This is a summary of links featured on Quantocracy on Monday, 02/22/2021. To see our most recent links, visit the Quant Mashup. Read on readers!
-
Sparse Mean-reverting Portfolio Selection [Hudson and Thames]Buy low, sell high. One cannot find a more succinct summary of a mean-reversion trading strategy; however, single assets that show stable mean-reversion over a significant period of time such that a mean-reversion trading strategy can readily become profitable are rare to find in markets today. Even if such gems were found, celebrating the discovery of the gateway to easy money could prove
-
The R&D Premium: Is it Risk or Mispricing? [Alpha Architect]Asset pricing models are important because they help us understand which factors explain the variation of returns across diversified portfolios. However, models are not like cameras that provide a perfect picture of the world. If models were perfectly correct, they would be laws, like we have in physics. Instead, models are engines that advance our understanding of how markets work, and prices are
-
Understanding the disposition effect [SR SV]Investors have a tendency to sell assets that have earned them positive returns and are reluctant to let go of those that have brought them losses. This behavioural bias is called disposition effect and is attributed to loss aversion and regret avoidance. It has been widely documented by empirical research. The prevalence of the disposition effect is a key motivation behind trend following