This is a summary of links featured on Quantocracy on Saturday, 06/29/2019. To see our most recent links, visit the Quant Mashup. Read on readers!
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Factor Models, Little Green Men, And Machine Learning [Alex Chinco]Economists use machine learning (ML) to study asset prices in two different ways. Approach #1: use these techniques to predict the cross-section of expected returnsi.e., to predict which stocks are most likely to have high or low future returns. e.g., see here, here, or here. Approach #2: use them to try to uncover the true asset-pricing modela.k.a., the set of priced risk
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Bad and good beta in FX strategies [SR SV]Bad beta means market exposure that is expensive to hedge. Good beta is market exposure that is cheap to hedge. Distinguishing between these is crucial for FX trading strategies. The market sensitivity of FX positions can be decomposed into a risk premium beta (bad beta) and a real rate beta (good beta). FX positions with risk premium betas are associated with a positive price of risk