Quantitative Methods

Quantitative Methods - Articles & White Papers

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.
  • EDHEC-Risk Institute

    Is Smart Beta just Monkey Business? Factor Exposures, Upside-Down Strategies and Rebalancing (EDHEC)

    The “Monkey portfolio” proposition is that smart beta strategies can be deployed naively, with the assurance that all such strategies will add value. EDHEC's research suggests otherwise, with many smart beta strategies having exposure to other factors. The authors warn that care is needed to avoid over-extrapolating the implications of a particular test ...

    • Professional
    • Views: 1766
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  • EDHEC-Risk Institute

    Multi-Dimensional Risk and Performance Analysis for Equity Portfolios (EDHEC)

    Multi-factor models are commonly used for risk analysis and performance attribution of equity portfolios. Equity portfolio managers are interested not only in assessing the impact of common factors, but also in understanding the impact of stock-specific attributes upon portfolio risk and performances. In this report, EDHEC-Risk Institute explores the challenge of consistent risk ...

  • AQR Capital Management

    Fact, Fiction and Momentum Investing (AQR Capital, 2014)

    Authored by Cliff Asness and others from AQR Capital, this paper examines the "myths" surrounding momentum investing, using results from a variety of academic studies. The paper aims to clarify the facts with regard to the efficacy of trend-following strategies and to document the practical value of momentum within the investment process.

  • Equity Risk Premiums: Determinants, Estimation and Implications (Damodaran, 2016)

    In this paper, Professor Aswath Damodaran examines ways of estimating equity risk premiums (ERP). He begins by considering the economic determinants of ERP, including information uncertainty, perceptions of macroeconomic risk and risk aversion by investors. This is the 9th edition of this paper. It has been produced annually since the global financial crisis of 2008.

  • A Quantitative Approach to TAA (Mebane Faber)

    This influential paper is Mebane Faber's update to his 2006 version. It incorporates new data from the period 2008-2012. The paper investigates how well the original work has held up since publication. Faber finds that overall, the models achieve equity-like returns with bond-like volatility and drawdowns, which was his original thesis in the 2006 paper. He also examines the ...

    • Quantitative
    • Views: 1002
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  • QMA (Quantitative Management Associates)

    Start of Something Big: Demystifying the Source of Large Alpha in Small Caps (QMA)

    In a world where alpha can seem scarce, active small-cap managers continue to outperform their benchmarks in an impressive way. But why? Investors have a general sense small caps are riskier and less efficient, but how these characteristics contribute to more alpha opportunities remains unclear. At QMA, we think it’s critical to understand the sources of returns so that you ...

  • CFA Institute

    Fundamentals of Efficient Factor Investing (FAJ, 2017)

    This paper appeared in CFA Institute's Financial Analysts Journal. Combining long-only-constrained factor subportfolios is generally not a mean–variance-efficient way to capture expected factor returns. For example, a combination of four fully invested factor subportfolios—low beta, small size, value, and momentum—captures less than half ...

    • Professional
    • Views: 1271
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  • EDHEC-Risk Institute

    Robustness of Smart Beta Strategies (EDHEC)

    This EDHEC paper examines the importance of robustness for smart beta strategies, explaining how a strategy being "relatively robust" differs from "absolute robustness". The authors describe how the robustness of smart beta performance can be assessed and quantified, describing various approaches, which may be used to improve the robustness of smart beta ...

    • Professional
    • Views: 1382
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  • The Divergence of High- and Low-Frequency estimation

    This paper is a collaborative effort between State Street Global Exchange and Windham Capital Management. It provides findings that are important to asset allocators looking at long-term asset allocation goals. High-frequency estimation, according to the paper, does not predict behavior reliably in the long-term, even if no sampling error is present. Investors should, when ...

  • The Trend is Our Friend: Risk Parity, Momentum and Trend Following in Global Asset Allocation (2014)

    The authors of this paper examine the effects of trend application methodologies when applied to global asset allocations amongst commodities, bonds and real estate. Trend following application offers a significant improvement, in comparison to traditional buy-and-hold portfolios, to risk-adjusted performance. It is also a method of asset allocation superior to risk parity. A ...

    • Quantitative
    • Views: 1076
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  • Eaton Vance

    Managing equity portfolio volatility by harnessing the volatility risk premium (Eaton Vance, May 2017)

    After eight years of stock market gains, many investors have tempered their return expectations and are focusing attention on how best to best achieve equity-like returns with less risk. One relatively new solution investors are exploring is the use of option-based strategies that seek to harness the Volatility Risk Premium.

  • FTSE Russell

    Factor Exposure and Portfolio Concentration (FTSE Russell, May 2017)

    Get an in-depth view of efficient multi-factor portfolio construction techniques, review the pros and cons of various approaches, and take a closer look at the benefits of tilting toward and away from single and multiple factors. An ideal read for asset owners who need a better understanding of factor tilting and want to compare outcomes for factor portfolio construction by looking ...

  • Legal & General Investment Management

    The Rise of Factor-Based Investing (LGIM)

    Factor-based investing, which seeks to identify the underlying characteristics that drive performance, has grown rapidly since the financial crisis. This is because investors are looking to go beyond asset class labels and understand the true drivers of risk and return in their portfolios.

  • Robeco

    Three ways to successfully implement factors and smart beta (Robeco, 2017)

    Smart beta, which has its roots in factor investing, is enjoying growing popularity. But investors often struggle with how best to implement these strategies. We aim to provide a clearer picture of what factor-based investing actually is and suggest three ways in which investors can implement quantitative strategies. Read also:

    • Quantitative
    • Views: 1104
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  • Invesco (Europe)

    Invesco Global Factor Investing Study 2016

    Our factor investing study explores the growth of factor investing via in-depth face-to-face interviews with chief investment officers, strategy unit executives and factor specialists at 66 leading global institutional investors, asset consultants and private banks. We spoke with investors that were leading the way when it came to factor investing as well as ‘non-users’ ...

  • Robeco

    Concerns regarding the new Fama-French 5-factor model (Robeco)

    Nobel prize laureate Eugene Fama and fellow researcher Kenneth French have revamped their famous 3-factor model by adding two new factors to analyze stock returns: Profitability and Investment. But this 5-factor model raises many questions.

    Speed read

    • The 5-factor model still ignores Momentum and Low Volatility
    • It is unlikely to lead to academic ...

    • Quantitative
    • Views: 1383
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  • EDHEC-Risk Institute

    Investor Perceptions about Smart Beta ETFs (EDHEC, 2016)

    EDHEC-Risk Institute conducted its 9th survey of European investment professionals about the usage and perceptions of ETFs at the end of 2015. The aim of this study was to analyse the usage of exchange-traded funds (ETFs) in investment management and to give a detailed account of the current perceptions and practices of European investors in ETFs. Responses were provided by 219 ...

  • QMA (Quantitative Management Associates)

    Performance Consistency in International Equities - The Advantage of an Adaptive Quantitative Approach (2016)

    QMA's paper describes how a bottom-up, quantitative investment process may be well suited to deliver consistent positive excess returns in international equity markets by focusing on two key elements of the investment process: a) a stock selection model that captures the long-term drivers of future returns via firm fundamentals, and b) the use of rankings generated by that ...

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