By:
On:
In: Quant, Risk
With: 792 Comments

By Irene Aldridge The latest turmoil observed in the European and U.S. markets may be symptomatic of a broader problem: changing behavior in financial securities. Historically, prices of unrelated securities used to rise and fall independently of each other and without great influence from the broader markets. Recent studies show that when markets rise, individual stocks still behave differently: some rise and some fall. Yet, when today’s markets fall, most stocks tend to fall in unison, amplifying negative performance of individual equities. The shifting risk-return characteristics of financial markets may influence the outcomes of investing styles, and change the way people look at markets forRead More →

By:
On:
In: Quant
With: 370 Comments

By Irene Aldridge The U.S. Treasury bonds and bills (T-bonds and T-bills) have long been the beacon of security for many investors, young and old. With AAA-marked bonds, employees have invested in T-bonds in preparation for guaranteed retirement; parents have bought T-bonds to secure funds for their children’s education; managers of countless mutual funds have sought T-bonds and T-bills to diversify their portfolios without adding on risk. With the now-lower rating on the U.S. government debt assigned by the major rating agency, the Standard & Poors, the bonds and bills investors find themselves questioning as to what to do with their investments: how to findRead More →

By:
On:
In: HFT, Quant
With: 761 Comments

By Irene Aldridge Many high-profile long-term investors have publicly expressed their frustration with the tactics of some high frequency traders (HFTs). While much of the criticism leveled against high-frequency traders does not hold water (research has shown that HFTs drive down transaction costs incurred by all investors, for example), certain tactics should give investors pause. This article gives a brief overview of the HFT activity that pundits describe as troublesome and the actions investors can take to immunize their trading. I am scheduled to offer a detailed examination of these HFT activities, means to prevent it and approaches to minimize their impact in my newRead More →

By:
On:
In: Quant
With: 1,093 Comments

By Irene Aldridge For many investors “Sell in May and Go Away” was the mantra to relax for the summer with trading history defending this as the best way to protect your portfolio. While the exact origin of the expression is unknown, it was most likely developed during the stock market boom of the 1920s, back when investors literally went away for the summer. Many sold their portfolio holdings in May, and activity on Wall Street dropped to a bare minimum until September. Today, the expression remains valid, but mostly for August. According to quantitative analysis, June and July are full of investing opportunities, whileRead More →

By:
On:
In: Quant
With: 1,628 Comments

By Irene Aldridge Last week, prices of several commodities declined abruptly: silver lost over a quarter of its value from April 29 to May 5, while oil plunged nearly 10% over the same period of time. The immediate question on the minds of many investors was whether the commodity run was over. And while the Federal Reserve has indicated that that they will deliver a soft landing to QE2, instead of an abrupt end that would have sparked inflation and sent commodities soaring, the signals of the Fed were by no means thought to have such profound impact on prices. Instead, as this note shows,Read More →

By:
On:
In: Quant
With: 3,082 Comments

By Irene Aldridge April is full of economic activity: finally we’re out of the winter doldrums and it’s just before many people follow the old adage to “sell in May and go away.” April’s macro announcements significantly drive prices of the U.S. equities. This article examines market-wide events that have the highest likelihood of influencing domestic securities. The five macroeconomic announcements that are most likely to move U.S. stocks based on quant analysis are: • April 12, 2011: International Trade, Trade Balance Level • April 13, 2011: Retail Sales, Retail Sales less autos – M/M change • April 15, 2011: Consumer Price Index, CPI –Read More →

By:
On:
In: Quant, Regulation
With: 4,723 Comments

By Irene Aldridge Over the past three years, much of the online and cocktail party chatter has buzzed around the when to expect inflation. Everyone has long agreed that high inflation is inevitable, gold ETFs have been snapped up and prices driven to the sky by hedgers, yet month after month the level of inflation remains precariously low. According to the quantitative determinants of inflation the Fed adjusts money supply in response to oil prices, as such, with rising oil prices we can expect the Fed to take measures to reduce inflation expectations. Inflation is a function of many variables, with the amount of moneyRead More →

By:
On:
In: Quant
With: 580 Comments

By Irene Aldridge On Thursday, February 17, 2011, the U.S. Bureau of Labor released the latest inflation figures. Inflation, measured as a change in the Consumer Price Index (CPI), registered a slight decline at 0.4% this past month (as compared to 0.5% realized in the previous month), and just 0.2% when food and energy are excluded from the calculation. However small these numbers may seem, the figures sounded plenty of alarms in the last couple of weeks. Some commentators declared this inflation to be unhedgeable (due to traditional inflation hedges such as gold being overpriced), and, therefore, unmanageable. Numbers, however, tell a different story, andRead More →

By:
On:
In: Quant
With: 554 Comments

By Irene Aldridge Adapted from The Quant Investor’s Almanac 2011: A Roadmap for Investing (Wiley) by Irene Aldridge and Steven Krawciw Exchange-traded funds (ETFs) have garnered quite a bit of attention lately. Some have fingered ETFs as the cause of the May 6, 2010 crash of the U.S. equity markets; others find that ETFs are displacing conventional securities, defeating the original purpose of the stock markets: to help businesses raise capital from investors. Yet, ETFs remain widely popular: many institutional and individual investors alike hold one or several ETFs for both long and short periods of time. The latest research, however, shows that ETFs areRead More →