Thread by @HangukQuant

Sub-Thread 1

What is Alpha Research?

Introduction to Quantitative Alphas

📌 What is Alpha Research?

1) First, what is alpha research? It is the undertaking of research operations towards finding excess returns on the market. It may come in many forms, from both fundamental and quantitative perspectives.

2) In the quant sphere, it often takes on the form of parametric formulae/rules designed to express underlying trading edge. They also come in many forms, such as stat arb, risk arb, factor models (mom, rev), idiosyncratic premia, predictive modelling et cetera.

3) Often, these market edges are executed by professionals in multi-faceted domains, including quant engineers, traders, alpha research, alpha PM etc. Depending on the prop firm (speed, markets, size) they operate in, the arrangements morph to best serve trading requirements.

📌 Introduction to Quantitative Alphas

4) We look at a subset of these processes behind our alpha research. We formulate problems in this space, give some high-level view behind the brainstorming and process, which are also used in subroutines in our newsletter. Let’s dive in!

5) Quantitative alphas can be expressed in numerical terms that quantify magnitude of implied expected returns. The underlying idea itself can be expressed formulaically, mapping a set of market variables over the set of real numbers.

6) For example, the factor momentum, can be expressed MovingAverage(close, 20)/MovingAverage(close,60) with the baseline value of 1, indicating the magnitude of momentum.

7) So, we established that (quantitative) alpha may be a formula of input market variables, expressing an implicit edge. So how do we come up with these “edges”? In general, there are 3 ways.

8) MAIN THREAD

https://twitter.com/hangukquant/status/1445464869587746818