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Quantocracy’s Daily Wrap for 09/25/2016

This is a summary of links featured on Quantocracy on Sunday, 09/25/2016. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Does Interest Rate Exposure Explain the Low Volatility Anomaly? [Quantpedia]

    We show that part of the outperformance of low volatility stocks can be explained by a premium for interest rate exposure. Low volatile portfolios have a positive exposure to interest rates, whereas the more volatile stocks have a negative exposure. Incorporating an interest rate premium explains part of the anomaly. Depending on the methodology chosen the reduction of unexplained excess return is
  • Intuition Behind the Bayesian LASSO [Alex Chinco]

    Imagine youve just seen Apples most recent return, r, which is Apples long-run expected return, \mu^\star, plus some random noise, \epsilon \overset{\scriptscriptstyle \mathrm{iid}}{\sim} \mathrm{N}(0, \, 1): (1) \begin{align*} r &= \mu^\star + \epsilon. \end{align*} You want to use this realized return, r, to estimate Apples long-run expected return, \mu^\star. The LASSO is a

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