Quantocracy

Quant Blog Mashup

ST

Quantocracy’s Daily Wrap for 06/20/2023

This is a summary of links featured on Quantocracy on Tuesday, 06/20/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Is Managed Futures Value-able? [Flirting with Models]

    In Return StackingTM: Strategies for Overcoming a Low Return Environment, we advocated for the addition of managed futures to traditionally allocated portfolios. We argued that managed futures low empirical correlation to both equities and bonds and its historically positive average returns makes it an attractive diversifier. More specifically, we recommended implementing managed futures as an
  • Index Replication: avoid the negatives! [Alpha Architect]

    There are several significant, well-documented benefits of index funds. In addition to outperforming a large majority of actively managed funds, they tend to have low fees, low turnover (resulting in low trading costs and high tax efficiency), broad diversification, high liquidity, and near-zero tracking error (generally assumed to mean that they incur negligible trading costs). However, there are
  • Merchandise import as predictor of duration returns [SR SV]

    Local-currency import growth is a widely underestimated and important indicator of trends in fixed-income markets. Its predictive power reflects its alignment with economic trends that matter for monetary policy: domestic demand, inflation, and effective currency dynamics. Empirical evidence confirms that import growth has significantly predicted outright duration returns, curve position returns,
  • Preferential Times for Preferred Income Strategies? [Finominal]

    Preferred income funds offer exceptionally high yields However, the higher the yield, the lower the total return The diversification benefits of these funds were limited INTRODUCTION Although the job of a stock analyst is not easy, fixed-income analysts have it arguably harder. Sure, there might be multiple share classes for a few stocks like Alphabet or Berkshire Hathaway, but equity is perpetual

Quantocracy’s Daily Wrap for 06/16/2023

This is a summary of links featured on Quantocracy on Friday, 06/16/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Long-Only Value Investing: Size Doesn’t Matter! [Alpha Architect]

    Many factor investors are familiar with small-cap value investing, which is a reasonable allocation for long-term investors who can tolerate a lot of volatility. Why are there so many small-cap value investors? Small-cap value investors have been told that the value premium is higher, on average, in small stocks versus larger stocks. Unfortunately, this is not true if you are a long-only
  • Exploratory Data Analysis of Fundamental Factors [Quant Rocket]

    When researching fundamental factors, analyzing alpha shouldn't be your first step. You can save time and spot issues early by starting with a basic exploration of your factor's distribution and statistical properties, a process known as exploratory data analysis (EDA). This post looks at operating margin, a profitability ratio, to demonstrate what you can learn from exploratory data
  • Linking Impact in Divergence Attribution II [Quant Dare]

    In my post Linking Impact in Divergence Attribution I explained the need to use linking algorithms in order to aggregate single-period returns. I ended my exposition by setting out the formula for adjusted returns using Andrew Frongellos algorithms (arguably the ones with best qualities in the industry). If you found this final expression of Frongello-adjusted attribution factors quite nasty,

Quantocracy’s Daily Wrap for 06/15/2023

This is a summary of links featured on Quantocracy on Thursday, 06/15/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Enhance your portfolio analysis framework with carbon emissions attributions [DileQuante]

    As a portfolio manager, of a mutual or dedicated fund, you have to regularly report the performance of your fund on a specific time frame (monthly, quarterly, yearly, etc.). One of the common tools is the performance attribution analysis, which is a framework that allows to isolate the effect between allocation and selection processes. Several methods can be used (Brinson, Top-Down, Geometric,

Quantocracy’s Daily Wrap for 06/12/2023

This is a summary of links featured on Quantocracy on Monday, 06/12/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Industry classification and the role it plays in momentum strategies [Alpha Architect]

    Momentum strategies have been popular since the original Jagadeesh and Titman article was published in 1993. Variations on the strategies have employed calculating momentum on an individual and industry basis. For instance, in a 1999 study, Moskowitz and Grinblatt produced a positive and significant excess return from a long/short strategy buying the top three winning industries and selling
  • Did COVID ruin Opex week? [Quantifiable Edges]

    This week is options expiration week. And we have known for a long time that opex is often a bullish week for the market. Interestingly, that seasonal tendency has not seemed to hold true since the COVID crash in 2020. Below is a look at performance of all opex weeks since 1984. Opex week performance has floundered since 2020 There has been a clear shift in the curve over the last few years. The
  • Diversification versus Hedging II [Finominal]

    Ideally diversifying funds are uncorrelated and generate positive returns However, identifying such funds is more challenging than expected Creating a diversified portfolio requires thoughtful fund and asset class selection INTRODUCTION In our last research note (read Diversification versus Hedging), we explored creating a diversification strategy by selecting funds that exhibit negative downside
  • How do AI exposures impact future stock returns? [Alpha Architect]

    In this article we examine the research about how artificial intelligence influences stock returns by analyzing a measurement of firm-level AI exposures called Alness. AI Narrative and Stock Mispricing Arka Bandyopadhyay, Dat Mai, Kuntara Pukthuanthong SSRN, Working Paper A recent version of the paper can be found here Want to read our summaries of academic finance papers? Check out our Academic

Quantocracy’s Daily Wrap for 06/09/2023

This is a summary of links featured on Quantocracy on Friday, 06/09/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 06/07/2023

This is a summary of links featured on Quantocracy on Wednesday, 06/07/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Efficiency Ratio and Mean Reversion [Alvarez Quant Trading]

    While reading the January 2023 issue of Technical Analysis of Stocks & Commodities, I came across an article about Efficiency Ratio (ER) by Perry Kaufman. In the article, he discusses using ER to decide when to trade mean reversion strategy vs a trend following one. My curiosity on this was could I use the ER to filter trades in my mean reversion strategies. Efficiency Ratio ER is calculated

Quantocracy’s Daily Wrap for 06/06/2023

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

  • Active Reading with ChatGPT: Systematic Investing in Credit [Gautier Marti]

    Yet another experiment with ChatGPT-4: Active reading a semi-technical book. Chapter 1 Can a Combination of Treasuries and Equities Replace Credit in a Portfolio? What is the size of the corporate bond market? As of my knowledge cutoff in September 2021, I dont have the most recent data on the size of the corporate bond market. However, as a reference, the Securities Industry and Financial
  • Finding (latent) trading factors [SR SV]

    Financial markets are looking at a growing and broadening range of correlated time series for the operation of trading strategies. This increases the importance of latent factor models, i.e., methods that condense high-dimensional datasets into a low-dimensional group of factors that retain most of their underlying relevant information. There are two principal approaches to finding such factors.
  • Diversification versus Hedging [Finominal]

    Hedging and diversifying strategies have different objectives Downside betas can be used to differentiate these Alternative strategies have overtaken bonds as the most diversifying strategies INTRODUCTION In investing, some terms are used interchangeably, despite these having quite different technical interpretations. For example, most investors put stocks with strong sales growth, strong

Quantocracy’s Daily Wrap for 06/02/2023

This is a summary of links featured on Quantocracy on Friday, 06/02/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • In-Sample vs. Out-Of-Sample Analysis of Trading Strategies [Quantpedia]

    Science has been in a replication crisis for more than a decade. Researchers have discovered, over and over, that lots of findings in fields like psychology, sociology, medicine, and economics dont hold up when other researchers try to replicate them. There are many interesting questions of philosophy of science, for example: Is the problem just that we test for statistical
  • Negative Screening and the Sin Premium [Alpha Architect]

    Negative exclusionary screening refers to an investment strategy in which socially controversial firms in particular sectors are excluded from the portfolio. The Global Sustainable Investment Review reports that, in 2020, more than $15 trillion (43% of total sustainable investments) were invested using negative screening. The most common negative screen employed is excluding sin stocks, a

Quantocracy’s Daily Wrap for 05/30/2023

This is a summary of links featured on Quantocracy on Tuesday, 05/30/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Our Take on “The Single Greatest Predictor of Future Stock Market Returns” [Allocate Smartly]

    Readers have asked for our take on the single greatest predictor of future stock market returns, aka the Aggregate Investor Allocation to Equities. This indicator was first shared by Philosophical Economics back in 2013, and recently resurrected by Portfolio Optimizer (two excellent sites you should be following). A very brief primer: The Aggregate Investor Allocation to Equities (AIAE)
  • Alpha Generation: Equity Generalists vs Sector Specialists [Finominal]

    Neither equity generalists nor sector specialists have generated alpha on average There is no consistency in alpha generation by either type of fund manager The most consistent alpha generators produced no alpha out-of-sample INTRODUCTION When I joined Citigroup as an analyst in their mergers & acquisitions department in 2005, my career trajectory was to either become a sector specialist or a

Quantocracy’s Daily Wrap for 05/28/2023

This is a summary of links featured on Quantocracy on Sunday, 05/28/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • An Evaluation of the Skewness Model on 22 Commodities Futures [Quantpedia]

    Skewness is one of the less-known but practical measures from statistics that can be used in trading. It is defined as a measure of the asymmetry of the probability distribution of a random variable around its mean. Financial mathematics and most quantitative models assume some kind of symmetric distribution of random variables, such as near-normal distribution, which would have zero skewness.
  • Active Reading with ChatGPT [Gautier Marti]

    Another experiment with ChatGPT-4: Active reading a semi-technical book. This book by Michael Isichenko is probably the best I have read so far in this field. Lets dive into it! You can (and should) buy this book. Chapter 1 Market Data Gautiers Prompt: The author mentions in his book that one can argue that a suitable analysis of the order book could detect the presence of a big
  • Intangible-Adjusted Profitability Factor [Alpha Architect]

    The past decade has witnessed a dramatic increase in spending on intangibles (not just research and development and advertising expenditures, but also expenses related to human capital) relative to tangible capital expenditures on plants and equipment. Given the change, it is not surprising that researchersincluding the authors of the 2020 studies Explaining the Recent Failure of Value