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.
Common wisdom among academics and investors has it that factors are best harvested using both long and short positions. But Robeco’s empirical analysis challenges this assertion.
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Most added value comes from the long legs of equity factor strategies
The S&P Persistence Scorecard attempts to distinguish a manager’s luck from skill. One key measure of successful active management lies in the ability of a manager to outperform his peers consistently. This report’s results show that, irrespective of asset class or style focus, few fund managers consistently outperformed…
Robust optimization considers uncertainty in inputs to address the shortcomings of mean-variance optimization. This paper investigates the mechanisms by which robust optimization achieves its goal and give practical guidance regarding its parametrization. It shows that quadratic uncertainty sets are preferred to box…
Fixed income investing has undergone a sea change in the past decade. By tossing out some active management orthodoxies and embracing new technologies and quantitative techniques, the authors of this paper believe that some managers are better equipped to capture unique insights and excess returns for their clients. Several…
Fixed income investing has undergone a sea change in the past decade. By tossing out some active management orthodoxies and embracing new technologies and quantitative techniques, the authors of this paper believe that some managers are better equipped to capture unique insights and excess returns for their clients. Several…
This paper by Verus Investments analyzes some practical examples of the capital allocation process through the lens of a framework that aligns the components of the capital allocation process with the return objective. It shows how it can provide a feedback loop for stakeholders to allow them to monitor the status of their…
Price momentum is used by many quantitative investors as a predictor of future returns. Fundamental investors may also use price momentum, either explicitly or implicitly, to construct portfolios. The concept of price momentum is based on empirical evidence that securities with improving returns tend to generate positive…
A paper by Robeco researchers questions the investability of factor indices (Blitz and Marchesini, 2019). The paper shows that trades to replicate some factor indices would generate more volume than is available on markets. It also argues that transparent rebalancing leads to price distortions. It concludes that there are…
This paper tries to forecast exchange rates by comparing forecasting methods that take into account cointegration and methods that do not. The first finding is that taking into account cointegration provides better forecasting results. Furthermore, the factor model with cointegration provides the smallest forecasting errors…
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.
Winner of Financial Analysts Journal Graham and Dodd Awards of Excellence, Top Award 2019.
Unlike standard factors, such as value, momentum, and size, “quality” lacks a commonly accepted definition. Practitioners, however, are increasingly gravitating to this style factor. They define quality to be various signals or…
Capitalization weighting, equal weighting and inverse market-capitalization weighting schemes are special cases of a more general class of factor tilt indexes that embed specific and explicit levels of size exposure. This is of direct relevance to the continuing debate regarding the performance outcomes of diversified …
Using a large sample of institutional investors’ investments in private equity funds raised between 1991 and 2011, we estimate the extent to which investors’ skill affects their returns. Bootstrap analyses show that the variance of actual performance ishigher than would be expected by chance, suggesting that some investors…
The simple idea that motivates most of this book is that central banks make a significant, indeed at times essential, contribution to the fiscal space of the sovereign. This is because the ability to issue monetary liabilities, especially currency, is a source of profits to the central bank. This is the case for two reasons…
In this short note, the authors briefly introduce “risk” (for those readers unfamiliar with the concept and how it is defined); show conceptually how they are able to forecast and control it (for those concerned about risk in their portfolio and how it may be mitigated); and highlight, through a set of historic events, how…
Allocators and investors struggle with measurements of risk for illiquid asset classes, believing that standard deviation and correlation may be understated due to a lower pricing frequency (quarterly instead of daily) and possible smoothing of valuations. Statistical methods to “unsmooth” illiquid asset returns are…
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.
Fixed income investing has undergone a sea change in the past decade. By tossing out some active management orthodoxies and embracing new technologies and quantitative techniques, the authors of this paper believe that some managers are better equipped to capture unique insights and excess returns for their clients. Several…
Lynnette Ferguson and Richard Bersch of JP Morgan Asset Management's Hedge Fund and Alternative Credit Solutions Group discuss the evolution of quantitative investing and the potential for alpha generation when machine learning is applied to financial markets.
In this short note, we consider mean-variance optimized portfolios with transaction costs. We show that introducing quadratic transaction costs makes the optimization problem more difficult than using linear transaction costs. The reason lies in the specification of the budget constraint, which is no longer linear. We…
