This is a summary of links recently featured on Quantocracy as of Friday, 02/07/2025. To see our most recent links, visit the Quant Mashup. Read on readers!
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How much should we get paid for skew risk? Not as much as you think! [Investment Idiocy]A bit of a theme in my posts a few years ago was my 'battle' with the 'classic' trend followers, which can perhaps be summarised as: Me: Better Sharpe! Them: Yeah, but Skew!! My final post on the subject (when I realised it as a futile battle, as we were playing on different fields – me on the field of empirical evidence, them on …. a different field) was this one, in which
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The Mathematics of Portfolio Return [Portfolio Optimizer]Whether we manage our own investment assets or choose to hire others to manage the assets on our behalf we are keen to know how well our [] portfolio of assets is performing1 and the calculation of portfolio return is the first step in [that] performance measurement process1. Now, while the matter of measuring the rate of return of [a portfolio] appears, on the surface, to be simple enough2,
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Better Backtesting [Anton Vorobets]I recently wrote a post about naive backtesting of investment risk measures1, which is usually performed in the following way: Look at some historical data samples. Optimize portfolios using different risk measures. Crown the investment risk measure with the highest cumulative performance as the best investment risk measure. The above approach is usually performed by people who introduce a
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The Low-Vol Effect in Crypto [Falkenblog]Thirty years ago, I wrote my dissertation on the low-vol effect, which was really bad timing. This was just after various anomalies highlighted in the 70s and 80s were exposed as the effects of measurement error and selection bias (the low-price effect, the January effect). The small-cap effect was perhaps the most well-known back then, but given it was initially identified as having a 20% annual
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Taming Excessive “Timing Luck” in TAA by Tranching Strategies [Allocate Smartly]Fair warning: this article is intended for advanced DIY Tactical Asset Allocation investors, i.e. nerds like us. First, a bit of background knowledge youll need to understand this discussion Background knowledge: What is timing luck? Most Tactical Asset Allocation (TAA) strategies trade just once per month. Strategy developers almost always assume trades are executed on the last