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 tome (authored by CFA Institute Research Foundation) examines the differences between classical finance and behavioral finance and how they can compliment each other. Whichever story investors subscribe to, the market is very complex. It contains far more securities than can be practical to analyze individually. This…
Investors are increasingly showing interest in risk premia strategies across asset classes. Carry is one of the most studied premia. To successfully execute a risk premia strategy, it is important to have a detailed understanding of how individual premia returns are affected by macroeconomic conditions.
What are the signs of equity market stress? In this paper, we offer a collection of reliable indicators to help identify the degree of market instability. These indicators provide investors with insight to capital markets that complement other conventional risk metrics (e.g., valuations, sentiment, economic).
Among other things, this 39-page issue of Risk & Reward examines how to implement a multi-factor commodity strategy. Factor investing research to date has generally focused on equities. However, based on the results of this research, factor investing in commodities appears to offer the potential to extend the asset class…
Factor index construction is currently a widely discussed topic among institutional investors and asset managers, particularly whether the construction of multi-factor indexes should be top-down or bottom-up. In this paper, FTSE Russell compares the exposure and diversification outcomes of multi-factor portfolios that use a…
What are the signs of equity market stress? In this paper, we offer a collection of reliable indicators to help identify the degree of market instability. These indicators provide investors with insight to capital markets that complement other conventional risk metrics (e.g., valuations, sentiment, economic).
Initially factor investing was primarily popular in the equity domain, but the same forces that make factor investing work for equities – investor behavior, market constraints and regulations – are also applicable to other asset classes. In this paper we present a number of client cases that illustrate different rationales…
Currency-hedged strategies attempt to eliminate the additional volatility that exchange rates impose on foreign assets. But this benefit comes with some trade-offs. Hedging currency risk has additional costs and can have tax implications. This paper starts with a brief review of the nature of currency risk. We use historic…
It has been widely observed that capitalization-weighted indexes can be beaten by surprisingly simple, systematic investment strategies. Indeed, in the U.S. stock market, equal-weighted portfolios, random-weighted portfolios, and other naive, non-optimized portfolios tend to outperform a capitalization-weighted index over…
It has been widely observed that capitalization-weighted indexes can be beaten by surprisingly simple, systematic investment strategies. Indeed, in the U.S. stock market, equal-weighted portfolios, random-weighted portfolios, and other naive, non-optimized portfolios tend to outperform a capitalization-weighted index over…
Traditional portfolio optimization processes have several well-known shortcomings. Consequently, investors often significantly constrain the optimization, resulting in little new information. One solution to overcome these limitations is a Step Optimization routine. In this paper, we will discuss how visualizing changes to…
Among other things, this 39-page issue of Risk & Reward examines how to implement a multi-factor commodity strategy. Factor investing research to date has generally focused on equities. However, based on the results of this research, factor investing in commodities appears to offer the potential to extend the asset class…
The exchange rate is an important mechanism that helps the economy adjust to external shocks. This article by the Reserve Bank of Australia examines the key determinants of the Australian dollar – the terms of trade and differences between interest rates in Australia and other advanced economies. It emphasises that ‘forward-…
Crowded trades are often associated with bubbles. If investors can locate a bubble sufficiently early they can profit from the run up in prices. But in order to profit from a bubble investors must exit the bubble before the selloff erodes all of the profits. This paper explains further.
This paper is devoted to the question of optimal portfolio construction for equity factor investing. It demonstrates how to make sure that a given equity portfolio has the targeted factor exposures, even before imposing any constraints. The authors show that such portfolios can be derived from mean-variance optimization…
This article evaluates the portfolio implications of using drawdowns in allocation decisions by examining several established and new drawdownbased approaches. The authors introduce a new drawdown-based measure, modified conditional expected drawdown (MCED), and demonstrate its attractive characteristics, suggest a robust…
Like all investors, sustainable investors juggle various motivations: improving investment performance, achieving an economic or a societal outcome, and investing in ways consistent with their values/beliefs. The challenge for sustainable investment professionals is to understand their clients’ motivations and then shape…
This paper by Axioma describes an innovative portfolio-construction workflow that takes its return expectations directly from the results of a stress test.
The S&P GIVI (Global Intrinsic Value Index) Japan outperformed its benchmark index, the S&P Japan BMI, by 2.46% in Q4 2018 and 2.48% for the entire year.1 Since its launch in March 2012, the S&P GIVI Japan has outperformed its benchmark index by 1.03% per year, with a tracking error of 2.42%. In Q4 2018, Japanese…
Over the past 100 years, equity investors have managed to generate real capital growth of about 7 percent annually. No other form of investment - whether bonds, cash, gold or real estate - offers comparable return potential. But does it still pay to invest in equities at this point in time, and what returns can investors…
