Robustness Testing of Country and Asset ETF Momentum Strategies

20.February 2024

The efficacy of ETF momentum strategies, while robust until around 2010, began to show signs of waning in subsequent years. This observation raises questions about the sustainability and adaptability of these strategies in varying market cycles. Central to this research is exploring how various factors/parameters—such as the ranking period, the selection quantity of assets, and the liquidity of ETFs—impact the performance of ETF momentum strategies. The aim is to uncover whether these strategies can deliver sustainable alpha in the complex and ever-evolving market landscape of the 2020s.

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Gauging Existing Technical Fundamental Features through Mutual Information

16.February 2024

Investing truly is an intense intellectual undertaking. For a Portfolio Manager (PM) to execute an investment, they must first convince themselves, then others, that the rationale behind the investment is sound. The variables they utilize in developing their rationale are of the upmost importance; These variables inevitably serve as a foundation in the evaluation of a given Asset, and therefore possess the power to influence a PM’s level of confidence in the investment. If a variable is weak, it can lead to a poor diagnosis of the asset in question, which can lead to unfavorable results on a given investment. If a variable is strong, then it will indeed provide insight into asset and therefore help paint a clear picture into the future of the asset. To be on the right side of this sword, it is imperative that portfolio managers correctly implement quantitative reasoning if not within their decision-making process, then definitely around it. This article introduces the theory of mutual information as a tool for asset managers to gauge the predictive efficiency of their selected variables.

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The Distribution of Stock Market Concentration in the U.S. Over the History

13.February 2024

More and more, a few mega-cap companies dominate the US stock market performance. Financial journals come up with different names for those stocks every few years. They are now called the “Magnificent Seven”, but we all remember FAANG, right? Naturally, several questions arise – Is the current status quo, when the stock market capitalization is highly concentrated among the few extremely large companies, an exception or rule over history? And what’s the impact of this concentration on the performance of the one particular factor – the Size premium? We present the research paper written by Emery and Koëter that tries to answer those questions. 

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Quantpedia in January 2024

9.February 2024

Hello all,

What have we accomplished in the last month?

– A new Savings Plan Analysis report
– 10% discount code for those who help us and fill out our survey
– an invitation to the webinar – ETFs Uncovered: Strategies, Data, and Innovations
– a new Quantpedia Awards 2024 competition with a $15.000 prize pool
– 11 new Quantpedia Premium strategies have been added to our database
– 12 new related research papers have been included in existing Premium strategies during the last month
– Additionally, we have produced 8 new backtests written in QuantConnect code
– 6 new blog posts that you may find interesting have been published on our Quantpedia blog in the previous month

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How to Build a Systematic Innovation Factor in Stocks

2.February 2024

The aim of this article is multifold. It aims to answer the research question: does a portfolio consisting of top innovators outperform the S&P 500 index? To address this question, a strategy of investing long in top innovators according to their ranking is developed, and its performance is compared to that of the broad-based index. Based on the common belief that higher innovativeness carries higher risk, it aims to evaluate the volatility associated with innovative stocks. Additionally, it aims to analyze the impact of sector factors on the portfolio’s performance. Finally, it conducts a comparative analysis between the portfolio’s performance and that of the ARK Innovation ETF (ARKK), which specifically focuses on investing in companies relevant to the theme of disruptive innovation.

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Improving FX Carry Strategy with Exotic Currencies and the Frontier Markets

31.January 2024

Forex markets lure retail traders into a game of “hunting pips” with high leverage and high turnover scalping strategies, in which small traders often lose more than they can afford. But there are other ways of trading currencies. The smart money knows how to exploit interest rate spreads that this asset class offers by employing the FX Carry Trade strategy. In the past decade, the low interest rates of the most developed countries made the FX Carry strategy less profitable, but as inflation returned, higher interest rates returned in some countries, too, and with them, the interest rate spreads widened. And FX Carry is back, and the question stands: Can we improve this well-known trading style?

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