Quantitative Methods - Articles & White Papers

This compendium publication summarizes the offerings from the CFA Institute Research Foundation over the past year—books, literature reviews, workshop presentations, and other relevant material.

Short Put Spreads (SPS) allow investors to limit their downside risk in exchange for limiting upside returns. The strike prices of the long and short put options that comprise a SPS determine these upside and downside return limits. This paper compares the performance of static and dynamic methods for selecting strike prices…

Artificial intelligence, and in particular machine learning, can play beneficial roles within investment management, especially in applications where there is a relative abundance of data. This paper by Man AHL explores further.

Anticipating revisions in market expectations is the key to generating long-term excess returns as an investor. This process requires you to understand current expectations and why they are likely to change. A
company’s fundamental results are the primary catalyst in expectations revisions. These include drivers such…

This article presents a framework for the implementation and interpretation of machine learning model predictions applied to investment portfolios. Model predictions are decomposed into the linear, nonlinear, and interaction components, and their predictive efficacy is evaluated using these components. Using a currency…

The authors introduce a new index of the business cycle that uses the Mahalanobis distance to measure the statistical similarity of current economic conditions to past episodes of recession and robust growth. Their index has several important features that distinguish it from the Conference Board’s leading, coincident, and…

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…

Using a comprehensive dataset of Chinese corporate bond issuances, we uncover substantial evidence of issuance overpricing: the yield spread of newly issued bonds at their first secondary-market trading day is on average 5.35 bps higher than the issuance spread. This overpricing is robust across subsamples of bond issuances…

We show how to identify the portfolios that cause problems in standard mean-variance optimization (MVO) and develop an enhanced portfolio optimization (EPO) method that addresses the problems. The EPO solution encompasses existing methods such as standard MVO, reverse-MVO, a Bayesian estimator, Black-Litterman, robust…

Crowding is most likely an important factor in the deterioration of strategy performance, the increase of trading costs and the development of systemic risk. We study the imprints of crowding on both anonymous market data and a large database of metaorders from institutional investors in the U.S. equity market. We propose…

In this paper, the authors derive a formula for the expected return on a stock in terms of the risk-neutral variance of the market and the stock's excess risk-neutral variance relative to that of the average stock.

Lazard Asset Management reviews growth, value, sentiment, quality, and risk factor returns across multiple equity markets in a report that's updated on a monthly basis.

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 naïve, non-optimized portfolios tend to outperform a capitalization-weighted index over…

A correction is a short-lived loss that recovers relatively quickly. A crisis is a prolonged period of market stress with sustained losses. Given the magnitude of moves and the sizable loss in equity markets in the last two weeks, the question on everyone’s mind is: “Is this a crisis or a correction?” Dr. Kaminski revisits…

Covid-19 Series - Podcast #2 with our guests Emmanuel Terraz (Global Head of Absolute Return & Quant Equity) and Laurie Amiot (Head of Client Portfolio Management - Absolute Return and Quantitative Equity).

Value premiums, which we define as value portfolio returns in excess of market portfolio returns, are on average much lower in the second half of the July 1963-June 2019 period. But the high volatility of monthly premiums prevents us from rejecting the hypothesis that expected premiums are the same in both halves of the…

George Patterson, PhD, CFA, CFP, Managing Director and Co-Head of QMA’s Quantitative Equity team shares his accomplishments and strategic direction for QMA

In asset management, we already have a significant and growing portion of assets being managed using data-driven "quantitative" investment strategies. This should be the starting point for discussing ML in investment research. ML should be used as a tool by quantitatively driven individuals who are experts in…

Throughout the past 45 years, the crux of quantitative portfolio management has evolved through advances in three spheres: (1) domain expertise (market savvy), (2) data superiority (smart not just big), and (3) digital (econometric models). The data and digital of the 1970s and 1980s now appear rather primitive. Quantitative…

Emerging biotech is the Wild West of the public equity universe. It fits better in the venture capital world—a world in which one in ten companies is a hundred bagger and the other nine fail. However, we have in our midst, 800 publicly listed companies with no product, no revenue, and a call option-like payoff in the distant…