Blog - QuantPedia

How to Build Mean Reversion Strategies in Currencies

October 25, 2024

Our article explores a simple mean reversion trading strategy applied to FX futures, focusing on identifying undervalued and overvalued currencies to generate returns. Using FX futures rather than spot rates allows for the inclusion of interest rate differentials, simplifying the analysis. The strategy employs two position-sizing methods—linear and exponential—both rebalanced monthly based on currency deviations from their mean. While the linear method offers stability, its returns are limited. In contrast, the exponential method, despite higher risk and deeper drawdowns, ultimately delivers stronger growth and better overall performance by leveraging the mean reversion tendencies of FX pairs.

Short Sellers: Informed Liquidity Suppliers

October 18, 2024

Short sellers often have a bad reputation, seen as market disruptors who profit from declining prices. Yet, they play a crucial role in making markets more efficient by identifying overvalued assets and correcting mispricings. A recent study uncovers another surprising aspect of their behavior: rather than just demanding liquidity, the most informed short sellers actually provide it. Using transaction-level data, the research shows that these traders supply liquidity, especially on news days and when trading on known anomalies, challenging the conventional view of short sellers as merely aggressive market participants.

Pre-Holiday Effect in Commodities

October 14, 2024

Our research will explore the intriguing phenomenon of the Pre-Holiday effect in commodities, particularly crude oil and gasoline. Historical data reveals a short-term price drift prior to major U.S. holidays, suggesting a trend in these markets. We hypothesize that this anomaly may be driven by increased demand for oil and its derivatives, such as gasoline, as people prepare for travel, often by car, during the holiday season. This seasonal behavior offers unique opportunities for market participants.

How to Improve ETF Sector Momentum

October 10, 2024

In this article, we explore the historical performance of sector momentum strategies and examine how their alpha has diminished over time. By analyzing the underlying causes behind this decline, we identify key factors contributing to the underperformance. Most importantly, we introduce an enhanced approach to sector momentum, demonstrating how this solution significantly improves the performance of an ETF sector momentum strategy, making it once again an effective tool for systematic investors.

Quantpedia in September 2024

October 9, 2024

Hello all,

What have we accomplished in the last month?

– A new Optimization Report
– 11 new Quantpedia Premium strategies have been added to our database
– 12 new related research papers have been included in existing Premium strategies during the last month
– Additionally, we have produced 7 new backtests written in QuantConnect code
– 5 new blog posts that you may find interesting have been published on our Quantpedia blog in the previous month

Quantpedia Premium Post – October 4th

October 8, 2024

Six new strategies have been added. Six new related research papers have been included into existing strategy reviews and one short free blog post has been published during last few weeks. Plus, two trading strategies have been backtested in QuantConnect in the previous two weeks.

Valuing Stocks With Earnings

October 1, 2024

Today, we will venture a little into the fundamental analysis corner, and we will give you a glimpse of an intriguing paper (Hillenbrand and McCarthy, 2024) that discusses the advantages of using ‘Street’ earnings over traditional GAAP earnings. The paper suggests that ‘Street’ earnings provide better valuation estimates and improved financial analysis. Is this a way how to improve the performance of the struggling equity value factor?

Quantpedia Premium Update – September 27th

September 29, 2024

Five new strategies have been added. Six new related research papers have been included into existing strategy reviews and four short free blog posts have been published during last few weeks. Plus, three trading strategies have been backtested in QuantConnect in the previous two weeks.

ETF Re-balancing and Hedge Fund Front-Running Trades

September 26, 2024

Uninformed long-term investors provide an easy target for short-term traders, and they often unscrupulously take advantage of them. But ETF investors with long investment time horizons can mitigate some of the front-running costs if they take transactional costs into account to calculate whether it is economically optimal to participate in these “market games” (exchange and broker fees + classical opportunity costs of actively participating in strategy execution). Today, we will turn our attention to the paper “ETF Rebalancing, Hedge Fund Trades, and Capital Market” from Wang, Yao, and Yelekenova to better understand complex relationship between ETFs (their investors) and hedge funds.

What Drives Crypto Asset Prices?

September 20, 2024

Cryptocurrencies are no longer just a whim of computer nerds, they are part of the mainstream finance and often accepted part of fixed allocation for an overall diversified portfolio. We will not try to predict, whether they are here to stay in the future or will be subject to failure. This is a topic that has been touched on infinitely. Our interest caught up a purely practical paper by Austin Adams, Markus Ibert, and Gordon Liao, in which the authors apply classic macro-finance principles to identify the impact of monetary policy and risk sentiment in conventional markets on crypto asset prices. So let’s explore their results …