This is a summary of links featured on Quantocracy on Monday, 10/23/2017. To see our most recent links, visit the Quant Mashup. Read on readers!
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Would You Invest in A Coin Flip? [Flirting with Models]For active strategies, investors often focus on the potential outperformance the strategy can create. Beyond the potential for outperformance, active strategies also introduce tracking error: extra volatility that comes from active decisions. While most view tracking error as a negative, if derived from a unique source, it can actually be a beneficial source of internal diversification within the
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Tail Risk in Term Structure Based Strategies in Commodities [Quantpedia]In this paper I document that carry trades in commodity markets are subject to potential large and infrequent losses, that is, tail risk. Also, I show that shocks to carry trades and volatility have persistent tail-specific effects which last from four to twelve weeks ahead. The main empirical results are consistent with existing theoretical models in which carry traders are subject to limited
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A Potential Winner: Buying Lottery Stocks with Low Short Interest [Alpha Architect]Kelley Bergsma & Jitendra Tayal A version of this paper can be found here Want to read our short summaries of academic finance papers? Check out our Academic Research Insight category. What are the research questions Using data from CRSP and Compustat from 1989 to 2015 the research team constructed portfolios based on lottery characteristics (example here) and analyze the impact of relative
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Factor Returns: Small vs Large Caps [Factor Research]A frequent criticism of factor investing is that factor returns are stronger in small caps Our research highlights that this is not uniformly true across factors Value and Size benefit most from including small caps INTRODUCTION Factor investing can be challenged in many ways. Nearly all of the research is based on backtesting of financial data, not on realized returns. The few factor products