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 asks why Bayesian asset-allocation models often assign an inverse-Wishart prior to the covariance matrix. The response gives a computational reason: this choice is conjugate, which simplifies the posterior calculations when updating beliefs…
The document discusses how to compare the liquidity of portfolios holding different assets and weights. It argues that a portfolio metric should begin with a liquidity estimate for each asset, then combine those estimates using each asset’s share of…
The document asks how to optimize a 150/50 portfolio against the S&P 500 by maximizing its expected excess return relative to tracking error. It contrasts this with a market-neutral portfolio, where the benchmark return is zero and portfolio variance can be…
The document raises a model-fit question about two-stage Fama–MacBeth regressions using ten industry-sorted portfolios as dependent variables and the Fama–French three factors as explanatory returns. It reports that the value-weighted portfolios have an…
The document explains an arbitrage argument linking the risk-free rate to the expected return of the global minimum-variance portfolio. If the risk-free rate exceeds that portfolio’s expected return, the line connecting their risk-return points slopes…
The document explains why a portfolio’s historical simulation value at risk cannot generally be recovered from the individual VaRs of its holdings. The portfolio loss distribution depends on the joint behavior of asset returns, including their dependence,…
The document asks whether the correlation between a stock-return predictor and realized returns can determine the maximum Sharpe ratio of a portfolio built from that predictor. It frames the question around an optimally constructed and leveraged position,…
The document derives the volatility of an equally weighted portfolio when all assets have the same volatility and every distinct pair has the same correlation. It starts from the covariance sum for portfolio variance: the covariance matrix has unit…
The document outlines a starting point for hedging an equity portfolio with a factor risk model. First estimate the portfolio’s factor exposures, preferably from holdings according to the response, then compare them with a benchmark or index. The resulting…
The document considers how to build a benchmark that tracks the S&P 500 while earning an additional annual return of 150 basis points. One proposed approach annualizes each daily return, adds the hurdle, and converts back to a daily rate; the question notes…
The document raises the practical relevance of extensions to Markowitz mean-variance analysis. It notes familiar criticisms of the basic framework and asks whether adding features such as stochastic volatility, transaction costs, a more realistic consumption…
The document asks whether returns used to construct the size and value components of a Fama–French three-factor model should be converted to the home currency when the market-return data have already been converted. The example concerns a Danish investor…
The document considers whether the Gittins index, a dynamic allocation method for balancing exploration and exploitation in multi-armed bandits, can help decide when to switch among investment or trading strategies. It concludes that the index could support…
The document considers how to hedge an individual stock with a limited number of index constituents. It discusses selecting candidate securities, estimating hedge weights, and setting the overall hedge ratio. The central proposal is to minimize the variance…
The response surveys possible sources for historical exchange-traded fund data, with particular interest in flows. It names commercial datasets from Lipper, FactSet, and Morningstar, and notes that CRSP’s survivor-bias-free mutual fund database also includes…
The document distinguishes corporate actions that change equity share counts from the claims represented by ordinary bonds. Stock splits, reverse splits, and stock dividends can alter share quantities while leaving an investor’s economic claim unchanged, so…
The document explains how to form a monthly long–short portfolio from a universe of ten stocks. At each rebalance, calculate each stock’s average return over the chosen lookback period, rank the results, short the three weakest performers, and go long the…
The note asks how the coefficient of relative risk aversion under constant relative risk aversion utility relates to the market price of risk, defined as the market excess return divided by market volatility. The answer derives the asset-pricing condition…
The note examines why simulated portfolio drawdowns from Laplace-distributed returns can look similar to those from normal returns, even though Laplace samples have heavier tails. It defines a drawdown as the largest peak-to-trough decline and connects that…
The document explains the geometric link between a portfolio’s Sharpe ratio and the capital market line. For a risky portfolio, the ratio corresponds to the slope from the risk-free asset, or cash, to that portfolio in a risk-return diagram. Combining cash…
The document explains how to combine separately estimated asset volatilities into a portfolio volatility estimate when the assets have nonzero correlations. Its central method is to form the covariance matrix and calculate the portfolio variance as the…
The document considers how to assess whether investors in a stock market hold diversified portfolios. It argues that diversification needs a clear definition: sector and industry breadth is one view, while the correlations and changing co-movements of…
The document asks whether a self-financing constraint is useful when modeling an investment or trading strategy outside derivative pricing and replication. A self-financing portfolio funds purchases of new assets by selling existing holdings, rather than…
The document asks how to construct an arbitrage portfolio after showing, using the fundamental theorem of asset pricing, that no equivalent martingale measure exists for a two-asset, three-state market. The accepted answer sets up positions in a risk-free…