A Practical Guide to Quantitative Portfolio Trading

842 Pages Posted: 31 Dec 2014 Last revised: 19 Nov 2015

See all articles by Daniel Alexandre Bloch

Daniel Alexandre Bloch

Université Paris VI Pierre et Marie Curie

Date Written: December 30, 2014

Abstract

We discuss risk, preference and valuation in classical economics, which led academics to develop a theory of market prices, resulting in the general equilibrium theories. However, in practice, the decision process does not follow that theory since the qualitative aspect coming from human decision making process is missing. Further, a large number of studies in empirical finance showed that financial assets exhibit trends or cycles, resulting in persistent inefficiencies in the market, that can be exploited. The uneven assimilation of information emphasised the multifractal nature of the capital markets, recognising complexity. New theories to explain financial markets developed, among which is a multitude of interacting agents forming a complex system characterised by a high level of uncertainty. Recently, with the increased availability of data, econophysics emerged as a mix of physical sciences and economics to get the best of both world, in view of analysing more deeply assets' predictability. For instance, data mining and machine learning methodologies provide a range of general techniques for classification, prediction, and optimisation of structured and unstructured data. Using these techniques, one can describe financial markets through degrees of freedom which may be both qualitative and quantitative in nature. In this book we detail how the growing use of quantitative methods changed finance and investment theory. The most significant benefit being the power of automation, enforcing a systematic investment approach and a structured and unified framework. We present in a chronological order the necessary steps to identify trading signals, build quantitative strategies, assess expected returns, measure and score strategies, and allocate portfolios.

Keywords: Systematic Trading, Quantitative Portfolio, Quantitative Strategy, Multifractal Markets

Suggested Citation

Bloch, Daniel Alexandre, A Practical Guide to Quantitative Portfolio Trading (December 30, 2014). Available at SSRN: https://ssrn.com/abstract=2543802 or http://dx.doi.org/10.2139/ssrn.2543802

Daniel Alexandre Bloch (Contact Author)

Université Paris VI Pierre et Marie Curie ( email )

175 Rue du Chevaleret
Paris, 75013
France

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