Blog - QuantPedia

Crypto Covered Interest Parity Deviations

January 15, 2021

Bitcoin and other currencies are frequently discussed nowadays. The debate has emerged mainly because of the strong uptrend in the Bitcoin price. In this blog post, we will leave the price patters to others. We will instead present interesting novel research connected to the well known theoretical model in the fiat currencies – the Covered Interest Rate Parity (CIP). If the CIP holds, interest rates and both the spot and forward rates of two countries should be in equilibrium. Novel research of Franz and Valentin (2020) examines the CIP in BTC/USD pair. The CIP theory states that there should be no arbitrage opportunities, but how the CIP holds in such a volatile market, where individual investors/traders seem to dominate? According to research, there were significant CIP deviations in the past, but it changed with the launch of BTC/USD futures in CME and high-frequency traders’ market entry. Moreover, the second event was much more successful in the reduction of deviations.

Fiscal Stimulus Matters to Market

January 8, 2021

Fiscal stimulus measures have become a hot topic in the financial markets. However, that is not surprising, since fiscal stimulus is a crucial government method to ease the pandemic crisis’s impacts. Therefore, the investors and market are very sensitive to this topic, and they react to the fiscal stimulus and any related news very sharply. While it is intuitive that the withdraw of the stimulus measures will negatively affect the markets and markets will fall, the magnitude of these falls is unknown. Novel research by Chan-Lau and Zhao (2020), quantifies the impacts of withdrawals and it’s effects on the stock markets worldwide. The reactions are especially negative if the fiscal stimulus is withdrawn “too soon”. According to the authors, too soon is when the number of daily COVID cases is high compared to the recent past.

Quantpedia’s Research in 2020

January 5, 2021

As we have promised in our previous blog, it’s time to take a look at our Premium offering. What’s new and what we have accomplished so far?

Quantpedia Premium Update – 31st December 2020

December 31, 2020

Six new strategies have been added.

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

Senators vs Santa’s Reindeer

December 29, 2020

During the festive season, everything is more relaxed, and this week’s blog is no exception. The stock-picking abilities of animals are not the main research topic for most academics, yet the stock-picking skills, for example, of monkeys, were previously documented. To our best knowledge, the paper of Belmont et al. (2020) is the first that examines the stock-picking abilities of reindeer. Moreover, the performance of reindeer is compared to the US senators during 2020. Trading of US senators or congresspeople is particularly interesting since there are concerns about informed stock trading. Especially during the COVID pandemic, where the governments have a significant influence on the economies. The finding of the paper is that the performance of the senate is behind reindeer. However, the reindeer exhibit herding behaviour and momentum preferences. Perhaps, their abilities should be examined more deeply during a more extended period.

Large Cap Analysis

December 23, 2020

Every week, through these posts, we point to interesting academic research papers. This week´s blog is slightly different, yet no less engaging. This blog includes numerous interesting charts from more than hundred charts in the CUSTOM REPORT: U.S. LARGE INDEX by the PHILOSOPHICAL ECONOMICS using OSAM Research Database. The report consists of the visually presented analysis of the U.S. Large index. The analysis includes the composition, returns, individual stocks, sector and factor allocations, and six fundamentals. The report contains comprehensive information about the large caps in the U.S. market from 1963 to 2020 and is worthy of a look.

We wish you all Merry Christmas …

ESG and CEO Turnover

December 19, 2020

ESG scores are already well-established, and nobody doubts that the scores affect investors or companies. Investors seem to care more and more about the other aspects of the stocks and not just the profits – the human welfare, ecology or social aspects of our lives. Additionally, numerous researches point out that the the ESG scores can positively affect also the portfolios. However, the novel research by Colak et al. (2020), has examined other implications of the ESG scores: how the ESG affect the CEOs. To be more precise, how the adverse ESG events and subsequent negative media attention affects the longevity of the CEOs. The finding is that negative event significantly increase the probability of the CEO being replaced. Overall, the research paper highlights the importance of ESG scores in the corporate world.

Quantpedia Premium Update – 16th December 2020

December 17, 2020

Five new strategies have been added.

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

Trading Index (TRIN) – Formula, Calculation & Trading Strategy in Python

December 14, 2020

Short-term mean reversion trading on equity indexes is a popular trading style. Often, price-based technical indicators like RSI, CCI are used to assess if the stock market is in overbought or oversold conditions. A new research article written by Chainika Thakar and Rekhit Pachanekar explores a different indicator – TRIN, which compares the number of advancing and declining stocks to the advancing and declining volume. TRIN’s advantage is that it’s cross-sectionally based and its calculation uses not only price but also volume information. Thakar& Pachanekar’s research paper is useful for fans of indicator’s based trading strategies and offers a short introduction to TRIN’s calculation together with an example of mean-reversion market timing strategy written in a python code.

Authors: Chainika Thakar, Rekhit Pachanekar

Title: Trading Index (TRIN) – Formula, Calculation & Strategy in Python