Curse of dimensionality part 3: Higher-Order Comoments
Higher moments such as Skewness and Kurtosis are not as explored as they should be. These moments are crucial for managing portfolio risk. At least as important as volatility, if not more. Skewness...
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Create own Recession Indicator using Mixture Models
Context Broadly speaking, we can classify financial markets conditions into two categories: Bull and Bear. The first is a “todo bien” market, tranquil and generally upward sloping. The second describes...
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Adaptive Huber Regression
Many years ago, when I was still trying to beat the market, I used to pair-trade. In principle it is quite straightforward to estimate the correlation between two stocks. The estimator for beta is very...
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Visualizing Tail Risk
Tail risk conventionally refers to the risk of a large and sharp draw down of the portfolio. How large is subjective and depends on how you define what is a tail. A lot of research is directed towards...
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Beta in the tails
Every form of strength is also a form of weakness*. I love statistics, but I focus to much on methodology, which is not for everyone. Some people (right or wrong) question: “wonderful sir, but what can...
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