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Jan
27
comment Where do these Orders come from and what do they mean?
@JoshuaUlrich, I feel this is related to market structure, which is on topic.
Jan
24
comment What are DGTW adjusted returns?
@Anna you might want to incorporate that comment into the answer.
Jan
24
comment Estimation of Empirical Expected Shortfall of a heavy tailed distribution
I've been confused by this question since when I estimate the empirical ES/CVaR, I normally don't simulate anything. For instance, for a portfolio of equities, I would use the current portfolio (with some assumption about rebalancing) with the historical returns and then follow the above formulas to get the ES. Are you concerned with securities that wouldn't have historical returns in the same way, like exotic options? (so then you simulate the returns for those conditional on everything else, and calculate the distribution of ES)
Jan
21
comment Co-integration constraints of coint(X,Z) given coint(X,Y) and coint(Y,Z)?
That's where I got stuck on too.
Jan
21
comment Co-integration constraints of coint(X,Z) given coint(X,Y) and coint(Y,Z)?
I think doing some kind of simulation might help clarify things, but I'm not sure how to get an analytical answer.
Jan
21
comment Co-integration constraints of coint(X,Z) given coint(X,Y) and coint(Y,Z)?
You prove there is multiple cointegration, but I'm not sure if that necessarily implies cointegration for the third pair. I looked for papers to check if 2 pair-wise cointegrations imply cointegration on the third pair, but didn't find anything. Typically Johansen's test is what you use to test for multiple cointegration. In practice, I don't really spend much time worrying about these issues as I can always just estimate whatever relationships I want.
Jan
17
comment Inflation modelling
With respect to Richard's point, the European HICP inflation data all comes out NSA (non-seasonally adjusted). I checked and the Spanish data from INE is also NSA. You just have to be careful because other countries might provide the SA data (like the US does). Spanish prices are typically weak in winter before recovering in the spring.
Jan
9
comment How can I calculate the Cumulant-Generating Function in Matlab?
Meucci might have code that does this. mathworks.com/matlabcentral/fileexchange/authors/21105
Jan
6
comment Optimizing Principal Component factor weightings over time
If you have a time-varying covariance matrix (you could construct with Garch volatility and either a constant or time-varying dependence structure), then you can perform PCA on each period or project out to the future. Not sure if that's what you're looking to do.
Jan
6
comment Expected Shortfall (CVaR) Backtesting
Why don't you just try a backtest and to calculate ES and see if it works? I use CVaR all the time in backtests, though I mostly do it with monte carlo simulations.
Jan
6
comment Lagged dependent variable, yes or no?
I probably would probably first emphasize the calculation of standard errors in the presence of autocorrelation before anything like omitted variable bias.
Dec
20
comment How to group timeseries showing similar curve
Do you ever throw in regression coefficients, like regression against indices (including sector/industries)?
Dec
12
comment Optimization: Factor model versus asset-by-asset model
However, if the weight constraints are too restrictive, then it might not work as you'd like.
Dec
12
comment Optimization: Factor model versus asset-by-asset model
I'm not so sure that I've read that portfolio optimization on $\widehat{\Sigma}$ is "easier" than the optimization on $\Sigma$. You're still working with an $N\times N$ matrix, but you've ensured that it is positive definite (which is a good thing). You could always generate some random data and test the idea. It might be possible to set up the optimization in terms of principal portfolios so you're only operating on the first few $K$ principal portfolios and then translating those weights back into normal weights for constraints and TC.
Dec
12
comment What is Quantitative Investing and how does it differ from Quantitative Trading?
Most of the quant AUM is long-only (even if they build long-short factor models internally). In my view the quant managers have better risk control than many other active managers. The good ones can achieve comparable alpha with lower tracking error, giving them higher information ratios. Also, my understanding is that the fees are typically lower for quant managers than other active managers.
Dec
5
comment Large (5K-10K) non positive definite (particularly near singular) covariance matrices and treatments for Cholesky decomposition
If you're working with futures contracts, perhaps you should begin by reformulating the problem. For instance, you could start with a parsimonious model of the futures curve (akin to the Nelson Siegel yield curve decomposition) and do that for each period. This way you could reproduce any futures curve with just a few variables. So you'd then only construct the covariance matrix using the time series of the factors from all the futures curves.
Nov
23
comment Potential pitfalls in the use of correlation
The price indices for fixed income (obviously) don't incorporate coupon payments so any changes in price should be due to movements in yields (which is why I prefer to model the YTMs than the price or total return).
Nov
21
comment Components of an index in a specific date
I just use whatever my company subscribes to. I don't know for sure. My recollection is that Factset compiles some data on their own (such as by downloading economic data from government websites). Index composition data often comes from vendors (e.g. S&P or MSCI) and is typically quite expensive.
Nov
21
comment Components of an index in a specific date
It depends on what you subscribe to. For instance, PA2 can do attribution in Factset. Attribution requires historical index composition. I have found it easier to download index members from Bloomberg than Factset, but it may just be that my firm doesn't subscribe to whatever Factset service makes it easy to download that information.
Nov
21
comment Components of an index in a specific date
It's not just the components of the index, but you probably also would want the weights in the index. It depends on the index, but you usually have to pay for many. Most people typically get them through licenses that their company pays for (and then they would access the data through Bloomberg/Factset/ThompsonReuters/etc).