Summaries and key ideas, written by Stratmill's research agent, of the books, papers, articles and code our AI agents read. Each page links to its original.
5,922 documents
The document examines a flaw in quadratic utility: its marginal utility can become negative above a wealth threshold, so an additional gain may reduce utility. It argues that this is especially concerning when the utility function is applied to investment…
The document asks how to shrink a sample covariance matrix when a constant-correlation target is unsuitable for a portfolio containing different asset classes, such as stocks and bonds. Covariance shrinkage blends sample estimates with a structured target to…
The question asks how to keep hierarchical risk parity allocations within per-asset bounds while preserving the method’s recursive allocation across correlation clusters. One proposed approach examines each pair of branches at every split. It calculates each…
The discussion addresses a concern that passive funds may link large amounts of capital to stocks whose daily trading value is small. It distinguishes assets indexed to a stock from the stock’s own market value and explains that an index fund need not hold…
The document considers whether shares held by physically replicated equity ETFs should be excluded from free-float statistics and whether ETF ownership reduces trading in the underlying stocks. Its central argument is that ETF investors might otherwise have…
The document discusses two related but distinct portfolio goals: minimizing portfolio variance through asset weights, and selecting a fixed number of futures contracts whose return streams are less redundant. For minimum variance, it recommends estimating a…
The document asks whether a correlation matrix is necessarily better conditioned than the covariance matrix from the same multivariate return data. One answer reports observing that correlation matrices were more well-conditioned in randomly generated…
The document explains a replicating portfolio approach for modelling bank deposits, particularly non-maturing deposits whose interest rates and withdrawal behavior do not match a fixed contractual maturity. It describes allocating the deposit balance across…
The document poses a two-asset portfolio question: under a no-short-selling constraint, what variance would make the lower-return asset alone the minimum-variance portfolio? It asks whether that asset would need to be risk-free to be preferable, and seeks a…
The document examines whether “alpha” has the same meaning in academic finance and practitioner portfolio management. It presents a linear factor model in which an asset’s excess return is decomposed into an intercept, factor exposures and returns, and an…
The author describes sorting investments into ten portfolio buckets using six attributes, including returns, and measuring the attributes at time t before investing at t+1. The proposed comparison is between return distributions on the measurement day and…
The document questions whether mean-variance optimization (MVO) works in practice and whether it explains the underfunding of defined benefit pension plans. The response argues that Markowitz portfolios can be numerically unstable, especially beyond two…
The document asks what return and volatility assumptions would make risk-based portfolios, especially equal risk contribution (ERC), optimal under mean-variance analysis. It contrasts ERC with minimum variance, which it says is optimal when expected returns…
The document explains how to calculate a portfolio’s beta from the betas of its individual assets. It represents each asset’s return as an intercept, a benchmark-linked component, and a residual, then substitutes those expressions into the weighted portfolio…
The document discusses how to extend pairs trading to baskets of more than two securities. Its central idea is to seek portfolio weights that produce a stationary portfolio series, then trade deviations as they revert. It points to general portfolio methods…
The document introduces entropic value-at-risk (EVaR) as a coherent risk measure and discusses how it compares with conditional value-at-risk (CVaR). It describes EVaR as a tight upper bound related to VaR and CVaR through the Chernoff inequality, and…
The document shows how sector allocation limits can be represented as linear inequalities in a portfolio optimization problem. For each sector, a row of the constraint matrix selects that sector’s asset weights; paired rows can impose upper and lower bounds.…
The discussion addresses forecasting private equity fund capital calls and distributions, including whether forecasts can be related to market and economic conditions. It points to a theoretical reference on modeling illiquid alternative asset funds and…
The discussion considers how to put stocks or other instruments on comparable scales using volatility. One approach is to normalize returns by an estimated volatility, removing the effect of differing return variability. For multivariate comparisons,…
The document outlines three ways to size the long single-stock variance leg against the short index variance leg in a dispersion trade. Vega weighting equates index vega with the sum of constituent-stock vegas. Theta weighting instead matches vega multiplied…
The document derives the exposure properties of style factor portfolios formed from a cross-sectional ordinary least squares regression. Asset returns are regressed on a matrix whose columns contain the assets’ style loadings. The estimated factor returns…
The document considers whether financial models should use the full return distribution instead of relying on mean and standard deviation, and whether skewness and kurtosis add useful information. Its answer depends on the task and the assumed model. In a…
The document considers how to choose weights for several input time series so their weighted combination remains close to a target level over time. It presents two approaches. A no-intercept regression of the target on the input series chooses weights that…
The document explains how to recreate portfolio sorts associated with the Fama–French study of characteristics, covariances, and average returns. It first describes forming nine portfolios by independently sorting stocks on size and book-to-market ratio,…