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.
This paper studies the differential credit risks embedded in the cross-section of credit spreads. Using corporate bond data from 1999 to 2018, Dimensional find that credit spreads relative to those of peers – defined as bonds with the same stated credit rating – contain reliable information about future bond performance and…
This paper studies the differential credit risks embedded in the cross-section of credit spreads. Using corporate bond data from 1999 to 2018, Dimensional find that credit spreads relative to those of peers – defined as bonds with the same stated credit rating – contain reliable information about future bond performance and…
In the field of factor investing, quality is undoubtedly the equity factor with the weakest consensus. This research investigates the best way to define it. In order to capture the multi-faceted reality of the factor depicted in academia, Amundi address the quality factor through a multidimensional process by defining four…
In this paper, S&P Dow Jones Indices introduces the new S&P 500 Futures Daily Risk Control 5% Index (the Risk Control 2 Minimum Variance), which is the latest enhancement to S&P DJI’s Risk Control 1 (RC 1) and Risk Control 2 (RC 2), and a variation on our existing standard RC 2 methodology. In this new index,…
Cryptocurrencies have attracted widespread interest among private investors and even some hedge funds as a vehicle for speculation. But what’s their role in a portfolio – growth engine or diversifier? State Street explores the potential role of bitcoin in multi-asset portfolios based on their track record for diversifying…
Dimensional Fund Advisors study the performance of different investment and spending strategies for retirement. Investment strategies include wealth-focused glide paths that combine equities with short-term, high-quality fixed income. They also consider an income-focused glide path that combines a moderate equity allocation…
The SBBI Summary Edition will help investment professionals gain an understanding of major asset class returns, return calculations, and the long term impact of size, value/growth, and liquidity on returns.
Diversification return has long been supposed to represent the incremental return associated with portfolios that are regularly rebalanced compared to those that are not. In this paper, FTSE Russell tests the hypothesis that it can be correctly associated with a 'rebalancing premium' for various factor portfolios, and then…
The authors solve for the first time a longstanding puzzle of quantitative finance that has often been described as the Holy Grail of volatility modeling: build a model that jointly and exactly calibrates to the prices of S&P 500 (SPX) options, VIX futures, and VIX options.
Amundi propose a statistical methodology to quantify the financial implications of tropical cyclone-related physical risks implied by climate change. To address the sensitivity of disaster intensity to climate change, they provide a Monte Carlo methodology to generate synthetic cyclones consistent with climate scenarios of…
Valuation theory predicts that, all else equal, expected investment should be negatively related to expected returns. Dimensional Fund Advisors study the relation between expected investment and expected stock returns globally.
In the U.S. market, two popular exchange fee structures are "maker-taker" and "inverted" (also known as "taker-maker"). Maker-taker exchanges charge fees for taking liquidity and give rebates for providing liquidity, while inverted exchanges give rebates for taking liquidity and charge fees for providing liquidity.
Borrowing fees set in the securities lending market contain reliable information about the cross-section of short-term expected stock returns. Using securities lending data for 14 developed and emerging markets from 2011 to 2018, Dimensional find that stocks with high borrowing fees end to underperform their peers over the…
This Research paper is a joint effort between PIMCO and GIC, Singapore’s sovereign wealth fund. GIC authors Grace Qiu Tiantian Ph.D., Ding Li, and Zhihui Yap collaborated with PIMCO’s Josh Davis, German Ramirez, and Helen Guo. The authors propose an intuitive and practical approach to building a multi-asset, regionally…
Dimensional Fund Advisors study the relation between U.S. inflation and the performance of global asset classes (including bonds, stocks, industry portfolios, factor premiums, commodities, and REITs), both over a long sample period (1927–2020) and over the most recent 30 years (1991–2020). They find that most assets had…
This study, 'Benefits of Open Architecture and Multi-Management in Real Estate Markets – Evidence from French Nonlisted Investment Trusts', reviews the risk and return characteristics of Sociétés Civiles de Placement Immobilier (SCPIs), a form of French non-listed real estate funds, to assess whether modern investment…
Investors have sought to add real estate to their multi-asset portfolios due to the lower volatility, higher component of total return from income, diversification and tangible nature associated with real estate relative to other assets generally. This paper examines real estate investing, not just from whether it is…
People learn from experience and extrapolate from the relevant past to predict the future. Data-driven regression models do the same thing. To know why, we need to shift our perspective on data. The authors describe a new statistical concept called relevance from a conceptual and mathematical perspective, and based on their…
As readers of Alpha Architect’s blog, you’re certainly familiar with factor investing. Factors are quantifiable firm characteristics that explain cross-sectional stock returns. While some factors merely explain risk (e.g., industry), others are also associated with positive expected returns (e.g., value, momentum). This…
