Volatility effect

Quantpedia Composite Seasonality in MesoSim

13.June 2024

In one of our older posts titled ‘Case Study: Quantpedia’s Composite Seasonal / Calendar Strategy,’ we offer insights into seasonal trading strategies such as the Turn of the Month, FOMC Meeting Effect, and Option-Expiration Week Effect. These strategies, freely available in our database, are not only examined one by one, but are also combined and explored as a cohesive composite strategy. In partnership with Deltaray, using MesoSim — an options strategy simulator known for its unique flexibility and performance — we decided to explore and quantify how our Seasonal Strategy performs when applied to options trading. Our motivation is to investigate whether this strategy can be improved in terms of risk and return. We aim to systematically harvest the VRP (volatility risk premium) timing the entries using calendar strategy to avoid historically negative trading days.

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Join the Race: Quantpedia Awards 2024 Await You

26.January 2024

Two weeks ago, we promised you a surprise, and now it’s finally time to unveil what we have prepared for you :).

Our Quantpedia Awards 2024 aims to be the premier competition for all quantitative trading researchers. If you have an idea in your head about systematic/quantitative trading or investment strategy, and you would like to gain visibility on the professional scene, then submit your research paper, and you can compete for an attractive list of prizes. All info about the prizes, submission process, expert committee, and our partners are described in detail on our dedicated subpage: Quantpedia Awards 2024. But we will also give you a quick overview in this blog post.

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Time-Varying Equity Premia with a High-VIX Threshold

29.September 2023

What does one of the most popular and well-known metrics, VIX, tell us about future returns? Academic research (Bansal and Stivers, July 2023) shows that a common, intuitive 20/80 thumb rule can be applied as time-variation in the returns earned from equity-market exposure can be explained well by a simple 2-term risk-return specification, which predicts (1) much higher returns 20% of the time following after VIX exceeds a high threshold at around its 80th percentile and (2) lower excess returns following a high market sentiment. They argue that VIX and market sentiment tend to measure complementary aspects of risk: the level of risk (VIX) and the price of risk or risk appetite (sentiment), and that, thus, both terms should be accounted for when evaluating time variation in the equity market’s risk premium.

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The Seasonality of Bitcoin

13.September 2023

Seasonality effects, one of the most fascinating phenomena in the world of finance, have captured the attention of investors and researchers worldwide. Since these anomalies are often driven by factors other than general market trends, they usually don’t correlate strongly with market movements, which can help reduce the portfolio’s overall risk. Following the theme of our previous article Are There Seasonal Intraday or Overnight Anomalies in Bitcoin?, we decided to extend the data and conduct a more in-depth analysis of our earlier findings. This article explores potential seasonal patterns related to Bitcoin, focusing on whether these patterns are influenced by factors such as current market trends or the level of volatility in the market.

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Dissecting the Performance of Low Volatility Investing

28.August 2023

Low volatility investing is an appealing approach to compound wealth in the stock market for the long term. This particular factor investing style exploits the popular naive notion that lower (higher) risk must always equal lower (higher) overall returns. But in fact, this naive assumption is not true, as low-volatility investments often yield more than their high-volatility counterparts. While low-volatility investing has many advantages, it also results in some disadvantages. How to overcome them? Bernhard Breloer, Martin Kolrep, Thorsten Paarmann, and Viorel Roscovan, in their study Dissecting the Performance of Low Volatility Investing, propose a solution.

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Combining Gold, Bonds and Low Volatility Stocks

5.July 2023

Even though gold is generally a volatile asset, it is often considered a key diversifier, hedging against inflation or protecting during economic uncertainties. According to the authors (Pim van Vliet and Harald Lohre), in times of extreme macroeconomic events, including war, hyperinflation, or major economic recessions, gold investing is widely regarded as a safe haven. However, using gold as a hedge comes at the cost of lower returns. The authors explored the importance of gold in investment portfolios and its ability to reduce the risk of losses combined with bonds and stocks. Compared to many existing studies, they also consider a longer timeframe and the impact of inflation.

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