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 …

A significant amount of research has focused on at-the-money (ATM) and out-of-the-money (OTM) options due to their liquidity and leverage effects. However, little attention has been given to in-the-money (ITM) options. Reference addresses this gap by studying ITM options, particularly in the context of retail traders. The author pointed …

Unlike long-dated options, short-dated options incorporate not only diffusive volatility but also jump risks. The commonly used VIX and SKEW indices cannot clearly identify the jump risk component in options volatility. To better isolate and present the jump risk component, Reference developed a stochastic jump volatility model that includes …

Trading systems often experience performance deterioration after going live, largely due to overfitting. Reference formally studied this issue, using analytical approximations for the in-sample and out-of-sample Sharpe ratios of portfolios. The authors pointed out, This paper derives analytical approximations for the in-sample and out-of-sample Sharpe ratios of portfolios constructed …

Momentum in the options market is an emerging and active area of research. For example, Reference demonstrated that delta-hedged straddle positions exhibit momentum, where firms with strong option performance over the past 6 to 36 months are likely to experience high option returns in the subsequent month. Reference  …

Options, particularly short-dated ones, are gaining popularity among retail traders, with their trading volume increasing significantly. While some research argues that short-dated options do not impact the market, certain market practitioners hold opposing views. Reference investigated the risks associated with short-dated options order flow. It examined the effective trading …

Market manipulation refers to intentional actions taken to distort the normal functioning of financial markets, often to benefit specific individuals or entities at the expense of others. These actions can include spreading false information, rigging prices, or creating artificial demand or supply. A notable example is the LIBOR manipulation scandal, …