Quantocracy’s Daily Wrap for 11/20/2023

The Equal Risk Contribution (ERC) portfolio seeks to maximally diversify portfolio risk by equalising the risk contribution of each component. The intuition is as follows: Imagine we have a 3-asset portfolio Assets 1 and 2 are perfectly correlated (correlation of 1.0) Asset 3 is uncorrelated with the other two (correlation of 0.0) Lets say we equal-weighted the three assets. Wed have 33% in

Its been exactly a decade since I attended my first QuantMinds event. At the time, it was called Global Derivatives, and as the name suggests, it was very much focused towards option pricing and its associated areas. It was held for a number of years in Amsterdam, at the Okura Hotel (whilst I cant remember what the burgers were like, I can safely say the sushi was excellent year), and then

Imagine youre picking from 1,000 money managers. If you test just one, theres a 5% chance you might wrongly think theyre great. But test 10, and your error chance jumps to 40%. To keep your error rate at 5%, you need to control the family-wise error rate. One method is to set higher standards for judging a managers talent, using a tougher t-statistic cut-off. Instead of the usual

Commodity futures carry is the annualized return that would arise if all prices remained unchanged. It reflects storage and funding costs, supply and demand imbalances, convenience yield, and hedging pressure. Convenience and hedging can give rise to an implicit subsidy, i.e., a non-standard risk premium, and make commodity carry a valid basis for a trading signal. An empirical analysis of carry

Causes of Deviations from a Real Earnings Yield Model of the Equity Premium Austin Murphy and Zeina N. Alsalman (Oakland University) October 2023 A market-based forecast of inflation added to equity earnings yields explains much of the variation in stock market returns over multi-year horizons. Return deviations from the prediction are found to be negatively related to the current inflation rate