Weekly Recap
Recent 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!
Backtesting
The Three Types of Backtests (Joubert et al.)
This paper discusses different forms of backtests and their pros and cons.
A discussion paper for possible approaches to building a statistically valid backtesting framework (Arakelian et al.)
The authors discuss potential considerations when setting up a backtesting framework and potential pitfalls when backtesting.
Bonds and Credit
Exploring the Relationships between Corporate Credit Spreads and Determinants (Yamashita)
This paper explores the drivers of credit spreads in the US corporate bond market and proposes a relative value trading strategy.
On the Time-Varying Relation Between Monetary Policy Uncertainty and Bond Risk Premia (Li et al.)
This paper finds significant predictability of bond returns using the monetary-policy uncertainty index developed by Baker et al. (2016).
Central Clearing and Cross-market Price Discovery in the Credit Markets (Kim and Kim)
The introduction of central clearing for CDS contracts is found to have improved market efficiency and information quality in the CDS market, having implications for bond return predictability.
Crypto
Order Flow Impact and Price Formation in Centralized Crypto Exchanges (Alexander et al.)
This paper studies the price discovery process for Bitcoin on Binance and Coinbase.
Decentralised Finance and Automated Market Making (Monga)
This PhD thesis explores the role of automated market makers, devises optimal strategies for liquidity providers and liquidity takers, and provides numerical examples using data from Uniswap v3 and Binance.
The Rise of Web3: Opportunities and Challenges (Krause)
The author explores the growth of Web3, its associated applications such as DeFi and NFTs, and opportunities and potential obstacles going forward.
Derivatives
Construction and Hedging of Equity Index Options Portfolios (Wysocki and Slepaczuk)
The study evaluates systematic strategies for trading S&P500 index options, finding that frequent hedging enhances risk-adjusted returns.
Equities
Which U.S. Stocks Generated the Highest Long-Term Returns? (Bessembinder)
The paper analyzes U.S. stocks' long-term returns, highlighting that a few stocks yielded extraordinary gains despite most having negative returns, illustrating the positive skewness found among stocks.
Semivolatility-managed portfolios (Batista da Silva and Fernandes)
Timing strategies based on downside volatility and skewness are found to improve risk-adjusted returns.
Deriving Fama and French Factors (Penman and Zhang)
This paper addresses the value, profitability, and investment factors presented in Fama and French (2015) and proposes a revised construction of the factors.
Country Risk: Determinants, Measures, and Implications - The 2024 Edition (Damodaran)
This paper provides a comprehensive discussion of country risk from the viewpoint of an equity investor, including how to measure country risk premiums and how it might affect equity valuations.
ESG
Sustainable Finance and ESG Importance: A Systematic Literature Review and Research Agenda (Zairis et al.)
This is a comprehensive survey paper on ESG-related research, including a rich reference list for further reading.
Hedge Funds and Mutual Funds
Leveraging the Fed: Monetary Policy and Hedge Fund Performance (Banegas and Iorio)
This paper studies how the performance of hedge funds depends on monetary policy and overall movements in interest rates and how it varies across hedge-fund styles.
Mutual fund performance: The model for selecting persistent winners (Mateus et al.)
The authors augment the standard Carhart (1997) model for evaluating mutual fund returns by accounting for peer effects and the fund’s performance vs. its benchmark.
Lecture notes
Course 2023-2024 in Sustainable Finance & Climate Change (Thierry Roncalli)
Extensive lecture notes on sustainable finance covering a vast range of topics such as ESG rating systems, impact investing, ESG implications for portfolio construction, climate risk measures, and much more.
Machine Learning and Large Language Models
FinDKG: Dynamic Knowledge Graphs with Large Language Models for Detecting Global Trends in Financial Markets (Li and Passino)
This paper proposes an open-source fine-tuned large language model for extracting knowledge graphs from news articles, constructs an open-source financial knowledge graph dataset, and shows that their approach can potentially be useful for thematic investing. (GitHub, website)
Large-scale Time-Varying Portfolio Optimisation using Graph Attention Networks (Korangi et al.)
This paper explores the use of graph attention networks for portfolio optimization, applied to a large cross-section of stocks, outperforming mean-variance and equal-weighted portfolios.
Deep Learning for Economists (Dell)
This paper reviews various deep learning models and their economic applications. (GitHub)
Beyond Trend Following: Deep Learning for Market Trend Prediction (Berzal and Garcia)
This paper describes the use of machine learning for predicting market trends and adapting to sudden shifts in the market, specifically advocating the use of deep learning models over traditional linear models.
This paper considers a project of predicting crypto returns using order book information from Coinbase and news sentiment from FinBERT.
Portfolio Allocation
Endowment asset allocations: insights and strategies (Arnold et al.)
This paper studies mean-variance portfolios and time variation in portfolio weights across a broad set of asset classes and hedge fund strategies.
Dual Dominance: How Harry Markowitz and William Ziemba Impacted Portfolio Management (Lleo and MacLean)
This paper reviews the mean-variance approach of Markowitz and the capital growth approach of Ziemba.
Blogs
Government borrowing and short-dated government bond returns (Macrosynergy)
How to adjust regression-based trading signals for reliability (Macrosynergy)
Why is the stock-bond correlation important? (Mark Rzepczynski)
Playing with the universe (Quantitativo)
Portfolio Hedging with Put Options (Robot Wealth)
Podcasts
A Discussion With Scott Patterson's About His Book Chaos Kings, Part 1 (Nassim Taleb)
What's the Alternative? | Episode 14 | The Smoothing Effect featuring Cliff Asness (Banrion Capital Management)
Building A Hedge Fund Allocation ft. Alan Dunne (Top Traders Unplugged)
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