This is a summary of links recently featured on Quantocracy as of Tuesday, 12/17/2024. To see our most recent links, visit the Quant Mashup. Read on readers!
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Is Goldman Sachs’ 3% Annual Return Forecast Based on Bad Data? [Allocate Smartly]This paper from Goldman Sachs made big headlines a couple of months back for forecasting an abysmal 3% nominal annual return for US stocks in the coming decade. For anyone who didnt read GSs analysis, the biggest contributor to that poor return was market concentration, or the market cap of the largest stocks relative to the remainder of the stock market. They provided the following
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The Finance and Economics Problem [Anton Vorobets]Getting fundamental assumptions right is essential for successful investment and risk management. The aspects that enable us to build portfolios intelligently and outperform the market are subtle nuances that are not easily accessible to most investors. If you do not believe me, check out this video Note where the legendary Jim Simons explains it. Anton VorobetsOct 22 Imagine you have knowledge of
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Estimating Long-Term Expected Returns [Alpha Architect]This paper examines various frameworks and proxies for forecasting long-term expected returns (E(R)) over periods of 10 to 20 years, focusing on out-of-sample performance and the impact of these forecasts on investment decisions. It compares models based on yield, valuation, and the combination of both to identify the most effective methods for predicting E(R). Time-Varying Drivers of Stock Prices
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Option Pricing Models and Strategies for Crude Oil Markets [Relative Value Arbitrage]Financial models and strategies are usually universal and can be applied across different asset classes. However, in some cases, they must be adapted to the unique characteristics of the underlying asset. In this post, Im going to discuss option pricing models and trading strategies in commodities, specifically in the crude oil market. Volatility Smile in the Commodity Market Paper [1]
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NLX Finance’s Hybrid Asset Allocation 60/40 [Allocate Smartly]This strategy from NLX Finance is an alternative version of a strategy weve covered previously: Dr. Keller & Keunings Hybrid Asset Allocation (HAA). It trades based on all the same rules as the original HAA with one exception: rather than allocating 100% to US stocks when risk on, it holds a 60/40 mix of US stocks and Treasuries. Strategy results from 1970 follow. We perform a much
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PJ Sutherland – Complementary Dynamics of Mean Reversion and Trend Following [Algorithmic Advantage]In the domain of quantitative finance, the juxtaposition of mean reversion and trend-following strategies constitutes a pivotal dialogue in the formulation of robust trading paradigms. Each methodology is underpinned by unique theoretical and empirical foundations, presenting distinct opportunities and inherent vulnerabilities. However, when synthesized within a cohesive portfolio framework, these
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The Ultimate Strength Index [Financial Hacker]The RSI (Relative Strength Index) is a popular indicator used in many trading systems for filters or triggers. In TASC 12/2024 John Ehlers proposed a replacement for this indicator. His USI (Ultimate Strength Index) has the advantage of symmetry the range is -1 to 1 and, especially important, less lag. So it can trigger trades earlier. Like the RSI, it enhances cycles and trends in the