In recent times, we have observed heightened volatility across financial markets. Concerns surrounding government shutdowns, as well as the uncertainty they create, do little to calm these fluctuations. Rather than being purely disruptive, however, such events raise an intriguing question: could these episodes of political and economic uncertainty actually be leveraged to our advantage in investment strategies? In this article, we will examine several asset classes and attempt to assess whether this phenomenon provides a sufficiently relevant signal for investment decisions.

Over the past seven decades, U.S. equity-market volatility has roughly doubled—from about 10% to 20%—and this increase is concentrated at the market level and at high frequencies (daily volatility up by ~130%, weekly by ~75%, monthly by ~40%). A new paper by Lars Lochstoer and Tyler Muir argues that this structural change is not driven by macroeconomic fundamentals or firm-level shocks but by the dramatic growth of index-level trading (futures, ETFs, index mutual funds, and extended trading hours). Using statistical investigations—the 1997 introduction of E‑mini S&P 500 futures and historical NYSE trading‑hour changes—the authors provide causal evidence that easier and larger trading of the market portfolio has raised aggregate volatility through higher trading volume and a shift toward systematic demand shocks.

Hello all,

What have we accomplished in the last month?

– Expanded Correlation Analysis report
– 6th Episode of QuantBeats video series – this time with Sid Ghatak from Increase Alpha
– Quantmatix & Quantpedia cooperation, which gives you a 25% discount on Quantmatix products
– 13 new Quantpedia Premium strategies have been added to our database
– 4 new related research papers have been included in the existing Premium strategies during the last month
– Additionally, we have produced 7 new backtests written in QuantConnect code
– 4 new blog posts that you may find interesting have been published on our Quantpedia blog in the previous month

Investors are increasingly exploring alternative indicators to gain an edge in financial markets. Traditional signals, such as earnings reports or macroeconomic data, often come with delays or may already be priced in. As a result, unconventional metrics have attracted attention. In this article, we examine the Producer Price Index (PPI) for the Corrugated and Solid Fiber Box Manufacturing industry, including corrugated boxes and pallets. Our motivation is to evaluate this index’s effectiveness as a predictive signal for the S&P 500 ETF, sector-specific ETFs, and individual stocks such as Amazon (AMZN), one of the largest consumers of materials tracked by this index. We present several investment strategies that incorporate this indicator and assess whether it can enhance risk-adjusted returns.

Prediction markets are financial platforms where participants trade contracts linked to future events, with prices reflecting collective probabilities. While these markets efficiently aggregate information, systematic inefficiencies create trading opportunities. Notable strategies include inter- and intra-market arbitrage, exploiting price differences across platforms or mispricing within a single market. Behavioral biases, such as the longshot bias, lead traders to overvalue underdogs and undervalue favorites, while bookmakers may manipulate odds to mislead naive participants. Experienced traders can exploit these patterns to secure profits. This article reviews common systematic edges in prediction markets, illustrates their practical application, and highlights the potential for profitable trading.

In this article, we explore whether it makes sense to incorporate leveraged ETFs into static and dynamic long-only asset allocation strategies. Leveraged ETFs promise amplified exposure to the underlying asset, offering the potential for significantly higher returns during favorable market conditions. However, this comes at the cost of much higher volatility, path-dependency, and the well-known issue of volatility decay, which can lead to substantial underperformance over longer periods. Our objective is to examine if — and how — leveraged ETFs can be systematically integrated into portfolio construction so that their benefits can be captured while mitigating their inherent risks.