Two new strategies have been added.
Two new related research papers have been included into existing strategy reviews. And two short free blog posts have been published during last few weeks.
Once upon a time, there was everybody’s favourite finance tool in a town – Capital Asset Pricing Model, which was liked and used by nearly everyone. But a few decades ago, it went out of fashion. Easier accessibility of cheap finance databases allowed a lot of researchers to dig deeper into those data. They uncovered a tremendous amount of evidence for a lot of market anomalies not consistent with CAPM. A new research paper written by Park and Wang shows that CAPM is maybe not completely useless. The rise of automated trading causes individual stocks’ returns to align more closely with the market. Intraday correlation in the equity market is rising, and so is the fraction of firms’ returns that are explained by market returns …
Authors: Park, Wang
Title: Did Trading Bots Resurrect the CAPM?
Various risk parity methodologies are a popular choice for the construction of better diversified and balanced portfolios. It is notoriously hard to predict the future performance of the majority of asset classes. Risk parity approach overcomes this shortcoming by building portfolios using only assets’ risk characteristics and correlation matrix. A new research paper written by Lohre, Rother and Schafer builds on the foundation of classical risk parity methods and presents hierarchical risk parity technique. Their method uses graph theory and machine learning to build a hierarchical structure of the investment universe. Such structure allows better division of assets into clusters with similar characteristics without relying on classical correlation analysis. These portfolios then offer better tail risk management, especially for skewed assets and style factor strategies.
Authors: Lohre, Rother and Schafer
Title: Hierarchical Risk Parity: Accounting for Tail Dependencies in Multi-Asset Multi-Factor Allocations
Two new strategies have been added.
Three new related research papers have been included into existing strategy reviews. And two short free blog posts have been published during last few weeks.
Our society teaches us, that it is good to be different. That our trading strategy must be always unique, creative and individualistic. It is boring and unprofitable to be the “average”, to do what the others do. And then, there is a research paper written by Bollen, Hutchinson and O’Brian which offers the opposite view. Their analysis explains there exist one hedge fund style where everything is the other way round – trend-following CTAs funds. Their interesting (but for some maybe controversial) paper shows that CTAs with returns that correlate more strongly with those of peers have higher performance. It appears that CTA strategy conformity is a signal of managerial skill. Now, that is an eccentric idea 🙂
Authors: Bollen, Hutchinson and O’Brian
Title: When It Pays to Follow the Crowd: Strategy Conformity and CTA Performance
Some see Bitcoin (BTC) as a payment method of the future; others see it as a speculative asset class. Despite the speculative activity connected with Bitcoin, after all, it is a currency that is different from fiat currencies like the US Dollar or Euro. If you hold fiat currency, there is an opportunity to earn a risk-free rate. But is there the same opportunity also in Bitcoin? And what are the Bitcoin’s risk-free and market rates? These are the questions we had in Quantpedia, and we invite you to join us in our thought experiment that tries to answer them …
Authors: Vojtko, Padysak
Title: What is the Bitcoin’s Risk-Free Interest Rate?
