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.
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…
Can Strategic Asset Allocations Adapt to Markets? Investors in strategic asset allocation models aren’t immune to market drawdowns. This paper shows a path for potentially changing this experience. By using variable beta strategies, portfolio managers can make their allocation models more dynamic without changing their long-…
Can Strategic Asset Allocations Adapt to Markets? Investors in strategic asset allocation models aren’t immune to market drawdowns. This paper shows a path for potentially changing this experience. By using variable beta strategies, portfolio managers can make their allocation models more dynamic without changing their long-…
Winner of Financial Analysts Journal Graham and Dodd Awards of Excellence, Top Award 2018.
Warren Buffett’s Berkshire Hathaway has realized a Sharpe ratio of 0.79 with significant alpha to traditional risk factors. The alpha became insignificant, however, when we controlled for exposure to the factors “betting…
This global, quarterly report leverages analysis from State Street Global Markets showing bond flows and holdings indicators from Q4 2018, taken from a data set that represents $10 trillion of assets. This data shows that institutional investors, far from rushing to safety in the midst of the turbulent end to 2018, are…
This global, quarterly report leverages analysis from State Street Global Markets showing bond flows and holdings indicators from Q4 2018, taken from a data set that represents $10 trillion of assets. This data shows that institutional investors, far from rushing to safety in the midst of the turbulent end to 2018, are…
Quantitative investment managers experienced significant and wide-ranging underperformance in 2018. The performance of Alternative Risk Premia (ARP) strategies, which claim to offer broad diversification across distinct economic drivers and to be lowly correlated to equity markets, was particularly poor. Because of their…
The concept of factor investing and the debate around passive and active management has emerged since the end of the 2000s and has completely changed the landscape of equity investing. Today, institutional investors structure their strategic equity allocations essentially around risk factors. Size, value, low beta, momentum…
This article develops the theory of risk budgeting portfolios, when we would like to impose weight constraints. It appears that the mathematical problem is more complex than the traditional risk budgeting problem. The formulation of the optimization program is particularly critical in order to determine the right risk…
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…
In the last five years, the financial industry has been impacted by the emergence of digitalization and machine learning. In this article, we explore two methods that have undergone rapid development in recent years: Gaussian processes and Bayesian optimization. Gaussian processes can be seen as a generalization of Gaussian…
Strategies designed to deliver steady and reliable returns have found increasing favour with investors in recent years after the financial crisis highlighted the dangers of traditional forms of investment. Since their returns tend to be less dependent on the overall direction of bond markets, absolute return fixed income…
A mechanical rebalancing strategy, such as a monthly or quarterly reallocation towards fixed portfolio weights, is an active strategy. Winning asset classes are sold and losers are bought. During crises, when markets are often trending, this can lead to substantially larger drawdowns than a buy-and-hold strategy. This paper…
This study examines the risk-adjusted performance of actively managed mutual funds vs. passively managed mutual funds between 1991 and 2018 and finds that the statistical significance of the difference in performance between the two types of funds disappears when the passively managed funds are compared to competitively…
The recent rise of populism and authoritarian politics has seen a turn from multilateralism and toward international disputes like that between the US and China. This paper uses a calibrated global macro model to assess the potential economic consequences of this conflict under explicit assumptions about monetary and fiscal…
After a turbulent year-end panic that sent the S&P/JPX JGB VIX to recent highs not seen since last summer, global sentiment seemed to improve over the first month of 2019, indicated by the S&P/JPX JGB VIX’s gradual retreat. Despite the bounces in equity and FX markets, JGBs remained stable and did not give back…
This paper has been authored by quant experts at Robeco. They examine 24 global factor premiums across the main asset classes via replication and new-sample evidence spanning more than 200 years of data. Replication yields ambiguous evidence within a unified testing framework with methods that account for p-hacking. The new-…
We evaluate Eugene Fama’s claim that stock prices do not exhibit price bubbles. Based on US industry returns 1926-2014 and international sector returns 1985-2014, we present four findings: (1) Fama is correct in that a sharp price increase of an industry portfolio does not, on average, predict unusually low returns going…
In this podcast conversation, the discussants delve into the philosophy that underpins quantitative investment, and some of the ways our evolving understanding of human behavior can lead to investment insight.
