Market timing

A Simple Approach to Market-Timing Strategy Replication

11.November 2022

In previous articles, we discussed the ideas behind portfolio replication with market factors. However, overall robustness of the results suffers significantly if the model portfolio or trading strategy we attempt to synthetize is driven by a market-timing model. We do not know the rules driving the underlying strategy we could apply ourselves beforehand. Furthermore, there is no simple mechanism of market-timing rule detection we could potentially utilize in our regression model. Hypothetically, we could include a variety of market-timing strategies into the factor universe. But since there are countless market-timing methods, covering everything is simply unrealistic. Particularly in context of historic factor universe construction. In an attempt to capture the effects of underlying timing rules, we came up with a simple approach to address this problem to a somewhat satisfactory extent.

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Stock-Bond Correlation, an In-Depth Look

19.October 2022

The recent surge in global inflation sent shock waves across financial markets and affected the complicated relationship between stocks and bonds. Today, we would like to present you with a review of two interesting papers, which provide both a deep and easy-to-understand examination of the correlation structure of those two main asset classes. The first paper reviews specifics in various parts of the world, and the second one summarizes known information about the macroeconomic drivers of the US stock-bond correlation.

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Are FOMC Announcements Really Informative?

14.October 2022

Federal Open Market Committee (FOMC) of Fed (Federal Reserve Board/System) meetings which bring announcements usually followed by press conferences are one of the most important events in the rich calendar of investors’ watch lists. They are always closely watched for possible trading opportunities and are full of volatile moves on both long and short sides in fronts of all asset classes ranging from forex, bonds, and equities to nowadays even crypto markets. In our today’s summary, we will take a closer look at some implications that those kinds of financial phenomena bring.

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Overnight Sentiment and the Intraday Return Dynamics

24.September 2022

Overnight and seasonality effects or analysis of sentiment are favorite themes in quantitative academic research. Novel and very recent research from Baoqing Gan, Vitali Alexeev, and Danny Yeung (August 2022) presents us with an opportunity to discover new findings related to both these phenomena. The main takeaway is that the accumulated sentiment from the overnight non-trading period can predict the next period’s intraday stock return.

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Automated Trading Edge Analysis

2.September 2022

Have you ever wondered if your trading asset trends or mean-reverts? Everyone involved in trading or investments daily solves the task of – What trading strategy should I apply to my assets to generate profits? As always, we at Quantpedia will try to help you a bit with this never-ending task with our new tool/report, which will be unveiled next week for all Quantpedia Pro subscribers. The following article serves as an introduction to the methodology we will use to find new trading edges for you automatically.

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Are There Intraday and Overnight Seasonality Effects in China?

26.August 2022

At the moment, there is a lot of attention surrounding overnight anomalies in various types of financial markets. While such effects have been well documented in research, especially in US equities and derivatives, there are other asset classes that are not as well addressed. A recent (2022) paper from Jiang, Luo, and Ye contributed appealing evidence in favor of validating these phenomena in the Chinese market. We highlight the finding that the market MKT factor beta premium is earned exclusively overnight and tend to reverse intraday (and in smaller potency also value HML and profitability RMW), which is the same finding as for the US equities. In contrast, the size SMB factor exhibit significantly opposite pattern: positive intraday premium and negative overnight premium (and the same for investment CMA factor).

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