Let me introduce you to time-series factor momentum, a strategy that attempts to harness the auto-correlation in factor returns (see Gupta & Kelly (2019) for a comprehensive study). Factor returns are frequently significantly auto-correlated, which...
Continue readingMarkowitz Portfolio Optimization is haunted by estimation errors in mean and covariance estimates. Instead of optimizing the Sharpe ratio out-of-sample, the optimizers tend to maximize the estimation Error (Michaud 1989). The estimation error maximization property...
Continue readingFactor momentum is persistent and observable in global equity markets (Gupta & Kelly (2019)). We take the perspective of a value investor that faces disappointing returns in domestic markets and attempts to chase positive value returns over the world. A strategy that buys winning international...
Continue readingThe factor zoo challenges financial research and raised doubts regarding post-publication robustness and data snooping. Feng et al. (2020) find that only a few new anomalies are enough to explain the cross section of stock returns, while the other factors are redundant. Another way...
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