Weekly Top 5 Papers – March 18, 2019

1. Time-Series Momentum: A Monte-Carlo Approach by Clemens Struck (University College Dublin) and Enoch Cheng (University of Colorado at Denver – Department of Economics)

During my days as an undergraduate student, my professors showed me a set of very simple trading strategies such as the carry trade. Such strategies are usually referred to as “factor investment”. Bringing prior trading experience to the degree, I found it hard to believe that one can make serious money by following a set of naïve trading rules. Not surprisingly, many factor investors have experienced disappointment by the real-life performances of such strategies.
An observation I made early was that all of these rules seem to work fine in historical backtests over very short periods of time usually not longer than 10 or 20 years. Often, the sample periods contain only a single extreme market situation (e.g. a larger recession) that determines the overall performance of a strategy. Effectively, there is just one observation. 
While I see the need for historical backtests, I believe these tests are insufficient. Bootstrapping has been suggested as an alternative. I think we need to go one step further as bootstrapping repeats the same extreme events again and again. Thus, when you bootstrap from a historical sample with one extreme event, you repeatedly analyze the same extreme event. That’s why we looked out for something else and found Monte-Carlo approaches in the risk management literature and hand-tailored them to assess factor investment strategies. – Clemens C. Struck

2. Notes on Designing Your Company by Kevin Boudreau (Northeastern University)

3. Entrepreneurial Finance and Moral Hazard: Evidence from Token Offerings by Paul P. Momtaz (University of California, Los Angeles (UCLA))

4. A Brief Introduction to the Basics of Game Theory by Matthew O. Jackson ( Stanford University – Department of Economics)

5. Alice’s Adventures in Factorland: Three Blunders That Plague Factor Investing by Robert D. Arnott (Research Affiliates, LLC) and Campbell R. Harvey (Duke University – Fuqua School of Business) and Vitali Kalesnik (Research Affiliates LLC) and Juhani T. Linnainmaa (USC Marshall School of Business)


Leave a Reply

Your email address will not be published. Required fields are marked *