Welcome to another edition of the weekly roundup of the latest research on investing! Below, you’ll find a carefully curated list of highlights, with each title linking directly to its source for further reading.
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Bonds
Short Interest in Bonds and Aggregate Stock Returns (Duong, Gorbenko, Kalev, and Tian)
This paper constructs an aggregate measure of short interest in corporate bonds and finds it to be a strong predictor of future aggregate stock market returns. It outperforms other predictors, including short interest in stocks.
Bond Total Return Swaps - Theory, Pricing & Practice (Burgess)
This is a presentation on total return swaps for bonds, explaining the fundamentals regarding contract specifications, theory, and pricing.
The Expected Return of Bonds (Estrada)
This study examines how well a bond's initial yield predicts its future returns over various periods. Using theoretical examples and empirical data, it finds that the initial yield is generally a good proxy of future bond returns, particularly over horizons of 10 to 15 years.
Climate and ESG
Cross Asset Climate Betas (Bertrand, Coqueret, McLoughlin, and Mesnard)
The study examines climate risk exposure across asset classes, finding equities and commodities generally more sensitive than bonds. Optimizing portfolios for climate robustness improves performance during stress periods but increases tracking error and volatility.
Sustainable Investing in Theory and Practice: The Ultimate Solution (Puttonen)
Sustainable investing has grown but faces challenges, such as the debatable performance benefits and inconsistencies in ESG ratings. Rather than negative screening and disengaging from brown firms, the author suggests a new approach in which investors engage with brown firms and assist them in becoming sustainable.
Commodities
Intra-day Seasonality and Abnormal Returns in the Brent Crude Oil Futures Market (Ewald, Haugom, Ouyang, Smith-Meyer, and Stordal)
Brent crude oil futures prices exhibit statistically significant intra-day patterns. These patterns can be exploited through various strategies and generate meaningful returns, even after accounting for transaction costs.
A Tale of Commodities and Climate-driven Disasters (Pellegrino)
Climate-driven disasters increasingly impact commodity-producing regions. A long-short strategy of going long climate-exposed commodities and short less exposed commodities yields a risk premium exceeding 1% per month.
Crypto
Algorithmic Stablecoins: Mechanisms, Risks, and Lessons from the Fall of TerraUSD (Krause)
The author analyzes the mechanisms, risks, and consequences of algorithmic stablecoins, highlighting weaknesses revealed by TerraUSD's downfall.
Equities
Banking on Industry Data: Navigating the Ebbs and Flows of the Banking Sector (Zhao and Ao)
This paper examines the drivers of bank stock returns by sorting stocks across various metrics. Strategies based on valuation and loan quality metrics exhibit superior performance.
On the Role of Trading vs. Holdings in the Performance Persistence of Institutional Investors: The Value of Regular Trading (Busse, Shen, Tong, and Zhang)
The authors study the influence of trading and holdings on institutional fund performance. Trading contributes positively to performance, especially during periods of uncertainty, while holdings often detract from performance, driving persistence in underperformance.
Do Factor Strategies Beat the Market? Sometimes Yes. Sometimes No. (McQuarrie)
Factor-based strategies like value demonstrate statistically significant outperformance in academic research using long-short portfolios over extended periods. However, the author notes that real-world long-only implementations face periodic underperformance lasting decades, challenging practical applicability despite robust statistical findings.
Economic Aggregation of Return Signals in Global Markets (Dong)
The paper studies five categories of signals: momentum, value, investment, profitability, and liquidity. Combining individual signals within each category through averaging enhances performance, increases diversification, and mitigates alpha decay, particularly in international markets.
Monetary Policy
Watching the FedWatch (Bonini, Huang, and Simaan)
The CME FedWatch Tool provides implied probabilities of future monetary-policy decisions and is found to predict FOMC rate decisions with higher accuracy than standalone Fed funds futures.
Mutual Funds
Learning from the Wisdom of Mutual Fund Managers (Tedongap and Tinang)
The authors propose a new measure, Stock Active Share (SAS), as a measure of mutual fund managers' conviction in stocks relative to benchmark weights. Using machine learning to predict future SAS values, they construct portfolios of the highest predicted SAS stocks, achieving strong risk-adjusted returns.
Portfolio Management
Portfolio Selection Based on the Herd Behavior Index (Chong, Li, and Linders)
The authors propose a portfolio optimization framework based on the Herd Behavior Index, which measures assets' comovement in a portfolio.
Low Risk, High Variability: Practical Guide for Portfolio Construction (Cirulli, De Nard, Traut, and Walker)
The paper focuses on the low-risk anomaly, where low-risk stocks tend to yield higher risk-adjusted returns than high-risk stocks. It highlights how methodological choices, volatility estimators, and transaction costs impact portfolio performance.
Blogs
Conditional short-term trend signals (Macrosynergy)
Intraday Momentum for ES and NQ (Quantitativo)
Beyond Momentum: Testing New Crypto Trading Strategies (QuantSeeker)
GitHub
Best-of Machine Learning with Python
ffn - Financial Functions for Python
Medium
Creating & Backtesting 16 Popular Algo-Trading Strategies with Backtrader (Alexzap)
Feature Engineering for Machine Learning (Makashir)
Time Series Analysis with statsmodels
in Python (Jones)
Developing a Profitable Pairs Trading Strategy with Python (Adithyan)
Podcasts
Building an Intelligent Alpha ETF with ChatGPT (Excess Returns)
Practical Lessons from Cliff Asness (Excess Returns)
Unraveling the Mysteries of Modern Monetary Theory with Warren Mosler (ReSolve Asset Management)
Crafting the Perfect Investment Portfolio in 2025 ft. Alan Dunne (Top Traders Unplugged)
Last Week’s Most Popular Links
Follow the Leader: Enhancing Systematic Trend-Following Using Network Momentum (Li and Ferreira)
How To Profitably Trade Bitcoin’s Overnight Sessions? (Vojtko and Cyril)
pytimetk: Simplifying Time Series Analysis for Everyone
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