This is a summary of links featured on Quantocracy on Friday, 07/22/2022. To see our most recent links, visit the Quant Mashup. Read on readers!
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Copulas and trading strategies [SR SV]Reliance on linear correlation coefficients and joint normal distribution of returns in multi-asset trading strategies can be badly misleading. Such conventions often overestimate diversification benefits and underestimate drawdowns in times of market stress. Copulas can describe the joint distribution of multiple returns or price series more realistically. They separate the modelling of
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Relative Sentiment and Machine Learning for Tactical Asset Allocation: Out-of-Sample Results [Alpha Architect]In our last installment, we reviewed the performanceacross four regionsof a machine-learning-based Sentix relative sentiment model for tactical asset allocation. The regions included: the USA, Europe, Japan, and Asia ex-Japan (referred to as USA, EUR, JPN, and AEJ, respectively, in the charts and tables below). The SSRN paper (written in October 2019) that introduced the model showed results
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Short Sellers Are Informed Investors [Alpha Architect]Short sellers play a valuable role in keeping market prices efficient by preventing overpricing and the formation of price bubbles in financial markets. Market efficiency is important because an efficient market allocates capital efficiently. If short sellers were inhibited from expressing their views on valuations, securities prices could become overvalued and excess capital would be allocated to