Quant Letter: November 2024, Week-4

Weekly (72nd Edition)

ArXiv

Finance

Quanto Call Options Pricing: The study explores quanto options involving multiple assets in different currencies, concluding that a mix of GARCH-Jump SV, Weibull SC, and Ornstein Uhlenbeck (OU) SER is most effective for Monte Carlo simulation pricing. (2024-11-25, shares: 4)

Markov-Functional Models: The paper presents a Markov-functional method to build local volatility models calibrated to a set of marginal distributions, expanding on the volatility interpolation of Bass, Conze, and Henry-Labordère. (2024-11-22, shares: 3)

Activists Mutual Funds Alignment: The research indicates that hedge funds tailor their activist campaigns to match the preferences of large-stake institutional holders in the target company, resulting in increased shareholder attention, votes, and success. (2024-11-25, shares: 2)

Square-Root Price Impact Law: Research using Tokyo Stock Exchange data supports the econophysics theory that average price impact follows a power law in relation to transaction volume. (2024-11-21, shares: 2)

Sell-side Analyst Information Value: A study of sell-side analysts' reports shows that the text information accounts for over 10% of current stock returns, with income statement analyses being the most influential. (2024-11-21, shares: 2)

Stablecoin Issuance Credit Risks: The article investigates the credit risks of decentralized stablecoin issuance, such as overcollateralized lending and business credit, and suggests possible risk reduction strategies. (2024-11-21, shares: 2)

Quantile Deep Learning for Time Series Prediction: The article introduces a new deep learning framework for predicting multi-step time series, which improves the performance of deep learning models. It has been effectively tested on Bitcoin and Ethereum, demonstrating its ability to manage volatility and provide useful information for decision-making. (2024-11-24, shares: 5)

Economics

Naive Algorithmic Collusion: Research shows that machine learning algorithms can unknowingly learn collusive behavior in competitive scenarios, posing a challenge for regulators to prevent algorithmic collusion. (2024-11-25, shares: 4)

Insights from Electricity System Models: A study comparing four open-source electricity system models found that they yield similar results when harmonized, emphasizing the need for clear policy guidelines and a standardized approach in clean energy planning. (2024-11-21, shares: 3)

SSRN

Recently Published

Quantitative

Deep Learning in Quantitative Economics: Deep learning can effectively tackle the issue of dimensionality in quantitative economics, particularly in dynamic equilibrium models. (2024-11-22, shares: 5.0)

Bitcoin ETF Market Implications: The approval of spot Bitcoin ETFs and their options in 2024 could impact market liquidity and price volatility, but also introduces regulatory risks. (2024-11-21, shares: 2.0)

Dual Interpretation of ML Predictions: The paper proposes that machine learning predictions can be interpreted as a linear combination of in-sample values of the predicted variable. (2024-11-21, shares: 4.0)

Chinese Bond Default Prediction: A machine learning model has been developed that can predict credit bond defaults in the Chinese market with over 90% accuracy, surpassing traditional methods. (2024-11-21, shares: 2.0)

Portfolio Management with Fuzzy Measures: A new portfolio selection process based on fuzzy integral and measure theories has been introduced, providing a fresh take on traditional portfolio theory. (2024-11-23, shares: 3.0)

Financial

Stock Returns Machine Learning: The performance of machine learning models in predicting stock returns is greatly influenced by their design choices, with nonstandard errors in portfolio returns surpassing standard errors by 59%. (2024-11-23, shares: 12.0)

Global SPACs Boom and Bust: An analysis of the rise and fall of special purpose acquisition companies (SPACs) as an alternative to public listing reveals trends, characteristics, concerns, and returns up to 2023. (2024-11-22, shares: 6.0)

Systemic Risk Measures from 1927-2023: Measures of systemic risk based on the comovements of US financial firms' stock returns under stress can predict market outcomes, bank failures, and balance-sheet results from 1927 to 2023. (2024-11-22, shares: 3.0)

Model-Based Reinforcement Learning in Diffusion Environments: A new framework for continuous-time model-based reinforcement learning, which reduces the discrepancy between the model-based value function and empirical rewards, could improve upon traditional statistical methods. (2024-11-22, shares: 2.0)

Recently Updated

Quantitative

Machine Learning in Business Research: The study reveals a lack of transparency in predictive machine learning studies in top business and economic journals, leading to fewer citations due to not benchmarking against traditional statistical models. (2024-10-09, shares: 15.0)

Forecasting Volatility: An S&P 500 Case Study: The paper suggests that simple forecasts can effectively stabilize volatility in the SP 500 and Treasury bills, similar to complex models. (2024-11-06, shares: 6.0)

Statistical Arbitrage with Mixed Frequency Data: The article explores the use of high-frequency data to identify similar assets for statistical arbitrage strategies, assessing the effectiveness of various clustering algorithms and trading rules on different asset classes. (2024-09-30, shares: 7.0)

Predicting M&A Outcomes with Machine Learning: The study investigates the use of machine learning algorithms to predict the success of mergers and acquisitions, finding that nonlinear models predict post-deal returns well, but not post-acquisition earnings. (2024-10-01, shares: 3.0)

Financial

Trend-Following Challenges: The article discusses the challenges of trendfollowing investment strategies, suggesting that replicating a broad index of such funds can help mitigate these issues, despite potential tracking errors. (2024-10-15, shares: 205.0)

Machine Learning in Portfolios: The paper reviews the use of machine learning in portfolio management, discussing its limitations and potential future developments in areas like systematic trading strategies and portfolio optimization. (2024-10-15, shares: 8.0)

Large Language Models for Forecasting: The article evaluates the performance of Large Language Models in forecasting stock market data, finding that while some models excel in stable environments, others are better suited for complex data scenarios. (2024-10-15, shares: 21.0)

Fund Flows: Prospectus vs. Ratings: Retail and institutional fund flows are primarily driven by sustainability statements in fund prospectuses, not external sustainability ratings, as per an analysis of over 23,000 equity mutual funds and ETFs. (2024-06-04, shares: 22.0)

Index Investing: Sentiment Spillover: A study on index investing shows that sentiment spillover among index stocks results in higher prices, increased trading volume, and stronger negative price autocorrelation compared to non-index stocks. (2024-10-07, shares: 4.0)

Private Game Equity Performance: Private video game companies that receive private equity investment perform better in terms of growth and returns than public markets and other private equity deals, based on an analysis of 540 private video game investment deals. (2024-11-03, shares: 2.0)

Hidden Liquidity on U.S. Exchanges: Despite the aim for transparent trading, hidden orders account for up to 75% of the dollar volume traded for high-priced stocks, and an AI model can predict where these orders will likely appear. (2024-10-15, shares: 4.0)

RePec

Finance

Portfolio Optimization Clustering: A new investment strategy uses clustering to reduce asset selection and ranks them by Sharpe ratio, potentially outperforming traditional portfolios. (2024-11-27, shares: 21.0)

SP 500 Low-Frequency Trading: A superior algorithmic trading model has been developed, incorporating volume data and price indicators, outperforming benchmarks and previous models. (2024-11-27, shares: 19.0)

Real Estate Stock Inflation Resilience: The Fama-French seven-factor model effectively estimates returns on Indonesian property and real estate stocks, which can hedge inflation and interest rates. (2024-11-27, shares: 14.0)

Statistical

Stock Market Index Forecasting with DLWR-LSTM Model: The article talks about the application of the DLWR-LSTM model to enhance the precision of stock index predictions in the Shanghai Stock Exchange, keeping an accuracy rate of about 1% irrespective of time series changes. (2024-11-27, shares: 15.0)

Forecasting Volatility Models: The effectiveness of machine learning models in predicting global stock market volatility is assessed, with simpler models proving more effective for creating volatility-timing portfolios. (2024-11-27, shares: 22.0)

Investor Risk Perception with ML: An unsupervised machine learning algorithm is used to analyze corporate disclosures, revealing a connection between machine-identified risk factors and investor pricing behavior, with most risk factors reducing return volatility. (2024-11-27, shares: 19.0)

DeepVol: High-Frequency Forecasting: The study introduces DeepVol, a model using Dilated Causal Convolutions, which effectively uses high-frequency data to predict next-day market volatility. (2024-11-27, shares: 27.0)

Index Tracking with Shapley Explanations: The paper suggests using a Pointwise Convolutional Autoencoder and Shapley Additive Explanations for index tracking, outperforming other stock selection strategies in various financial markets. (2024-11-27, shares: 17.0)

GitHub

Finance

LLMs in Finance AI Agents: The article explores the use of AI agents in Generative AI, specifically in the field of finance and LLMs. (2024-05-21, shares: 200.0)

Fastest Deep RL Library: The article presents the quickest library for executing Deep Reinforcement Learning. (2023-11-11, shares: 347.0)

HtmlRAG: HTML vs Plain Text: The article advocates for HtmlRAG HTML over plain text for better retrieval results in RAG systems. (2024-08-28, shares: 182.0)

Opensource Data Extraction Platform: The article introduces an open-source platform that utilizes AI to pull structured data from documents. (2024-11-17, shares: 906.0)

Trending

PayloadCMS Framework: Payload is a new open-source framework that uses Next.js and TypeScript to provide a backend and admin panel for app development or as a headless CMS. (2021-01-05, shares: 27958.0)

Awesome LLM Agents: The article presents a selection of notable LLM agents. (2023-04-04, shares: 515.0)

Bbot Internet Scanner: The article introduces a new internet scanner tool specifically designed for hackers. (2022-03-12, shares: 6787.0)

MATCC Stock Prediction: MATCC introduces a new technique for precise stock price prediction, taking into account market trends and cross-time correlations. (2024-05-18, shares: 13.0)

LinkedIn

Trending

Quantitative Investing Update: The author's book The Elements of Quantitative Investing is now finished and available for pre-order on Amazon. (2024-11-22, shares: 5.0)

Market Impact Square-Root Law: The article explores the square-root law of market impact, a significant finding in price impact over the past 30 years. (2024-11-26, shares: 26.0)

Royal Order of Civil Merit Knight Officer: The author has been honored as Knight Officer of the Royal Order of Civil Merit by King Felipe VI and the Spanish Government. (2024-11-24, shares: 45.0)

Reinforcement Learning Paper: The author's paper Reinforcement Learning: A Historical and Mathematical Overview (1950-2024) is now available for download. (2024-11-24, shares: 5.0)

GNN Competition Winner: Hicham Hallak won the ADIA Lab's Causal Discovery competition using a Graph Neural Network, showcasing the power of graphical machine learning. (2024-11-26, shares: 12.0)

Podcasts

Quantitative

Democracy Investment Strategies: Chris Browne highlights the advantages of investing in democratic nations, emphasizing the potential opportunities in the Eurozone due to the current geopolitical landscape. (2024-11-25, shares: 9)

Global Asset Defense: Joel Nagel shares insights on asset protection strategies, including the use of trusts, second passports, dual citizenship, and strategic debt usage. (2024-11-22, shares: 5)

Geopolitical Trilemmas: Marco Papic explores how fiscal policies and international tensions influence financial markets, the effects of larger deficits and economic stimulus on bond yields and inflation, and Trump's policies' impact on global markets. (2024-11-21, shares: 5)

Dollar Dominance Deconstructed: The podcast explores the possibility of the US Federal Reserve cutting rates again in December, the effect of a strong dollar on Europe and Japan, and the market's indifference to China's policy support announcement. (2024-11-21, shares: 4)

AI Wealth Gap Implications: Pierre Ferragu discusses the potential of AI to increase the wealth gap, the US's dominance in AI design and manufacturing, and the competition in the chip market. (2024-11-26, shares: 4)

Related

Disrupting Sports Media: The second episode of a sports business series explores the changing ways fans consume sports content and the conflict between traditional broadcasters and tech platforms. (2024-11-22, shares: 3)

Is The Trump Trade Over?: Daniel Lacalle discusses the Trump Trade, its current status, and future market predictions on MacroVoices. (2024-11-21, shares: 2)

AB Testing on Social Media: Wentao Su talks about improving AB testing on social media through network science and developing algorithms to enhance user experience and advertiser performance. (2024-11-25, shares: 2)

IBKRs ForecastEx Platform: Andrew Wilkinson and Jose Torres present ForecastEx, a prediction platform by Interactive Brokers designed to aid investors in making profitable decisions. (2024-11-26, shares: 2)

Global Oil Outlook 2025-2026: Trump's energy agenda aims to combat inflation by reducing energy prices, potentially affecting oil prices and international relations with oil-exporting nations. (2024-11-22, shares: 2)

Twitter

Quantitative

Newsletter Summary on Quant Investing Research: Article 1: The new weekly newsletter discussing recent research on quantitative investing, including bonds, crypto, currencies, equities, and machine learning, is now out. (2024-11-26, shares: 5)

IQ and Investment Performance: Article 2: A study using Finnish military draft cognitive tests indicates a correlation between high IQ scores and superior stock market trading performance in later life. (2024-11-24, shares: 2)

MoiraiMoE: Time Series Prediction with Sparse Mixture of Experts: Article 3: MoiraiMoE employs a projection layer and a sparse mixture of experts in Transformers to predict and model various time series patterns, eliminating the need for human-defined heuristics. (2024-11-21, shares: 2)

Hidden Costs of Passive Investing: Article 1: The increase in passive investing may lead to index frontrunning, resulting in unseen expenses for investors. (2024-11-26, shares: 1)

Enhancing Momentum Strategies: Article 2: Combining free cash flow yields with momentum signals can improve investment strategies, increasing Sharpe ratios and decreasing drawdowns. (2024-11-25, shares: 1)

Impact of ML Model Design on Strategy Returns: Article 3: A study of 1056 machine learning models reveals how design choices such as algorithm, target feature, and training affect strategy returns. (2024-11-25, shares: 1)

Miscellaneous

FReT Multistepahead Forecasts: Article 1: FReT uses recurrent topology to create sophisticated predictions of unseen timeseries data. (2024-11-23, shares: 1)

Interviews with Hedge Fund Managers: Article 2: Opalesque is recognized for conducting in-depth interviews with hedge fund managers. (2024-11-23, shares: 1)

Opalesque Interviews Hedge Fund Managers: Article 3: Opalesque is renowned for its top-notch interviews with hedge fund managers. (2024-11-23, shares: 1)

Ridge regression notes: Article 2: The author provides lecture notes on ridge regressions and lasso elastic net, with a link for more details. (2024-11-23, shares: 0)

Paper with Code

Unpacking DPO and PPO: The article discusses how the use of high-quality preference data can significantly enhance instruction adherence and honesty by up to eightfold. (2024-11-24, shares: 1435.0)

aiolalab WhisperNER: Named Entity Recognition: The article presents WhisperNER, a new model that simultaneously transcribes speech and recognizes entities within it. (2024-11-22, shares: 97.0)

MPLSandbox: MPLSandbox is a sandbox for multiple programming languages, providing detailed feedback from compiler and analysis tools for Large Language Models. (2024-11-24, shares: 93.0)