Quantocracy’s Daily Wrap for 02/11/2024

Every time we trade, we incur a cost. We pay a commission to the exchange or broker, we cross spreads, and we might even have market impact to contend with. A common issue in quant trading is to find an edge, only to discover that if you executed it naively, youd get killed with costs. In this article, Ill show you an example of using a simple heuristic that helps you do an optimal amount of

Fund managers report their holdings every month. They dont want to tell investors that they lost money the latest meme stock. So they will sell the meme stocks and buy higher quality assets, like bonds. We might be able to take advantage of this month-end flow effect by buying bonds toward the end of the month and selling them at the beginning. The month-end flow effect is one of many

Backtesting of macro trading strategies requires good approximate profit-and-loss data for standard derivatives positions, particularly in equity, foreign exchange, and rates markets. Practical calculation methods of generic proxy returns not only deliver valid strategy targets but are also the basis of volatility adjustments of trading factors and for calculating nominal and real carry of

In our book The Incredible Shrinking Alpha, Andrew Berkin and I presented the evidence demonstrating that the markets have become more efficient over time, making it more difficult to outperform the market on a risk-adjusted basis. Market efficiency explains the lack of persistent outperformance of actively managed funds beyond the randomly expected. Among the reasons we cited for the shrinking

A Changing Stock-Bond Correlation: Explaining Short-term Fluctuations Garth Flannery (BlueCove) and Daniel Bergstresser (Brandeis Intl Business School) December 2023 This paper builds on a framework that uses macroeconomic drivers to explain long-term variation in the correlation between stocks and bonds. The existing work focuses on the relative volatility of growth and inflation and the