This is a summary of links featured on Quantocracy on Monday, 07/13/2020. To see our most recent links, visit the Quant Mashup. Read on readers!
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Sixty-Forty Over the Long-Run [Two Centuries Investments]Based on many years of reviewing investor portfolios, I concluded that most end up closely resembling a 60% Stocks / 40% Bonds Allocation. Yes, many portfolios also have alternatives, nuanced sub-asset classes, individual security selection, and perhaps some tactical components. But when you look at their returns, a simple 60/40 can usually explain 99% of these more diversified allocations. (This
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Reducing Estimation Error in Mean-Variance Optimization [Alpha Architect]As a general rule, we recommend you kick your spidey senses into high gear anytime there is a geek bearing formulas (especially if they are trying to sell you something). Simple is always a nice cheap default because complexity often leads to confusion, which leans to a need to have an expert, which leads to advice fees, and so the game goes. With that disclosure out of the way, complexity is not
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Cap-Weighted Benchmarks: Good Momentum Bets? [Factor Research]After strong momentum rallies, investors frequently ask if cap-weighted benchmarks are good Momentum bets Factor exposure analysis shows this is not the case Investors should seek smart beta and long-short products if they want Momentum exposure INTRODUCTION Old myths are hard to kill. Good old myths are nearly impossible to kill. Good old myths with elements of pseudo credibility are like
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Portfolio Optimisation with MlFinLab: Theory-Implied Correlation Matrix [Hudson and Thames]Traditionally, correlation matrices have always played a large role in finance. They have been used in tasks ranging from portfolio management to risk management and are calculated based on historical empirical observations. Although they are used so frequently, these correlation matrices often have poor predictive power and prove to be unreliable estimators. Additionally, there are also