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 how to attribute performance for an individual portfolio with a small number of stocks across several sectors. It compares the portfolio’s sector weights with sector weights in the S&P 500 and considers normalizing the benchmark sector…
The document compares principal component analysis applied to yield curve levels with PCA applied to daily rate changes. The researcher reports that both input choices produce component shapes resembling a parallel level shift, a slope change, and a…
The document asks how to find the highest expected return among fully invested portfolios with a specified standard deviation. It sets out the standard mean-variance ingredients: asset expected returns, a covariance matrix, a target portfolio variance, and…
The document explains how currency hedging can affect the risk and return of foreign investments. Long-run studies cited in the discussion suggest hedging may leave returns similar while reducing volatility, which can benefit mean-variance investors. Over…
A return regression can help estimate a strategy’s Sharpe ratio, but the regression alone does not determine it. The result depends on how the signal is converted into positions and, for portfolios, on the conditional covariance among assets. A tangency…
The document examines when optimizing expected utility leads to an investment fraction proportional to expected return divided by variance. It writes the first-order condition for an investor choosing a fraction of wealth in a risky asset, then identifies…
This note describes a reported mismatch between a covariance matrix that appears positive definite under Cholesky decomposition and negative eigenvalues returned by a symmetric eigensolver. The matrix is built from historical forward-rate data imported…
The document addresses whether a futures position used to reduce a bond portfolio’s duration should be included when estimating portfolio yield to maturity. The response says to include it by using the future’s implied yield to maturity and assigning that…
The document compares two ways to summarize an asset’s historical return and volatility. One method averages daily log returns and scales the mean and standard deviation to an annual horizon; the other calculates each calendar year’s simple return and then…
The document explores how to allocate capital among models that trade different instruments, strategies, and holding periods. One proposed starting point is to treat each strategy–instrument combination as a portfolio component and apply mean–variance…
The document explains how to construct an equally dollar-weighted portfolio and calculate its periodic returns. The portfolio return at each time step is the arithmetic average of the constituent returns when the portfolio is rebalanced to equal weights.…
The discussion frames hedge selection as choosing weights on available instruments to reduce the combined portfolio’s PnL variance. A simple example shows that when matching instruments exist, the method should recover offsetting positions; with imperfect…
The question examines how to define terminal wealth in a finite-horizon asset-pricing model. Agents have exponential utility and consume only in the final period, so their objective is to maximize wealth at the horizon. Earlier wealth can be described…
The discussion considers why a multi-period mean-variance portfolio plan can be time-inconsistent: a strategy that maximizes expected terminal wealth subject to a risk penalty today may no longer be optimal when reconsidered at a later date. It asks whether…
The discussion evaluates a proposed currency index that would weight exchange-rate changes by each currency’s share of daily trading volume. A central obstacle is that spot foreign exchange is mostly traded over the counter, so comprehensive daily volume is…
The document asks why a payoff proportional to the stochastic discount factor belongs to the mean–variance frontier. The answer’s intuition is that the payoff and the stochastic discount factor move perfectly together: scaling one by a positive constant does…
The discussion asks how to combine robust optimization, fixed transaction costs, and discrete portfolio constraints such as limits on the number of selected assets. It points to work on robust second-order cone formulations and a heuristic for portfolio…
The document describes a proposed zero-investment stock portfolio in which each asset's weight depends on observable state variables, such as factors related to stock performance. This is the parametric portfolio policy approach associated with Brandt and…
The question considers estimating a portfolio Value-at-Risk from correlated asset returns assumed to follow a multivariate normal distribution. It proposes finding the portfolio's worst return on a probability ellipsoid determined by a chi-square cutoff,…
The document explains which stocks qualify for the annual Fama–French size and book-to-market portfolio sorts. Portfolios are formed at June end using market equity for size and book-to-market information based on prior fiscal-year book equity and December…
The document examines why the Fama–French model regresses stock returns on market, size, and value factor portfolio returns instead of directly using firm size and book-to-market ratios. One answer argues that factor returns keep regressors in return units,…
The document considers how to balance uncertain expected-return forecasts against covariance risk and trading costs in a constrained portfolio optimization problem. Its proposed method is to multiply the return signal by a shrinkage coefficient between zero…
The document shows how to calculate a final balance when each day has a different rate and interest compounds discretely. Starting from an initial principal, multiply the balance successively by one plus each day’s rate. The same calculation can be expressed…
The document asks whether equity factor models can tell a portfolio manager how to position a portfolio to earn alpha, beyond identifying its factor exposures. The response gives a limited conceptual distinction: in the stated arbitrage pricing theory…