Factor investing

Asset Pricing Models in China

27.September 2021

The CAPM model was a breakthrough for asset pricing, but the times where the market factor was most widely used are long gone. Nowadays, if we exaggerate a bit, we have as many factors as we want. Therefore, it might not be straightforward which factor model should be used. 

Hanauer et al. (2021) provide several insights into factor models. The authors postulate that the factor models should be examined in the international samples since this can be understood as a test for asset pricing models. The domestic Chinese A-shares stock market seems to be an excellent “playground” for the factors models, given the size of the Chinese stock market, but mainly because of its uniqueness. The paper compares the models (and factors) based on various methods (performance, data-driven asset pricing framework, test assets, turnovers and even transaction costs). Apart from valuable insights into the several less-known factors, the key takeaway message could be that the “US classic” Fama-French factor models perform poorly in China. The modified Fama-French six-factor model or q-factor is better, but overall, it seems that factor models designed for China, such as the model of Liu, Stambaugh and Yuan (2019), are the best.

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Introduction to Clustering Methods In Portfolio Management – Part 2

22.September 2021

October’s is coming, and we continue our short series of introductory articles about portfolio clustering methods we will soon use in our new Quantpedia Pro report. In the previous blog, we introduced three clustering methods and discussed the pros and cons of each one. Additionally, we showed a few examples of clustering, and we presented various methods for picking an optimal number of clusters.

This section demonstrates the Partitioning Around Medoids (PAM) – a centroid-based clustering method, Hierarchical Clustering, which uses machine learning and Gaussian Mixture Model based on probability distribution and applies all three methods to an investment portfolio that consists of eight liquid ETFs.

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Community Alpha of QuantConnect – Part 3: Adjusted Social Trading Factor Strategies

20.September 2021

This blog post is the continuation of series about Quantconnect’s Alpha market strategies. Part 1 is here and Part 2 can be found here. This part is related to the factor strategies notoriously known from the majority of asset classes. We continue in the examination of factor strategies built on top of social trading strategies, but in this part, the investment universe is reduced based on the insights of the last part. So, without further ado, we continue where we have left last time.

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How to Use Lexical Density of Company Filings

10.September 2021

The application of alternative data is currently a strong trend in the investment industry. We, too, analyzed few datasets in the past, be it ESG datasentiment, or company fillings. This article continues the exploration of the alt-data space. This time, we use the research paper by Joenväärä et al., which shows that lexically diverse hedge funds outperform lexically homogeneous as an inspiration for us to analyze various lexical metrics in 10-K & 10-Q reports. Once again, we show that it makes sense to transmit ideas from one research paper to completely different asset class.

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A New Return Asymmetry Investment Factor in Commodity Futures

8.September 2021

As mentioned several times, Quantpedia is a big fan of transferring ideas from one asset class to another. This article is another example; we use an idea originally tested on Chinese stocks and apply it to the commodity futures investment universe. The resultant return new asymmetry investment factor in commodities is an interesting trading strategy unrelated to other common factors and has a slightly negative correlation to the equity market and can be therefore used as an excellent diversifier in multi-asset multi-strategy portfolios.

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Find Your Crisis Hedge – Quantpedia Highlights in August 2021

6.September 2021

Hello all,

What have we accomplished in the last month?

– A new important Crisis Hedge Quantpedia Pro report
– 10 new Quantpedia Premium strategies have been added to our database
– 10 new related research papers have been included in existing Premium strategies during the last month
– Additionally, we have produced 10 new backtests written in QuantConnect code
– And finally, 12 new blog posts that you may find interesting have been published on our Quantpedia blog in the previous month

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