Final exam: replication
The course project is to replicate a paper. When drumming up new quant trading ideas, often quantitative researchers will draw from prior literature. After identifying an interesting strategy, the researcher will replicate the strategy, deciding if the strategy is indeed robust, and then analyzing it more deeply. Then, the researcher will study if the strategy can be improved.
You can work in groups of 3, 2 or 1
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1. What to replicate
You may choose whatever paper you want. If you do not pick a paper below, please do at least one portfolio sort, along with associated t-statistics, risk adjustments, cumulative return graphs, and any complete metric you think you need to see whether this strategy is reliable. Students may decide on their own what combination of charts and tables they think is appropriate for analyzing this strategy.
2. What you are being graded on
Sophistication of analysis. You are not being judged on getting the numbers exactly similar to the paper, often times one doesn’t have the exact same dataset used, things will change over time with extended sample data. Moreover, as Pointiff and Mclean (2016) argues, return attrition is expected once a paper is published.
Going the extra mile:
· Different filters on liquidity – do you enhance or undermine their result? Can you break the strategy with robustness checks that are reasonable
· You are encouraged to think of things the authors did not do, extending their work or coming up with profitable deviations from their strategy.
· Extending the strategy to a new market or asset class. I would be interested in seeing what works in HK or China A-Share market, for example, or just globally.
3. Logistics
· Submission form will be posted
· Due date: TBD. Three days before grades are due to provide students maximum flexibility. Likely a few days after finals.
A curated list of papers
Other than what we replicated in class, anything in one of the following journals is fine: JFQA, Review of Finance, Journal of Finance, Management Science, Review of Financial Studies, Review of Asset Pricing Studies, Journal of Financial Economics, or on the website of a researcher who publishes in these journals. Please let me know if you decide to elect another paper outside the list below. That is perfectly fine, but I need to know it is something we did not do in class. However, I cannot guarantee those studies will be feasible.
The examples I have curated below are relatively doable given time constraints.
1. Expected return, volume and mispricing (2022, Journal of Financial Economics)
a. Table 1, 2, 4 of the SSRN version
b. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3171375
2. Common risk Factors in Cryptocurrency (2021, Journal of Finance)
a. Table 3,4,5,6,8
3. The Dividend Month Premium, Hartzmark and Solomon (2012)
a. Table 1, Panel A B C
b. Table II
c. Table III A and B
d. Figure 1
e. Extra mile: Table IV, Table VI, Figure 2
4. Earnings Extrapolation and Predictable Stock Market Returns by (unpublished, faculty joining HKU next year! )
a. Table 1,2,3,4
5. A FROG IN EVERY PAN: INFORMATION DISCRETENESS AND THE LEAD-LAG RETURNS PUZZLE (JFE, 2022). (Some HKU people are authors)
a. Tables 1,2,3, and Table 9 Panels A and D
6. Maxing out: Stocks as Lotteries in the Cross-Section of Expected Returns of the publication version
a. Replicate Table 1,2
b. Table 4
c. Either Table 6, 7 10 or 11
d. Report the cumulative return graph to the strategy
7. The Other Side of Value: Gross Profitability by Marx (2010)
a. Table II
b. Table III
c. Table IV
d. Table V
e. Table VI, Panel A
f. Table 7 Panel A
g. Optional but desirable
i. Table VI, Panel B
h. You may use ’s code to boost your replication time. Or use the finratios.file
8. Idiosyncratic momentum
a. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2947044
b. Not an academic paper, but based off of one
c. 1,2,4,11,12,13
Another moonshot project that might be interesting is on NFTs. However, you will have to collect the data yourself. Replicate at least the first three tables.
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4052045
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