people. Isaac Newton Sir Isaac Newton, one of the greatest scientists of all time, was also an investor. Newton reportedly invested in the South Sea Company, a British joint-stock company, and initially made substantial profits. However, he reinvested his profits and eventually suffered significant losses when the bubble

Quantocracy’s Daily Wrap for 07/05/2024

This is a summary of links featured on Quantocracy on Friday, 07/05/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Robustness of the 2.11 Sharpe Mean Reversion Strategy [Quant Trading Rules]

    As for me, all I know is that I know nothing. Socrates. I love this quote. Humility is such an important virtue, especially in trading. If someone already knows something, their curiosity is gone. Their desire to learn is weak or non-existent. After I published the first article, some people questioned the strategy's robustness. Some affirmed, just by looking at the equity curve, that
  • Macroeconomic announcements: how do they impact spending? [Alpha Architect]

    This paper explores several key aspects related to household consumption behavior during the Great Financial Crisis of 2008-2009, with a focus on the impact of salient adverse macroeconomic announcements. Spending Less After (Seemingly) Bad News Garmaise, Levi and Lustig Journal of Finance, 2024 A version of this paper can be found here Want to read our summaries of academic finance papers? Check

Quantocracy’s Daily Wrap for 06/29/2024

This is a summary of links featured on Quantocracy on Saturday, 06/29/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • A Few Thoughts on Pragmatic Asset Allocation [Quantpedia]

    One of the main reasons why the Pragmatic Asset Allocation Model was designed is to give investors a tax-efficient possibility to invest in a global equity portfolio with a lower risk than the passive buy&hold approach. Therefore, the PAA model is not the absolute return model but rather the tactical model that prefers to invest in the equity risk premium and move to the hedging
  • U.S. Companies Have Outperformed Japanese Companies, or Have They? [Alpha Architect]

    Over the period January 2000-March 2024, the S&P 500 Index returned 7.4% per annum, outperforming the return of 2.2% per annum of Japanese large stocks (MSCI/Nomura data) by 5.2 percentage points per annum. The outperformance has been even greater since 2010, with the S&P 500 Index returning 13.7% per annum, outperforming the 6.5% per annum return of Japanese large stocks by 7.2 percentage

Quantocracy’s Daily Wrap for 06/26/2024

This is a summary of links featured on Quantocracy on Wednesday, 06/26/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Rolling regime [OSM]

    Our last post finished up examining the three different methods used to predict market regimes in the Gold Miners ETF, GDX namely, clustering, Gaussian Mixture Methods (GMMs), and Hidden Markov Models (HMMs). We found GMMs performed the best in terms of proof-of-concept. But there was a lot of work to do to go from backtest to viable trading strategy. In the next few posts, well look at
  • Volatility Forecasting: HAR Model [Portfolio Optimizer]

    Among the different members of the family of volatility forecasting models by weighted moving average1 like the simple and the exponentially weighted moving average models or the GARCH(1,1) model, the Heterogeneous AutoRegressive (HAR) model introduced by Corsi2 has become the workhorse of the volatility forecasting literature3 on account of its simplicity and generally good forecasting

Quantocracy’s Daily Wrap for 06/25/2024

This is a summary of links featured on Quantocracy on Tuesday, 06/25/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Art of Financial Illusion: How to Use Martingale Betting Systems to Fool People [Quantpedia]

    The Internet (and especially the part related to finance, trading, and cryptocurrencies) can be dangerous and full of offers of guaranteed returns, pictures of forever-growing bank accounts, and guys with golden rings swimming in the bathtub filled with cash. The truth is usually less rosy. Lucrative frauds, so-called white color crimes, have always been there, but with new technologies, they can
  • Rebalancing: can trading costs and market frictions be mitigated? [Alpha Architect]

    The focus of this paper is to test an effective rebalancing method that prioritizes trades with the strongest signals to capture more of the factor premium while reducing turnover and trading costs. The authors coined the term smart rebalancing which involves prioritizing trades based on the strength of their signals in order to minimize costs and turnover while retaining much of the factor