Weekly Recap
Research on quant investing and trading.
Welcome to this week’s collection of links to the latest research and insights on quant investing. Below, you’ll find a curated list where each title links to the source for more information. Thank you for reading!
Bonds
New Issuance Premium as a Corporate Bond Factor (Traczyk)
The new issuance premium is shown to be a significant factor influencing European corporate bond returns.
Reaching for Duration and Leverage in the Treasury Market (Barth et al.)
Mutual funds increasingly use Treasury futures to align with benchmark durations while reallocating cash to higher-yielding assets, impacting market leverage.
Commodities
News Sentiment and Commodity Futures Investing (Vu et al.)
A long-short commodity portfolio based on weekly news sentiment delivers similar Sharpe ratios as existing anomalies and a significant alpha.
Crypto
Skewness Risk and the Cross-Section of Cryptocurrency Returns (Chen and Liu)
Cryptocurrencies with low/more negative skewness are shown to offer higher return than cryptocurrencies with high/more positive skewness.
An Improved Algorithm to Identify More Arbitrage Opportunities on Decentralized Exchanges (Zhang et al.)
The paper presents a novel algorithm that efficiently identifies more profitable arbitrage opportunities in decentralized exchanges than existing methods.
Profit Maximization In Arbitrage Loops (Zhang et al.)
The paper proposes strategies to maximize arbitrage profits on decentralized exchanges by considering token prices from centralized markets.
Derivatives
What Can CDX Options Trades Tell us About Equity Market Efficiency? (Hu and Zhong)
A “Bearish-Bullish” indicator based on CDX options is constructed and is shown to predict short-term returns on the S&P 500, in particular during crisis periods.
ESG
ESG News and Corporate Bond Pricing (Chichernea et al.)
The paper examines how negative news about environmental, social, and governance (ESG) issues increases corporate bond yields, especially for high-risk bonds.
A study of green European equity fund portfolio allocations (Sanctuary et al.)
This paper explores whether the portfolio holdings of green investment funds differ from funds which do not have explicit sustainability objectives.
High-Frequency Trading
A high-frequency trading and market-making backtesting library developed in Python and Rust.
Machine Learning and Large Language Models
A Survey of Large Language Models for Financial Applications: Progress, Prospects and Challenges (Nie et al.)
This is a very extensive survey paper on large language models and finance applications, covering for example sentiment analysis, forecasting, review of datasets, and more.
News Déjà Vu: Connecting Past and Present with Semantic Search (Franklin et al.)
The paper presents a tool that uses advanced language models to find historical news articles similar to modern news articles, aiding contextual analysis.
Alpha2: Discovering Logical Formulaic Alphas using Deep Reinforcement Learning (Xu et al.)
The paper presents a novel method using deep reinforcement learning to efficiently discover varied and successful trading signals.
News
Learning from news, information flow, and financial markets (Bernales et al.)
The authors explore how excessive news overwhelms investors' cognitive capacity, leading to increased market risk premiums.
Portfolio Construction
Dynamic Asset Allocation with Asset-Specific Regime Forecasts (Shu et al.)
The paper introduces a framework using machine learning to improve asset allocation by predicting market regimes specific to individual assets.
Should Your Stock Portfolio Consider Your Career? (Straehl et al.)
The authors argue that accounting for non-tradable wealth in investors’ portfolio optimization problems significantly enhances risk-adjusted returns by reducing idiosyncratic risks.
Blogs and Podcasts
The AI Hype within Investing... a Step Too Far? ft. Rob Carver (Top Traders Unplugged)
Trend Following...Austrian Style ft. Michael Neubauer & Joseph Waldstein from SMN (Top Traders Unplugged)
The Benefits of a Simple Investment Approach with Rick Ferri (Excess Returns)
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