Maximizing the Rebalancing Premium: Why Risk Parity portfolios are much greater than the sum of their parts

We examine the distribution of rebalancing premiums for a simple risk parity implementation (a version of the Permanent Portfolio) consisting of US stocks, gold and bonds from 1982 through May 2020. We then proceed to analyze historical and expected future rebalancing premia for a variety of global risk parity strategies ..

Are We Living in a Post-Factor World?

In some ways new investment concepts are like any new technology. The progenitors of any early technology typically earn extraordinary profits until competition heats up. Eventually competition drives down profit margins and the technology becomes commoditized. But investment technology has a special quality that arises from…

Novel Price Estimator Guaranteed to Produce Non-Negative Prices

The following report was produced by our research team and we felt it was worth sharing for discussion and comment. The recent price action in crude oil prompted us to spend a little effort thinking about how to manage around negative prices.

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The Black Box: Eyewitness Testimony and Investment Models

Multiple discovery suggests that the most valuable, achievable advances in a field are often being examined simultaneously – yet independently – by many people at the same time.  It stands to reason that on these occasions, leaps in logic can often occur at the same time by independent parties.

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NFL Parity, Sample Size and Manager Selection

We’ve been discussing issues around statistical significance – most notably, what makes a tested model’s results significant and therefore likely to perform in a consistent fashion when implemented in real time. In our last article we discussed what constitutes robustness in the context of testing a trading model.

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Towards a Simpler Palate

The current article series deals with the concept of performance decay, which occurs when the performance of a systematic trading strategy is materially worse in application than it appeared during testing. We dealt with the concept of arbitrage in our last post, drawing a parallel with the phenomenon of ‘multiple discovery’ in science.

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Sources of Performance Decay

Above all, the greatest fear in empirical finance is that the out of sample results for a strategy under investigation will be materially weaker than the results derived from testing. There is absolutely no doubt that a meaningful portion of observed out-of-sample performance decay is the result of arbitrage; that is, others discovering and concurrently exploiting the same anomaly.

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Valuation Based Equity Market Forecast – December 2013 Update

We first published a valuation based market forecast in September of 2010. At that time we used only the Shiller PE data to generate our forecast, and our analysis suggested investors should expect under 5% per year after inflation over the subsequent 10 year horizon. Over the 40 months since we have introduced..

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A fool thinks himself to be wise

As a team whose principals have spent thousands of hours accumulating academic credentials and experience in a fairly narrow field of expertise – public markets – we are endlessly fascinated with peoples’ optimism about their ability to succeed independently in this hyper-competitive domain.

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One Factor to Rule Them All

Over the past few years there has been a loud and persistent chorus of complaints from market participants about the fact that markets are behaving like simple ‘risk on, risk off’ discounting mechanisms, where almost all of the risk seems to be emanating from a very small number of sources.

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About Us

ReSolve Asset Management Blog is an investment research forum, opinion pieces, and educational material from the team at ReSolve Asset Management. Our views are driven by evidence based finance, with a special focus on asset allocation, factors and smart beta, retirement and endowment strategies, and quantitative methods.

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