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Darren 🥚 Profile picture
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21 Jan, 5 tweets, 2 min read
...
2020's winners included
* Benn Eifert’s QVR Advisors (+77% ret/-12% dd)
* Covenant Total Volatility (+21%)
* Rotella Long Biased Vol (+20% ret/-1.5% dd)
* Artemis Vega (+15% ret/-10% dd)
* Logica (+15% ret/-7% dd)
* Quadriga (+13% ret/-35% dd)
...
Benchmarks:

Long-dated volatility performed very well as a hedge in 2020. Short-dated volatility was also good but not to the same extent.

Strategy choice and portfolio construction can make a big difference!

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More from @ReformedTrader

Darren 🥚 Profile picture
23 Jan
One way to be a liquidity provider is to be an endowment: no leverage and infinite time to wait for convergence.

Another is to be simultaneously diversified/hedged, such that divergence has a payoff and allows you to hold on to convergence trades with very high expected returns.
Related reading:
Read 4 tweets
Darren 🥚 Profile picture
22 Jan
How would diversification have done in 2020?

#1: SPY: 18% CAGR (-19% dd, 0.76 Sharpe, 0.89√2 Sortino)

#2: SPY, TLT, DBC, and VXZ (inverse vol): 20% CAGR (-4% dd, 2.34 Sharpe, 4.38√2 Sortino)

#2 did FIVE times better (Sortino) due to lower drawdowns.

portfoliovisualizer.com/test-market-ti… Image
Read 7 tweets
Darren 🥚 Profile picture
21 Jan
1/ Implementing Momentum: What Have We Learned? (Ross, Moskowitz, Israel, Serban)

"Live momentum portfolios are capable of capturing the momentum premium, even after expenses, trading costs, taxes, & other frictions associated with real-life portfolios."

papers.ssrn.com/sol3/papers.cf…
2/ "We decompose the performance differences between the live momentum strategies and the theoretical AQR Momentum Indices.

"We expect that trading costs and expenses will always be a drag on performance, but ‘smarter’ portfolio construction decisions should offset this."
3/ "Momentum's historical excess return is 1.0-1.5%/yr. Even if transaction costs were twice as high as realized, they may only put a small dent in performance.

"These results contrast with papers that estimates costs based on liquidity-demanding orders for immediate execution."
Read 8 tweets
Darren 🥚 Profile picture
21 Jan
Pandemic-related papers (2021)
(I haven't read these yet, but the abstracts look interesting.)

Safety and Efficacy of the BNT162b2 mRNA Covid-19 Vaccine
nejm.org/doi/full/10.10…

Coronavirus vaccine-associated lung immunopathology-what is the significance?
ncbi.nlm.nih.gov/pmc/articles/P…
Nonlinear Effects of Mobility on COVID-19: Implications for Targeted Lockdowns
papers.ssrn.com/sol3/papers.cf…

Empirical Assessment of Mandatory Stay-at-Home and Business Closure Effects on the Spread of COVID-19
papers.ssrn.com/sol3/papers.cf…
COVID-19 ‘Immunity’ in Dhaka Slums: Do Genes Matter?
papers.ssrn.com/sol3/papers.cf…

Vaccine Clinical Trials and Data Infrastructure
papers.ssrn.com/sol3/papers.cf…

Monthly Suicide Rates During the COVID-19 Pandemic: Evidence from Japan
papers.ssrn.com/sol3/papers.cf…
Read 14 tweets
Darren 🥚 Profile picture
17 Jan
1/ Trend Factor: Any Economic Gains from Using Information over Investment Horizons? (Han, Zhou, Zhu)

"A trend factor using multiple time lengths outperforms ST reversal, momentum, and LT reversal, which are based on the three price trends separately."

papers.ssrn.com/sol3/papers.cf…
2/ This resembles combining multiple measures of ST reversal, momentum, and LT reversal (forecasts determined by walking forward rather than using signs from the full sample).

Unlike normal moving average signals, these are *cross-sectional.* More below:
3/ Unsurprisingly, the Trend factor formed by this approach outperforms benchmarks in terms of both Sharpe ratio and tail metrics. It's combining momentum with two factors that are negatively correlated to it AND using multiple specifications.

More here:
Read 22 tweets
Darren 🥚 Profile picture
14 Jan
1/ Alice’s Adventures in Factorland: Three Blunders That Plague Factor Investing (Arnott, Harvey, Kalesnik, Linnainmaa)

"Factor returns can experience downside shocks far larger than expected. In certain conditions, returns also become more correlated."

papers.ssrn.com/sol3/papers.cf…
2/ * July 1963 to June 2018
* Factors 1-6 are the most popular academic factors, followed by factors 7-14, then the 33 factors in the "other" group
* Long/short Fama-French portfolio construction (this leads to factors being dollar-neutral rather than beta-neutral)
3/ "When the market does great (months >1σ above the mean), most factors do not; when the market moves sideways, most factors deliver positive returns; and when the market falls >1σ, most factors are at their best. Similarly, on average, factors have higher premia in recessions."
Read 14 tweets

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