This is a summary of links featured on Quantocracy on Tuesday, 06/23/2020. To see our most recent links, visit the Quant Mashup. Read on readers!
Option-Based Trend Following [Flirting with Models]The convex payoff profile of trend following strategies naturally lends itself to comparative analysis with option strategies. To isolate the two extremes of paying for whipsaw either up front or in arrears we replicate an option strategy that buys 1-month at-the-money calls and puts based on the trend signal. We find that while option premiums steadily eat away at the balance of the
No Longer Superheroes? Twilight of the Bonds [Factor Research]Bonds had superhero qualities over the last few decades The case for bonds in asset allocation is not clear when yields are low or negative Japan can be used as a roadmap for the outlook of a 60/40 portfolio in the US or Europe FIXED INCOME KRYPTONITE Faster than a speeding bullet. More powerful than a locomotive. Able to leap tall buildings in a single bound. And he can fly and shoot lasers
Can Statistics Actually Determine if Managers Have No Skill? [Alpha Architect]Whether they are selecting a manager, a factor, or a strategy, investors can make two types of mistakes. We thought we were hiring Peter Lynch, not this loser! A Type I error (or false discovery) when selecting a manager who turns out to be unskilled. That Warren Buffett guy is washed up, lets pass. A type II error (missed discovery) when not selecting or missing a manager that the investor