Would you like to see the performance of your portfolio 100 years back in history? Do you want to analyze the risk of your strategy under 100 years of real historical scenarios? All of these, and much more, will be soon (in a few days) available for Quantpedia Pro subscribers. How? We will explain today how we can model a 100-year history of your portfolio.
The recent surge in global inflation sent shock waves across financial markets and affected the complicated relationship between stocks and bonds. Today, we would like to present you with a review of two interesting papers, which provide both a deep and easy-to-understand examination of the correlation structure of those two main asset classes. The first paper reviews specifics in various parts of the world, and the second one summarizes known information about the macroeconomic drivers of the US stock-bond correlation.
Investing has been a reliable way to compound one’s inheritance over ages known throughout human history. But different monetary and fiscal situations, especially during times of uncertainty and extreme stress, force both individuals and institutions to adjust their financial habits. A recent research paper written by Guido Baltussen, Laurens Swinkels, and Pim van Vliet analyzed large samples of data starting from the 19th century and brought unique perspectives on how various asset classes perform during “quiet, good” periods and, on the other side, economic turmoil. Research summarized very actual topics of investing during those different cycles and what inflation does to returns across equities, bonds, and cash.
Our mission here at Quantpedia is to provide both retail and institutional investors with ideas for trading strategies that are easily understandable while based on and backed by quantitative academic research. Today, we present you with the results from a study that we came across. Although it’s not quantitative, but qualitative, it has really held our interest. The paper does not provide any images or figures; it is a study made from various types of surveys with answers from professionals concluded with an attention-grabbing summary table.
Passive index funds are believed to offer low fees, nearly limitless liquidity, very low trading costs and (most of the time) they beat most active managers. Although not all of the above are accurate, there are still many arguments in favour of passive indexing. However, what is often left forgotten are avoidable travails linked to index funds. In general, after an index rebalances, traditional cap-weighted index funds buy high and sell low. Their tendency to add recent highfliers and drop unloved value stocks is what causes investors to lose. Arnott et al. (2022) target the stock selection problem around index rebalancing and propose several ideas on how to adjust index strategies in order to earn above-market returns. They present simple ways to construct an index, thanks to which it is possible to reduce both negative effects of buy-high/sell-low dynamic and the turnover costs of cap-weighted indices.
Every year, Quantpedia’s team investigates thousands of academic research papers to bring you the most promising ideas from the academic world. We read papers, identify ideas and backtest them to build our unique database. As a result, we have already identified hundreds of factors and built tools to help you orient better in the broad universe of trading strategies and systematic investment factors.
And now, we are opening the possibility to all external researchers, quants, and portfolio managers to contribute to Quantpedia.
When someone mentions a financial crisis, most people immediately think of the global financial crisis of 2007-2008. Even though this is the most significant economic crisis in recent years, there have been many more significant crisis periods in the past 100 years. This article examines the biggest crises in three asset classes: stocks, bonds, and commodities, during the past century. Additionally, we analyze the behavior of our trend-following strategy during each of the crisis periods and propose it as a hedge for the stock, bond, and/or commodity markets.
Diversification is one way of minimizing the risk of a portfolio. A well-diversified portfolio contains numerous assets from various sectors, each having a small weight so that a crash of any individual security does not hit the entire portfolio. The authors behind this paper came up with a new idea for diversifying stock portfolios. They examined new emerging asset, carbon futures.
How often do you think about the weights of the assets in your portfolio? Do you weigh your assets equally, or do you prefer value-weighting? The researchers behind a recent research paper analyzed various weighting schemes and examined their effect on factor strategy return. They studied five weighting schemes that ignore prices: equal weighting, rank weighting, z-score weighting, inverse volatility weighting, and fundamental weighting, and three price-based weighting schemes: Rank x mcap (rank-times-mcap), Z-score x mcap (z-score-times-mcap), and Integrated core.
They found that schemes that are not based on price can inflate turnover and costs. However, the weighting schemes based on price are the most practical to target multiple premiums, provide robust risk control, and decrease turnover and expenses.
Our new article investigates “rebalancing premium” or “diversification return” in cryptocurrencies which can be achieved by periodically rebalancing portfolios. We analyze whether the daily/ monthly rebalanced portfolios outperform a simple buy-and-hold portfolio of cryptocurrencies and under which conditions. Additionally, we also look at the various combinations of volatile cryptocurrency portfolios with low-risk bonds.
We’ve already analysed tens of thousands of financial research papers and identified more than 700 attractive trading systems together with hundreds of related academic papers.
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