Quantocracy’s Daily Wrap for 09/27/2021

The shape of the US Treasury curve over the past five decades has provided investors with the opportunity to create more efficient long duration exposure than simply buying long-dated Treasuries. In this article we will show how the most efficient long duration exposure is often generated by levering a point in the middle of the Treasury curve. This technique maximizes the attractive coupons, roll

The CAPM model was a breakthrough for asset pricing, but the times where the market factor was most widely used are long gone. Nowadays, if we exaggerate a bit, we have as many factors as we want. Therefore, it might not be straightforward which factor model should be used. Hanauer et al. (2021) provide several insights into factor models. The authors postulate that the factor models should be

The authors of this paper identify aggregate supply and aggregate demand shocks for the US economy utilizing macroeconomic data on inflation, real GDP growth, core inflation, and the unemployment gap. They then go on to extract how these shocks to supply and demand impact the term structure of interest rates. This paper investigates two main research questions: Is it possible to use non-Gaussian

Options trading has increased to record highs Some data points indicate changes in the market structure However, these changes are likely temporary rather than structural INTRODUCTION During the 1954 recession in the U.S., Sir John Templeton wrote to his clients that this time its different are the four most dangerous words in investing. A pedantic reader might comment that its

A mainstay of academic research into the market is the Random Walk Hypothesis (RWH). This is the idea that market moves are random and follow a normal distribution that can be easily described using a concept borrowed from physics called Brownian Motion. This makes the market mathematics manageable, but is it true? Is the market really random? If it is, then theres little point to trying to