As cryptocurrencies become mainstream and gain acceptance, there is still no coherent investment framework for valuing them. Reference explores the differences between equity and crypto investors and proposes an investment framework for cryptocurrencies based on the prospect theory. The differences between equity and crypto investors are: Stock market investors …

Dispersion in the stock market refers to the degree of variation in individual stock returns within an index or sector. High dispersion indicates significant differences in performance among stocks. Conversely, low dispersion suggests that stocks are moving more uniformly, often driven by broad market trends. Usually, dispersion is measured by …

Technical analysis (TA) is a trading approach that evaluates past price movements and volume data to forecast future market trends. It relies on price patterns, indicators, and statistical measures rather than fundamental factors. Investors use tools like moving averages, RSI, and Bollinger Bands to identify trends, support and resistance levels, …

The decomposition of the volatility risk premium (VRP) into overnight and intraday components is an active area of research. Most studies indicate that the VRP serves as compensation for investors bearing overnight risks. Reference continues this line of research, with its main contribution being the decomposition of the variance …

A Large Language Model (LLM) is an advanced AI system trained on vast amounts of text data to understand, generate, and analyze human language. In finance, LLMs are used for tasks like analyzing earnings reports, generating market sentiment analysis, automating financial research, and enhancing algorithmic trading strategies. They can process …

Earnings announcements impact a company’s stock volatility. Reference examined the earnings reports of Dow Jones Industrial Average components over 10 years to better understand the relationship between different volatility regimes and the time it takes for earnings information to be fully absorbed by the market. The study focuses on …

The Hurst exponent is a statistical measure used to assess the long-term memory and persistence of a time series. It quantifies the tendency of a system to revert to the mean, follow a random walk, or exhibit a trending behavior. A Hurst exponent (H) value between 0 and 0.5 indicates …

Calendar anomalies in the stock market refer to patterns where stock returns deviate from expected behavior based on the time of year, month, or even day. Well-documented anomalies include the “Sell in May and Go Away” strategy, which suggests that stocks underperform during the summer months, and the “Turn-of-the-Month Effect,” …

The volatility risk premium (VRP) is the difference between the implied volatility of options and the realized volatility of the underlying asset, representing the compensation investors earn for taking on volatility risk. Recent research suggests that the VRP is specifically a reward for bearing overnight risk. Reference goes further …

In a paper published in 2005, Wilcox et al. showed that trend following worked on single-name stocks. Twenty years later, they retested the methodology using new, survivorship bias-free data . Basically, the trading system works as follows: Entry: If, at the close of day t, a stock meets the …