Professional and academic papers using quantitative methods. All of the research in this section is either about the use of quant techniques, or uses quant methodology (mathematical formulae) within the text. The most viewed quant research in this section are papers focused on alpha strategies, particularly for tactical asset allocation. A key issue for quant analysts here is the robustness and validity of the quant model. One paper refers to the risk of "pseudo-mathematics" and "financial charlatanism", when data is...
mined to conceive spurious relationships which don't survive out-of-sample. Therefore, quant papers providing a statistical framework for assessing the robustness of quantitative models (and reducing the risk of overfitting) have generated a lot of interest. Our most downloaded quant research in this section includes papers on risk estimation, performance attribution, big data and risk premia. Other popular reports and white papers cover risk factors and smart beta / scientific beta / alternative beta.
Investors have long recognized the importance of liquidity but have struggled to determine how to account for it when forming portfolios. State Street proposes that investors treat liquidity as a shadow allocation to a portfolio. If investors deploy liquidity to raise a portfolio’s expected utility beyond its original…
A new approach known as factor investing has recently emerged in investment practice, which recommends that allocation decisions be expressed in terms of risk factors, as opposed to standard asset class decompositions. While the relevance of factor investing is now widely accepted amongst sophisticated institutional…
A recent research publication develops a new business cycle forecasting technique using a metric called “Mahalanobis distance.” This measure is intuitive, is based on a straightforward set of computations, is able to identify post-war US recessions with few false positives, and, as claimed by the authors, has a reasonable…
State Street proposes a more reliable way to predict the stock-bond correlation, focusing on relevant economic variables during relevant periods in history. Despite its importance for portfolio returns, the stock-bond correlation is often predicted in an unreliable way. The most common approach is to assume that what…
This paper employs a robust portfolio sorting procedure to factor size characteristics into returns. The US size anomaly boils then down to a pure seasonal effect, fully supporting the “tax-loss-selling” hypothesis. The authors build a long-short calendar trading strategy, easily reproducible by an asset manager, being long…
This paper provides a reasonably comprehensive tour of the always dynamic and frequently opaque commodity markets, including views on (1) commodity trading strategies, (2) common mistakes, and (3) two famous debacles. The specific types of commodity trading strategies that are included are trend-following and calendar-spread…
For both quantitative and fundamental managers, alpha calibration is a critical part of the optimal portfolio construction process – but are you doing it right? Most optimization processes include an objective function with one or more terms. When multiple terms are included, managers often mix and match the scaling of the…
In this article, we explore generative models in order to build a market generator. The underlying idea is to simulate artificial multi-dimensional financial time series, whose statistical properties are the same as those observed in the financial markets. In particular, these synthetic data must preserve the first four…
In a new paper co-authored with researchers from GIC in Singapore, State Street show why mapping sequences of economic outcomes leads to a richer understanding of scenarios, probabilities and portfolio returns.
We have written several pieces on the famous small-firm or size effect, the two most important (IMHO) being our study of the interaction of size and quality and a fairly comprehensive survey of all things size. This note focuses on daily instead of the longer-horizon data studied in these other papers and, while not changing…
Sophisticated algorithmic techniques are complementing human judgement across the fund industry. Whatever the type of rebalancing that occurs in the course of a longer horizon, it probably violates the buy-and-hold assumption. In this article, we develop the methodology to predict, dissect and interpret the h-day financial…
This chapter develops a novel approach to predict post-money valuation of startups across various regions and sectors, as well as their probabilities of success. Using startup funding data and descriptions from Crunchbase over a ten-year period, we develop two models linking information such as description, region, and…
This video is focusing on the limits and benefits of alternative weighting schemes, followed by the construction of "smart" or efficient factor benchmarks. This video can be seen as a complement of Risk Premia in Equity Markets video.
EDHEC is launching a new tool based on bayesian nets for stress testing portfolio management and scenario anlysis. In this video, Riccardo Rebonato, Professor of Finance at EDHEC Business School will explain this tool is useful, which investment problems it is solving and what it is and how does it works.
The estimation of the multiplier parameter of portfolio insurance is crucial for this kind of investment strategies because it determines the risk exposure to the performance-seeking asset (PSA) at each point in time. Studies that address the estimation of the maximum multiplier of portfolio insurance strategies have been…
A 2018 Financial Times article described how commodity risk premia strategies had caused a “boom in trading volumes on exchanges” with estimates of $60 to $80 billion eventually going into these types of strategies (Meyer, 2018). With “risk premia strategies[,] investors systematically place bets based on so-called factors…
This paper has been produced as part of the "ETF, Indexing and Smart Beta Investment Strategies" Research Chair at EDHEC-Risk Institute, in partnership with Amundi. Following up on more than a decade-long research effort in the area of factor investing in equity markets, we have felt a timely need amongst asset owners and…
