The Most Popular Quant Papers of 2016

(Last Updated On: October 10, 2016)

Savvy Investor’s Andrew Perrins shares some of the most popular Quant Papers in the year so far.

 (This is my first guest blog posting)

The Research Team at Savvy Investor has curated this list of the most popular quant white papers from 2016 to date. The papers are listed in date order (from most recent to earliest) and cover a wide range of topics including short-selling, factor investing, alpha generation, momentum strategies, diversification, correlation, volatility and illiquid assets.


The Long and the Short of It: The Quant Shorting Advantage (QMA, 2016)

Active extension, equity long-short, and equity market neutral products can be attractive for investors at any particular time, given investors’ varied investment objectives and needs. That said, each of the three categories of shorting-enabled products can help address distinct issues facing investors today. QMA’s paper describes how short selling can allow investors to find alpha in often overlooked places, explains the three main categories of shorting-enabled equity products, and highlights the benefits of a systematic quantitative process.


Will Your Factor Deliver? Factor Robustness and Implementation Costs (FAJ, 2016)

Within the indexing world, multifactor investing has become very popular in recent years. Both practitioner and academic researchers have recorded several hundred equity factors. But which of these are likely to profit investors once implemented? This original research was conducted by Noah Beck, Jason Hsu, Vitali Kalesnik and Helge Kostka. It was published in CFA Institute’s Financial Analysts Journal.


Academic Lessons on Factor Investing (EDHEC, 2016)

This paper analyses what academic research has to say on equity factors. Our objective is to understand which lessons we can learn from such research in terms of designing and evaluating factor indices. When analysing academic publications on equity factor investing, five important lessons emerge, which provide useful perspective on practical questions about factor indices. This paper looks at the empirical analysis required to identify rewarded factors. It then turns to the economic rationale behind these factors, and looks into the role of diversification for a given factor tilt. Moreover, it discusses the issue of implementation costs and addresses the question of crowding risks. Finally, the paper discusses how popular practical implementations relate to the academic groundings.


101 Ways to Generate Alpha (Savvy Research Blog, Sept 2016)

Active equity managers use many different investment strategies and processes to meet the challenge of consistently creating alpha within their portfolios. This Savvy Blog post highlights a list of the top papers, which help equity investors to build successful alpha-generating processes.


Trend Following: Equity and Bond Crisis Alpha (Man AHL, 2016)

The authors of this paper study time-series momentum strategies in commodities, currencies, bonds, and equity indices during the period 1960-2015. Their research reveals that there was consistent performance both before and after 1985 – periods that were marked by strong bull and bear markets in bonds. The authors also record a number of important risk factors.


Equity/Bond Correlation: History and Future (BlackRock, July 2016)

The correlation between equity and bond markets is of vital importance to asset allocators; for risk control and portfolio construction, for assessing the market outlook, and for building models of how markets work (equity market valuation models, for example). In this 6-page paper, Nuno Luis and David Caplan of BlackRock examine the history of the equity/bond correlation and discuss the likely future path.


Understanding and measuring the illiquidity risk premium (Willis Towers Watson)

Illiquidity risk is a potentially appealing means of generating additional yields in a low-return world. The authors of this 10-page document discuss three different dimensions of illiquidity risk premium that investors should demand for a given asset.


The Free Lunch: The Value of Decoupling Diversification and Risk (Salient, 2016)

The authors of this very interesting paper discuss why considering diversification and risk independently may help investors build more efficient portfolios. They argue that asset allocators should rethink the impact of low volatility diversifiers in higher risk portfolios. Some low vol asset classes (e.g. hedge funds) may primarily have a “de-risking” impact, but not a “diversifying” impact. The paper demonstrates that, perhaps counter-intuitively, high volatility diversifiers can sometimes be very effective, and allocators should consider these strategies.


Multifactor Indexes: The Power of Tilting (FTSE Russell, 2016)

In recent years, institutional investors have become increasingly convinced of the benefits of factor investing, facilitated by the creation of a variety of indices, each focusing on a specific risk factor. The creation of these new indexes has allowed investors to access factor exposure efficiently and at low cost. However, as with any investment strategy, the return from a single-factor index will vary over time, often following different patterns. For instance, the quality risk factor tends to exhibit counter-cyclical performance, whereas the payoff from the value factor normally follows a more cyclical pattern. This paper examines alternative processes for building multifactor indexes, in order to benefit from a diversified exposure to the various source of factor return.


Predicting Volatility (Lazard, Jan 2016)

It is widely accepted that financial models always carry the risk of uncertainty. Volatility forecasting, therefore, has huge implications for investors especially employing risk parity, volatility targeting and asset allocation strategies. This paper examines volatility prediction – its characteristics and the effectiveness of different approaches.


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