This is a summary of links featured on Quantocracy on Wednesday, 11/04/2015. To see our most recent links, visit the Quant Mashup. Read on readers!
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Using random data [Investment Idiocy]As you might expect I spend quite a lot of my time using real financial data – asset prices and returns; and returns from live and simulated trading. It may surprise you to know that I also spend time examining randomly created financial data. This post explains why. I also explain how to generate random data for various purposes using both python and excel. I'll then give you an example of
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Tactical Alpha in Theory and Practice (Part II): Principal Component Analysis [GestaltU]In Part I of this series, we explored Grinold's Fundamental Law of Active Management, and why the theory leads to misguided conclusions in the presence of asset correlations. In this article we will offer a primer on a useful tool for portfolio evaluation, Principal Component Analysis (PCA), and illustrate how PCA can help quantify the number of independent bets in a portfolio of correlated
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An interesting look at the size anomaly [Alpha Architect]Many of you are probably aware of the paper from AQR entitled, Size Matters: When you control for your junk. We loved the title so much we considered it one of our Top 5 Geeky, Yet Funny, Economic Paper Titles. Of course, great papers often go unread beyond the abstract because they are a bit dense. A solution to this is to get access to the presentation version of the paper. Typically, a
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3 Common Backtesting Traps With Easy Solutions [Capital Spectator]Backtests have become the weapon of choice for rationalizing various forms of tactical asset allocation, which has become increasingly popular as a risk-management tool since the 2008 crash. The hazards of backtestingstudying how a strategy performed in the pastare well known, which leads some folks to shun the concept entirely. But thats going too far. In some respects, every investment