How to Use Exotic Assets to Improve Your Trading Strategy

26.August 2021

As we have mentioned several times, the best course of action for a quant analyst who wants to develop a new trading strategy is to understand a well-known investment anomaly/factor fundamentally and then improve it. Quantpedia is a big fan of transferring ideas derived from academic research from one asset class to another. But that’s not the only possibility of improvement – we can try to embrace Roger Ibbotson’s theory of popularity, which states that popular assets/securities are usually overpriced compared to less-known (exotic) assets/securities. Additionally, more professional investors usually follow popular assets, and this market segment is probably significantly more efficient.

So, we went in this direction. We took a well-known commodity momentum factor strategy and investigated its performance among commodity futures that were part of the S&P GSCI respectively BCOM commodity indexes and then compared the strategy’s performance with a variant that traded only non-indexed commodity futures. As we had expected, the trading strategy using exotic assets performed significantly better.

Continue reading

Impact of US Inflation on Global Asset Returns

24.August 2021

A lot of attention is centred around inflation in the academic literature. If the inflation is low and oscillates around central banks’ targets, there is not a big fuss around it. However, when inflation gets high, it becomes a hot topic among investors.

The sharp recovery is also accompanied by high inflation, and recent coronavirus crisis recovery has become a hot topic among practitioners. But is the current period of higher inflation truly that bad? Dai and Medhat (2021) show that inflation is not as big a problem as it may seem in the long term. The authors have examined the relationship between US inflation and the performance of global assets such as stocks, bonds, commodities, REITs, factors or industry portfolios. Based on an analysis of both long-term and the most recent sample periods, the results suggest that most assets had positive real returns during high-inflation periods (and low-inflation as well).

Continue reading

Modelling the Impact of Climate Change and Policies on GDP

19.August 2021

Climate change is becoming a central topic among economists, investors, politicians and the general public as well. Scientists warn us that we have to act immediately, but it is not that simple because becoming environmentally friendly is not cheap, and we are somewhat reluctant even though we have only one Earth. Moreover, while fighting climate change might be seen as a cost for developed economies, less developed economies frequently do not have many alternatives to fossil fuels.

A captivating insight to this topic offers a paper by Alestra et al. (2020) since the research provides a model to examine climate change scenarios for GDP forecasting, considering both GDP damage caused by the climate change itself and the impact of measures aimed to mitigate the climate change. It is crucial to emphasise that climate change endangers the economy. Therefore, even though fighting climate change can negatively affect the GDP, not acting might be even worse in the long run.

Continue reading

The Best Systematic Trading Strategies in 2021: Part 1

16.August 2021

As of the first half of August, the year 2021 seems to be a phenomenal year for equities. World equities have earned more than +16%, and US equities, even more, topping +20% gains. Is there even any better strategy this year than just holding US equities? Well, yes, there are actually several of them. Are they all tied to US equities? Many of them are, but many of them are not. Some of them are not even tied to equities at all.

Note: This blog is Part 1 of a series. Part 2 is available here.

Continue reading

Community Alpha of QuantConnect – Part 2: Social Trading Factor Strategies

13.August 2021

This blog post is the continuation of series about Quantconnect’s Alpha market strategies. Part 1 can be found here. This part is related to the factor strategies notoriously known from the majority of asset classes.

Overall, the factors on alpha strategies provide insightful results that could be utilized. The results particularly point to excluding the most extreme strategies based on various past distribution’s characteristics.

Stay tuned for the 3rd and 4th part of this series, where we will explore factor meta-strategies built on top of the QuantConnect’s Alpha Market.

Continue reading

Subscribe for Newsletter

Be first to know, when we publish new content


    logo
    The Encyclopedia of Quantitative Trading Strategies

    Log in