This is a summary of links featured on Quantocracy on Monday, 04/25/2016. To see our most recent links, visit the Quant Mashup. Read on readers!
Is tactical broken? [Flirting with Models]Summary Many tactically risk-managed strategies use trend following to manage the risk of severe drawdowns, but in sideways markets, like those experienced in 2011 and 2015, trend following ends up lagging the market by buying high and selling low. As with insurance policies or static allocations to bonds, this underperformance is an implicit cost of managing risk. Underperformance in periods
How the day of the week affects stock market anomalies [Alpha Architect]This paper documents a new empirical fact. Long-short anomaly returns are strongly related to the day of the week. Anomalies for which the speculative leg is the short (long) leg experience the highest (lowest) strategy returns on Monday. The exact opposite pattern is observed on Fridays. The effects are large; Monday (Friday) alone accounts for over 100% of monthly returns for all anomalies
Measurement error bias [Eran Raviv]What is measurement error bias? Errors-in-variables, or measurement error situation happens when your right hand side variable(s); your x in a y_t = \alpha + \beta x_t + \varepsilon_t model is measured with error. If x represents the price of a liquid stock, then it is accurately measured because the trading is so frequent. But if x is a volatility, well, it is not accurately measured. We simply