Weekly Top 5 Papers – April 15, 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. A Brief Introduction to the Basics of Game Theory by Matthew O. Jackson ( Stanford University – Department of Economics)

3. Congressional Authority to Obtain and Release Tax Returns by George K. Yin (University of Virginia School of Law)

This short paper describes an obscure law enacted in 1924 that allows Congress to obtain and disclose the tax return information of any person without the person’s consent. Recently, U.S. House Ways and Means Committee Chairman Neal invoked the law to request selected tax information of the president. Most observers anticipate a major fight between the two branches of government before any information is provided.

I first stumbled upon this law almost ten years ago when I was doing some historical research on tax developments in the early part of the 20th century. Although the law was only tangentially related to my research, my curiosity overtook me and I therefore closely studied its background. This knowledge proved useful when, in early 2017, President Trump broke a 40-year custom and refused to divulge his tax returns. I quickly published the short paper to inform Congress and the public about how his information might be obtained.

As it turns out, there are close parallels between the concerns of 1924 and those of today. For example, one worry of Congress was possible conflicts of interest involving then-Treasury Secretary Andrew Mellon who continued to own many private business interests while serving in government. Congress at the time was forced to seek the president’s permission before it could obtain anyone’s tax information for any purpose, such as investigating an executive branch agency or official. As a co-equal branch of government, Congress realized that it had to have an independent ability to obtain such information and therefore created a law with that effect. – George K. Yin

4. 151 Trading Strategies by Zura Kakushadze (Quantigic Solutions LLC), and Juan A. Serur (University of CEMA)

This is a 271-page preview version of a new book “151 Trading Strategies”, which provides detailed descriptions, including more than 550 mathematical formulas, for more than 150 trading strategies across a host of asset classes and trading styles. These include stocks, options, fixed income, futures, ETFs, indexes, commodities, foreign exchange, convertibles, structured assets, volatility, real estate, distressed assets, cash, cryptocurrencies, weather, energy, inflation , global macro, infrastructure, and tax arbitrage. Some strategies are based on machine learning algorithms such as artificial neural networks, Bayes, and k-nearest neighbors. The book also includes source code for illustrating out-of-sample backtesting, around  2,000 bibliographic references, and more than 900 glossary, acronym and math definitions. The presentation is intended to be descriptive and pedagogical and of particular interest to finance practitioners, traders, researchers, academics, and business school and finance program students. The book was recently published by Palgrave Macmillan, an imprint of Springer Nature.

I got the idea and was inspired to write this book following the success of my paper “101 Formulaic Alphas”, which provides explicit formulas – that are also computer source code – for 101 real-life quantitative trading signals (alphas).  “151 Trading Strategies” takes this concept to the next level: instead of focusing on quant trading alphas or any particular asset class, it goes across essentially all asset classes and a number of trading styles, so it comes as no surprise that it took almost 9 months to write it.  — Zura Kakushadze

5. Technical Evaluation of BREEAM-International-NC-2016 for Rating of Sustainable New Construction Outside the UK by Hazem R. Bonna (Ph.D. in Sustainable Construction, Al-Azhar University, Faculty of Engineering, Civil Engineering Department, Cairo) and Ahmed S. El-Hakim (Al-Azhar University, Cairo – Department of Civil Engineering) and Hatem S. El-Behairy (Al-Azhar University, Cairo – Department of Civil Engineering)

The paper is showing technical remarks, drawbacks, and criticism of utilizing the BREEAM-International-NC-2016 scheme for international rating & certification of new construction projects outside the UK, while despite the BREEAM is the oldest green rating system with the highest figures of international green building registrations & certifications, the scheme didn’t succeed to fit all the sustainable concerns of its application outside the UK, and it became obvious that the international green rating system is not professionally customized to suit all the national sustainable construction needs/concerns of different countries and regions. – Dr. Hazem R. Bonna


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