Machine learning is a subset of artificial intelligence that involves training algorithms to learn patterns from data and make predictions or decisions without being explicitly programmed. It encompasses a range of techniques, from simple linear regression to complex neural networks, and is used in various applications such as image and …

The momentum anomaly in the stock market refers to the phenomenon where stocks that have performed well in the past continue to perform well in the near future, and those that have performed poorly continue to underperform. Momentum strategies exploit this anomaly by buying stocks with high past returns and …

Statistical arbitrage is a classic trading strategy, invented in the 1980s. We mostly see it being applied in the equity markets, but statistical arbitrage is not limited to equities. It can be applied to other asset classes as well. Reference examined the statistical arbitrage strategy in the commodity markets, …

A mean reversion trading strategy is based on the concept that asset prices will revert to their historical average or mean over time. This strategy identifies securities that have deviated significantly from their historical averages, with the expectation that they will eventually return to those levels. The goal is to …

Pairs trading is a market-neutral trading strategy that involves taking simultaneous long and short positions in two correlated stocks to profit from their relative price movements. There are recent research papers that argue that pairs trading is no longer profitable, especially when using traditional pairs selection methods. Reference , however, …

Retail investors are individual, non-professional investors who buy and sell securities, such as stocks, options, and mutual funds, for their personal accounts rather than for an organization or institution. Unlike institutional investors, who manage large sums of money on behalf of clients or large entities, retail investors typically trade in …

An extreme loss event in the stock market refers to a sudden and significant decline in stock prices, often resulting from unexpected and severe market conditions. These events, also known as market crashes or financial crises, can be triggered by a variety of factors including economic downturns, geopolitical tensions, natural …

In the financial literature and media, we often encounter the concept of term structure, such as the term structure of volatility and the term structure of interest rates. Reference introduced the concept of term structure of expected stock returns. Essentially, the author utilizes options data to first calculate a …

Cross-sectional momentum is an investment strategy that involves ranking and selecting assets based on their past performance relative to their peers. Unlike time-series momentum, which looks at an individual asset’s past performance in isolation, cross-sectional momentum compares multiple assets to each other. Investors buy the top-performing assets and sell the …

Calendar anomalies in the stock market refer to recurring patterns or anomalies that occur at specific times of the year, month, or week, which cannot be explained by traditional financial theories. These anomalies often defy the efficient market hypothesis and provide opportunities for investors to exploit market inefficiencies. Some well-known …