This is a summary of links featured on Quantocracy on Tuesday, 11/15/2016. To see our most recent links, visit the Quant Mashup. Read on readers!
Long-Short Investing Might Shorten Your Investment Lifespan [Alpha Architect]Over the past several decades, academics have identified numerous variables that seem to predict future expected returns. This has led to a proliferation of so-called factors identified in the literature, and created what John Cochrane has labeled the factor zoo. Now we we have a zoo of new factors. The Journal of Finance 2010 Presidential Address Enter the zoo at your own risk
Momentum: Letting the Cheap Get Cheaper? [Flirting with Models]As an investment strategy, momentum focuses solely on prior returns. Being valuation agnostic, however, does not mean that a momentum strategy does not have first-order valuation effects on portfolio construction. Using historical US sector data, we find that both cross-sectional and time-series momentum strategies may serve as good diversifiers to the potential risks of large structural repricing
Does Risk Parity Maximize Risk-adjusted Returns? [Markov Processes]While it is well known that risk parity strategies typically allocate more weight or apply leverage to asset classes with lower risk, it is not well understood how higher volatility affects the Sharpe ratios exhibited by the assets that get over- or under- weighted. We find that in practice the strategy increases an assets weight in periods of lower risk, which ultimately produces higher