This is a summary of links featured on Quantocracy on Sunday, 11/10/2024. To see our most recent links, visit the Quant Mashup. Read on readers!
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Day 16: Comps [OSM]On Day 15 we adjusted our model to use more recent data to forecast the 12-week look forward return. As before, we used that forecast to generate a trading signal that tells us to go long the SPY if the forecast is positive, and exit (or short for the long-short strategy) if otherwise. We saw this tweak generated about 10% points of cumulative outperformance and a 20% point higher Sharpe Ratio.
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Statistical Arbitrage [Quantitativo]"The holy grail of investing is to have 15 or more good, uncorrelated return streams. Ray Dalio. I find Ray Dalio's story truly inspiring. From founding Bridgewater Associates in his two-bedroom apartment and growing it into the largest hedge fund in the world to publicly sharing the principles that guided himwhat he did right and wrong throughout the yearsDalio has always
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Trading books: Let’s get real about what you actually need [Robot Wealth]People often ask me for book recommendations. But heres a better question: Whats going to help you make money today? Reading a book probably isnt the answer. Im not saying books arent useful. They absolutely are. But youre not preparing for a PhD defence youre trying to turn money into more money through trading. And that means focusing on solving real problems with the
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Rethinking Pairs Trading: Can Traditional Methods Still Deliver Returns? [Relative Value Arbitrage]Pairs trading is a market-neutral strategy that involves trading two correlated stocks or assets. The idea is to identify pairs that historically move together, and then take a long position in one and a short position in the other when they diverge, with the expectation that they will eventually revert to their mean relationship. The popularity of pairs trading has risen over the years.
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Markets Becoming More Efficient: The Disappearing Index Effect [Alpha Architect]Among the earliest challenges to the efficient markets hypothesis was the observation that stock prices react to investor demand unrelated to fundamentals. One example is the abnormal returns to additions and deletions to the S&P 500 Index. Robin Greenwood and Marco Sammon, authors of the September 2024 study The Disappearing Index Effect, examined the price impact of changes to the
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Research Review | 7 November 2024 | Market Analytics [Capital Spectator]Climate Risk and Predictability of Global Stock Market Volatility Mingtao Zhou and Yong Ma (Hunan University) March 2024 Our study investigates the informative role of climate risk in improving the predictability of global stock market volatility. By extracting the composite component from the four individual climate risk proxies of Faccini et al. (2023), we show that aggregate climate risk is a