Asset Pricing Models in China

The CAPM model was a breakthrough for asset pricing, but the times where the market factor was most widely used are long gone. Nowadays, if we exaggerate a bit, we have as many factors as we want. Therefore, it might not be straightforward which factor model should be used. 

Hanauer et al. (2021) provide several insights into factor models. The authors postulate that the factor models should be examined in the international samples since this can be understood as a test for asset pricing models. The domestic Chinese A-shares stock market seems to be an excellent “playground” for the factors models, given the size of the Chinese stock market, but mainly because of its uniqueness. The paper compares the models (and factors) based on various methods (performance, data-driven asset pricing framework, test assets, turnovers and even transaction costs). Apart from valuable insights into the several less-known factors, the key takeaway message could be that the “US classic” Fama-French factor models perform poorly in China. The modified Fama-French six-factor model or q-factor is better, but overall, it seems that factor models designed for China, such as the model of Liu, Stambaugh and Yuan (2019), are the best.

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Factor Exposures of Thematic Indices

Numerous new businesses are emerging related to autonomous traffic, clean energy, biotechnology, etc. Without any doubt, these new companies look promising and at least the technology behind them seems to be the future. Moreover, this novel trend is also supported by the most prominent index creators S&P and MSCI. Both providers have created numerous thematic indexes connected to these hot industries. The popularity has caused that ETFs are nowhere behind, and as a result, these thematic indexes could be easily tracked. However, popularity itself does not guarantee the best investment, and we should be interested in these indexes in greater detail. A vital insight provides the novel research paper of Blitz (2021). The findings are interesting – the thematic investors bet against quantitative investors or, more precisely, against the most common factors that are well-known from the asset pricing models.

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The Best Systematic Trading Strategies in 2021: Part 3

In part 1 of our article, we analyzed tendencies and trends among the Top 10 quantitative strategies of 2021. Thanks to Quantpedia Pro’s screener, we published several interesting insights about them.

In part 2 of our article, we got deeper into the first five specific strategies, which are significantly outperforming the rest in 2021. 

Today, without any further thoughts, let’s proceed to the five single best performing strategies of 2021 as of August 2021.

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How to Use Exotic Assets to Improve Your Trading Strategy

As we have mentioned several times, the best course of action for a quant analyst who wants to develop a new trading strategy is to understand a well-known investment anomaly/factor fundamentally and then improve it. Quantpedia is a big fan of transferring ideas derived from academic research from one asset class to another. But that’s not the only possibility of improvement – we can try to embrace Roger Ibbotson’s theory of popularity, which states that popular assets/securities are usually overpriced compared to less-known (exotic) assets/securities. Additionally, more professional investors usually follow popular assets, and this market segment is probably significantly more efficient.

So, we went in this direction. We took a well-known commodity momentum factor strategy and investigated its performance among commodity futures that were part of the S&P GSCI respectively BCOM commodity indexes and then compared the strategy’s performance with a variant that traded only non-indexed commodity futures. As we had expected, the trading strategy using exotic assets performed significantly better.

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Community Alpha of QuantConnect – Part 2: Social Trading Factor Strategies

This blog post is the continuation of series about Quantconnect’s Alpha market strategies. Part 1 can be found here. This part is related to the factor strategies notoriously known from the majority of asset classes.

Overall, the factors on alpha strategies provide insightful results that could be utilized. The results particularly point to excluding the most extreme strategies based on various past distribution’s characteristics.

Stay tuned for the 3rd and 4th part of this series, where we will explore factor meta-strategies built on top of the QuantConnect’s Alpha Market.

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