Quantocracy’s Daily Wrap for 03/24/2016

Not sure why is that, but traditionally we consider 60% stocks and 40% bonds to be a good portfolio mix. One which strikes decent balance between risk and return. I dont want to blubber here about the notion of risk. However, I do note that I feel uncomfortable interchanging risk with volatility as we most often do. I am not unhappy with volatility, I am unhappy with realized loss, that is

If you've been a regular reader of our blog, you already know that we recently published our first book Adaptive Asset Allocation: Dynamic Portfolios to Profit in Good Times – and Bad. As of this writing, it still stands as the #1 new release in Amazon's Business Finance category. We're pretty psyched about that. In our book, we spent a great deal of time summarizing the research

Adjusted stock prices are the foundation for time-series analysis of equity markets. Good analysts insist on properly-adjusted stock data. But the best analysts understand the adjustment process from first principles. This is Quandl's guide to the creation and maintenance of accurate adjusted historical stock prices. Introduction Adjustment Principles 1.Cash Dividends 2.Stock Dividends

In previous discussions of Bayesian Inference we introduced Bayesian Statistics and considered how to infer a binomial proportion using the concept of conjugate priors. We discussed the fact that not all models can make use of conjugate priors and thus calculation of the posterior distribution would need to be approximated numerically. In this article we introduce the main family of algorithms,

Obsession with short-term performance against market cap benchmarks preordains the dysfunctionality of asset markets. The problems start when trustees hire fund managers to outperform benchmark indexes subject to limits on annual divergence Benchmarking causes, first, the inversion of the relationship between risk and return so that high volatile securities and asset classes offer lower returns

If you've been a regular reader of our blog, you already know that we recently published our first book Adaptive Asset Allocation: Dynamic Portfolios to Profit in Good Times – and Bad. As of this writing, it still stands as the #1 new release in Amazon's Business Finance category. We're pretty psyched about that. This has been – and continues to be – a very interesting experience.

The value and momentum factors have earned high praise in recent years as complementary sources of risk premia for designing and managing equity portfolios. AQRs widely cited paper Value and Momentum Everywhere a few years back helped popularize the idea, pointing to applications in equities and beyond. Theres no shortage of support from the wider world of investment management.

In the introductory text for Part I of their 2016 book, Adaptive Asset Allocation: Dynamic Global Porfolios to Profit in Good Times and Bad, Adam Butler, Michael Philbrick and Rodrigo Gordillo state: we have come to stand for something square and real, a true Iron Law of Wealth Management: We would rather lose half our clients during a raging bull market than half of our clients money

"Smart beta" investing is an alternative to the traditional active and passive approaches to funds management, whereby investors adopt a systematic method that provides exposure to factors that are argued to be related with expected returns at low cost. Therefore, the question of how smart is smart beta investing can be empirically examined by testing the performance of those factors

The practitioner Black-Scholes delta for hedging options is a delta calculated from the Black-Scholes-Merton model (or one of its extensions) with the volatility parameter set equal to the implied volatility. As has been pointed out by a number of researchers, this delta does not minimize the variance of changes in the value of a traders position. This is because there is a non-zero

Justin spoke at the Investing in Smart Beta conference this week in Fort Lauderdale, FL. He spoke alongside Research Affiliates in a session titled "The Smart Beta Checklist: Choosing The Best Strategy & Risk/Return Profile For Your Portfolio." Here's a quick description: Depending on market conditions and clients objectives, an array of disparate smart beta strategies can