Financial academics have described so many equity factors that the whole universe of them is sometimes called “factor zoo”. Therefore, it is no surprise that there is a quest within an academic community to bring some order into this chaos. An interesting research paper written by Favilukis and Zhang suggests explaining a lot of equity factors with momentum anomaly. They show that very often, up to 50% of the equity factor returns can be linked to returns of momentum strategy. This link is especially prevalent in short legs of equity factors.

Authors: Favilukis, Zhang

Title: One Anomaly to Explain Them All

No doubt, the correct datasets are the key when one does some analysis in the financial markets. Nowadays, futures contracts are widely spread and popular among practitioners. However, each delivery month is connected with a different price where the price of the underlying asset should stand at a given date in the future (the expiration date). The industry standard for backtesting futures strategies is to construct one data sequence from a stream of contracts. Our short article shows the importance of choosing the correct methodology for building continuous futures contracts data series…

Dear readers,

Our work on Quantpedia also continued in September – four new Quantpedia Premium strategies have been added into our database; and four new related research papers have been included into existing Premium strategies.

Additionally, we have produced over 20 new backtests written in QuantConnect code. Therefore our database currently contains over 140 strategies with out-of-sample backtests/codes.

Also, four new blog posts you may find interesting have been published on our Quantpedia blog.

Best regards,

Radovan Vojtko
CEO & Head of Research

Two new strategies have been added:

Two new related research papers have been included into existing strategy reviews. And two short free blog posts about interesting related research papers have been published during last few weeks.

Sun Tzu onced wrote (paraphrasing) “know yourself, know your enemy, and you shall win a hundred battles without loss”. This proverb is true also in financial markets as it is always easier to prepare trading/investment strategy when you know who are other market participants and what their intentions probably are. A new academic research paper written by Robe & Roberts gives a more in-depth insight into the CFTC’s weekly “Commitments of Traders” report. The COT’s report offers a small number of trader groupings; therefore, its usefulness is very limited. However, Robe & Roberts use trader-level data that originate from the CFTC’s Large Trader Reporting System (LTRS), which allows them to create a very detailed look at the composition of agricultural futures markets.

Authors: Robe, Roberts

Title: Who Holds Positions in Agricultural Futures Markets

The United States has a special place in a global financial system. The U.S. dollar is the world’s reserve currency, and U.S. Treasuries are used as primary safe assets. Therefore, it is no surprise that the U.S. has some benefits from this arrangement. Academic research paper written by Krishnamurthy & Lustig shows that the U.S. derives a “convenience yield” from a demand of foreign investors. They consequently incur lower returns on their holdings of dollar-denominated safe assets. The FED’s conventional and unconventional monetary policy actions directly impact the supply of dollar-denominated safe assets. These decisions also affect the size of convenience yield, which causes moves in global financial markets…

Authors: Krishnamurthy, Lustig

Title: Mind the Gap in Sovereign Debt Markets: The U.S. Treasury basis and the Dollar Risk Factor