Extensions to QTAA

I get a ton of emails with ideas and questions about trading systems.  We put together a research piece that answers a lot of these questions and will likely publish it in the coming weeks on the blog or in a white paper.

I’ve also chatted with my buddy Barry Ritholtz, and we’ve been batting around some ideas with various other factors that would apply to timing stock indexes.

If you have any ideas fire them over!

Here is an example of one of the charts detailing the differences between various reblance periods in a five asset class model from the ’06 paper with hypothetical results back to 2000.

FIGURE 1 – 12 Month Rolling Returns, Monthly (10-Month SMA) vs. Weekly Rebalancing (40-Week SMA)

Abstract 

In 2006 we published a paper that outlined a trading system for investing in world asset classes.  The purpose of the paper was to present a quantitative method that improves the risk-adjusted returns of a portfolio while also reducing portfolio drawdowns. The intent of the original paper was to present some basic ideas that could form the foundation for a portfolio while realizing that the correct allocation is a tailored one that suits an investors goals, risk tolerances, and emotional disposition. In this paper we present a few new ideas while trying to answer some commonly asked questions that could possibly increase risk-adjusted returns.  We take a look at increasing the number of assets in the portfolio as well as increasing the granularity within the major asset classes.  We examine whether rebalancing frequency such as daily, weekly, or monthly rebalancing impacts returns, and the effects of different parameter lengths.  We also examine various cash management strategies that could improve returns over Treasury Bills.  We finish the paper with a few more possible extensions that investors may consider as a complement to a trendfollowing system.