momentum - QuantPedia

Performance of Factor Strategies in India

August 31, 2023

India is a big emerging market, actually the second biggest after China. We primarily look at developed markets, mostly the U.S. and Europe, and from Emerging Markets, China at most, and we are aware that we neglect this prospective country. We would like to correct this notion and give attention to a country that is (along with China) being cited as a new potential rising superpower and already looking to take the lead of Emerging Markets (EM) countries. Today, we would like to review the paper that analyzes the performance of main equity factors (with an emphasis on the Quality factor) and is a good starting point to understand the specifics of factor investing strategies in India.

Why Naively Pursuing Premiums at the Industry and Country Levels Often Does Not Add Value

June 28, 2023

Sector/industry picking or country picking can be a profitable trading style but is usually much more challenging than it seems at first sight. Building a good trading model requires a lot of research and dedication. Unfortunately, due to the limited numbers of industries and countries, sorting them on aggregate characteristics can wash out important cross-sectional variations in the characteristics and lead to concentrated portfolios prone to noisier realized returns.

In their fresh Dimensional Fund Advisors research piece, Dong, Huang, and Medhat (2023) touch on the question of whether investors should systematically emphasize certain industries or countries to increase expected returns. Their overhead view provides new insights and sums that investors will likely be better off pursuing premiums in the larger cross-section of individual securities and maintaining broad diversification across the smaller cross-sections of industries and countries.

Factor Trends and Cycles

May 30, 2023

Bearish trends or deep corrections in international equity markets starting in 2022 and rising interest rates worldwide brought investors’ attention back to not only once-proclaimed dead factor investing. From long-run and short run, during different market cycles, different factors behave differently. What’s fortunate is that it is pretty predictable to some extent. Andrew Ang, Head of Factor Investing Strategies at BlackRock, in his Trends and Cycles of Style Factors in the 20th and 21st Centuries (2022), used Hodrick-Prescott (HP) filter and spectral analysis to investigate different models to draw some general conclusions on most-widely used factors. We will take a look at a few of quite the most interesting ones of them.

An Evaluation of the Skewness Model on 22 Commodities Futures

May 26, 2023

Skewness is one of the less-known but practical measures from statistics that can be used in trading. It is defined as a measure of the asymmetry of the probability distribution of a random variable around its mean. The goal of this analysis is to explore the commodity skewness trading strategy and perform the battery of robustness tests to see how sensitivity analysis changes overall results regarding performance, volatility, and Sharpe ratios.

Comparison of Commodity Momentum Strategy in the U.S. and Chinese Markets

May 12, 2023

The commodity momentum strategy is a crucial driving force behind Commodity Trading Advisor (CTA) strategies, as it capitalizes on the persistence of price trends in various commodity markets. By identifying and exploiting these trends, CTAs can achieve robust returns and diversification benefits. In their new paper, John Hua FAN and Xiao QIAO (February 2023) present their perspective and understanding of cross-country and cross-sector influences on the behavior of commodity momentum beyond established commodity fundamentals focusing on U.S. and China markets.

Price Momentum or Factor Momentum: What Leads What?

April 27, 2023

Continuing our research of different factor allocations and models, we will look at the evergreen momentum effect closer. Cakici, Fieberg, Metko, and Zaremba’s (January 2023) paper contributes to the never-ending debate of the chicken-or-egg problem of what comes first: Does the stock price momentum originate from the factor momentum? The study reexamined the relationship between the factor and price momentum on an extensive sample of 95 years of data from 51 countries. And what are the main takeaways? Let’s find out …

Can We Backtest Asset Allocation Trading Strategy in ChatGPT?

March 31, 2023

It’s always fun to push the boundaries of technology and see what it can do. The AI chatbots are the hot topic of current discussion in the quant blogosphere. So we have decided to test OpenAI’s ChatGPT abilities. Will we persuade it to become a data analyst for us? While we may not be there yet, it’s clear that AI language models like ChatGPT can soon revolutionize how we approach to finance and data analysis.

Evaluating Long-Term Performance of Equities, Bonds, and Commodities Relative to Strength of the US Dollar

February 10, 2023

The US dollar is the world’s primary reserve currency, is the most widely traded currency in the world (making up over 85% of all foreign exchange transactions), and is used as the benchmark currency for pricing many commodities such as oil and gold. We can say that the US dollar is the blood of the current financial system. A few months ago, we shared how to build a really long-term (nearly 100 years long) history of the USD exchange rate. Therefore, as we already have the data, we can now perform the cross-asset analysis to study the impact of the US Dollar’s strength or weakness on the performance of other asset classes, notably US equities, US treasury bonds, and commodities.

A Balanced Portfolio and Trend-Following During Different Market States

December 19, 2022

What’s the performance of a balanced portfolio during rising rates? How does it behave when inflation is high? What about a combination of these market states? And how do trend-following strategies fare in such an environment? These and even more questions we will attempt to resolve in our today’s article. We will be looking at different market cycles and how a balanced portfolio and a typical trend-following strategy perform over these different market states.

How to Paper Trade Quantpedia Backtests

November 18, 2022

Quantpedia’s mission is simple – we want to analyze and process academic research related to quant/algo trading and simplify it into a more user-friendly form to help everyone who looks for new trading strategy ideas. It also means that we are a highly focused quant-research company, not an asset manager, and we do not manage any clients’ funds or managed accounts. But sometimes, our readers contact us with a request to help them to translate strategy backtests performed in Quantconnect into paper trading or real-trading environment. The following article is a short case study that contains a few useful tips on how to do it.