Applications of Time Series Analysis (ARMA-GARCH) To Improve Risk-Adjusted Return Screening Procedures.
You have been given the daily returns of several strategies / funds over the past year, how would you determine which one provides the best investment opportunity given only this information?
A naive approach might be to select the strategy with the best-annualized return, however, this ignores the level of potential risk that may materialize in future returns. For instance, suppose that the returns on Strategy A are better than that of Strategy B, but strategy A has a higher variance in daily returns (volatility). …
Applications of Monte Carlo Methods
The Rational Investor Allocation
Markowitz Portfolio Optimisation seeks to find a set of weights for N assets in a portfolio such that the risk adjusted return of the portfolio is maximised (aka the Sharpe Ratio).
This is the portfolio the so called “rational investor” would choose as clearly no one would want a portfolio that did not generate the best risk adjusted return right?
Let us introduce this with a little bit of mathematics to accompany this. Capital “Sigma” is the covariance matrix of asset returns, with entries measuring the strength with which one assets returns tend to move…
Applications of Change-point Detection, Cox Regression, and Bayesian Hierarchical Models
A company’s performance relative to its peers will be ultimately driven by management’s strategic decision making ability to drive growth and position the organisation for changing market conditions.
Whilst investors ultimately care about picking stocks with management teams that can generate returns for shareholders, it is also important to be able to correctly time these investments or trades. An extreme example would be to short a stock that where goes bankrupt, but in the near term skyrockets, forcing you to close at a loss.
Quantamental Research
The UCD Investors & Entreprenuers Finance Research Publication
