How to estimate factor exposure, risk premia, and discount factors

The basic idea behind factor models is that a large range of assets’ returns can be explained by exposure to a small range of...

Classifying market regimes

Market regimes are clusters of persistent market conditions. They affect the relevance of investment factors and the success of trading strategies. The practical challenge...

Measuring the value-added of algorithmic trading strategies

Standard performance statistics are insufficient and potentially misleading for evaluating algorithmic trading strategies. Metrics based on prediction errors mistakenly assume that all errors matter...

Ten things investors should know about nowcasting

Nowcasting in financial markets is mainly about forecasting forthcoming data reports, particularly GDP releases. However, nowcasting models are more versatile and can be used...

Macro trends for trading models

Unlike market price trends, macroeconomic trends are hard to track in real-time. Conventional econometric models are immutable and not backtestable for algorithmic trading. That...

Machine learning for portfolio diversification

Dimension reduction methods of machine learning are suited for detecting latent factors of a broad set of asset prices. These factors can then be...

Statistical arbitrage risk premium

Any asset can use a portfolio of similar assets to hedge against its factor exposure. The factor residual risk of the hedged position is...

Classifying market states

Typically, we cannot predict a meaningful portion of daily or higher-frequency market returns. A more realistic approach is classifying the state of the market...

Real-time growth estimation with reinforcement learning

Survey data and asset prices can be combined to estimate high-frequency growth expectations. This is a specific form of nowcasting that implicitly captures all...

Nowcasting with MIDAS regressions

Nowcasting macro-financial indicators requires combining low-frequency and high-frequency time series. Mixed data sampling (MIDAS) regressions explain a low-frequency variable based on high-frequency variables and...

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Inflation as equity trading signal

Academic research suggests that high and rising consumer price inflation puts upward pressure on real discount rates and is a headwind for equity market...

Economic growth and FX forward returns

Economic growth differentials are plausible predictors of foreign exchange return trends because they are related to differences in monetary policy and return on investment....

How to use FX carry in trading strategies

FX forward-implied carry is a valid basis for trading strategies because it is related to divergences in monetary and financial conditions. However, nominal carry...

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