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.
Style factors have been shown to historically deliver superior risk-adjusted returns than passive capitalization weighted indexes and more persistent performance than traditional active management, making them a compelling alternative for investors. The benefits of style factors come with the cost of cyclicality, exposing…
Factor investing has never been as popular as it is today. However, with the propagation of this type of investment approach, the equity space is becoming increasingly saturated with more and more factors that are ever more removed from academically-grounded research. This paper discusses factor definitions used in…
Crowding is a major concern for investors in alternative risk premia. By focusing on the distinct mechanics of various systematic strategies, this study introduces a framework that provides insights into the implications of crowding for subsequent strategy performance. Understanding such implications is key for strategy…
One key measure of successful active management lies in the ability of a manager or a strategy to outperform their peers repeatedly. Consistent success is the one way to differentiate a manager’s luck from skill. The S&P Persistence Scorecard shows that few funds consistently outperformed their peers; 11.4% of domestic…
Vanguard research shows that liability-hedging strategies should focus on the portions of the liability that contribute the most to risk rather than hedging all components equally. Our analysis shows that hedging long-dated liabilities is expected to mitigate surplus risk to the greatest extent possible. Strategies should…
The excess returns associated with Value and Momentum result from convergent and divergent processes, respectively. Value stocks are systematically underpriced and gradually converge on their fair value over time. Momentum stocks start out fairly valued or slightly overvalued, and go on to become more overvalued in the short…
One of the topics that is often the subject of animated discussion between passive investment management professionals and investors is the slippage between the performance displayed by smart beta indices and the performance that is obtained from replication. In this area, anecdotes and a lack of transparency often prevent a…
From small data to big data, from desktops to the cloud, and from simplistic programming to machine learning, the world has been moving at a rapid pace. This Take 15 interview will cover some of the basic terminologies and then chart a map of the AI-driven landscape. The Take 15 Series is a collection of illuminating, short…
This paper investigates various machine learning trading and portfolio optimisation models and techniques. The notebooks to this paper are Python based. By last count there are about 15 distinct trading varieties and around 100 trading strategies. Code and data are made available where appropriate. The hope is that this…
Many investors buy U.S. Treasuries to hedge equity risk. But do long Treasuries deliver the optimal risk/return trade-off? Research by PIMCO experts investigates this question by analyzing the optimal allocation of duration along the yield curve. The y find that a dynamic swap overlay strategy – positioned along the yield…
In this paper by Mellon Capital, the authors argue that the primary concern of corporate bond investors is estimating the expected excess return above Treasuries in order to justify additional risk. The option-adjusted spread of corporate bonds over Treasuries is frequently used to measure this expected excess return. They…
This paper provides an overview of S&P Dow Jones Indices’ methodology for defining the U.S. mid-cap equity universe. It outlines the so-called “mid-cap premium,” analyzing it from factor and sector perspectives. It shows that active managers have underperformed the S&P MidCap 400, historically. It highlights how mid-…
This paper presents the investment principles, design and performance of Scientific Beta's single smart factor indices that reconcile strong exposure to the desired factor tilt and high factor intensity as well as better long-term risk-adjusted performance. The offering provides investors with a robust menu of single…
The S&P GIVI (Global Intrinsic Value Index) Japan underperformed its benchmark index, the S&P Japan BMI, by 1.27% in Q2 2019.1 Since its launch in March 2012, the S&P GIVI Japan has outperformed its benchmark index by 0.41% per year, with a tracking error of 2.52%.
This paper analyses what academic research has to say on equity factors. Our objective is to understand which lessons we can learn from such research in terms of designing and evaluating factor indices. When analysing academic publications on equity factor investing, five important lessons emerge, which provide useful…
This paper reviews ten common but mistaken claims about smart beta and sheds light on the underlying issues. Many of the misconceptions debunked in this paper correspond to overgeneralisations which fail to acknowledge that the term Smart Beta covers a vast variety of strategies with potentially very different properties.…
Frequent changes in index methodology is quite a common occurrence in the smart beta industry. While it often stems from index providers’ desire to innovate, it sometimes creates inconsistencies between different product offerings across time. This paper provides concrete examples from industry practices and analyses the…
At Scientific Beta, we strongly believe that investors are unique and have different investment objectives and constraints. This is why we offer them three different defensive indices that address the needs of various investments. This paper reviews the construction of Scientific Beta’s defensive offering and shows that it…
In this research, Scientific Beta shows that achieving robust exposure to long-term rewarded factors, good diversification of unrewarded risks, and high levels of investability are key requirements for adding value with factor indices. Suitably designed smart factor indices address the shortcomings of cap-weighted indices,…
This paper focuses on the implicit sector risk taken by smart factor indices, analysing the implications for their short- and long-term risk-adjusted performance, and reviews the sector risk control options offered by Scientific Beta.
