The Elements of Quantitative Investing

Textbook:[Manuscript] The Elements of Quantitative Investing (Version: August 9, 2024)
uthor(s): Giuseppe A. Paleologo

Descriptioon:
This coursebook is divided into three parts. The first part focuses on returns modeling. it is the basics of GARCH early on because they are needed for factor modeling; and then I cover factor models because they are nec-d essary for everything. I have separate chapters for fundamental and statistical models. These topics are covered in depth, and both the treatment and some ofthe modeling approaches are novel. Finally, I cover data snooping/backtesting as a separate chapter, since it is an essential element of return models.
The second part is devoted to portfolio construction and performance anal-ysis, both ex ante and er post. The focus is on mean-variance optimization (MVO). I emphasize the geometric intuition behind much of mean-variance optimization. Rotations, projections, and angles are prevalent throughout. Thisallows for a synthetic, elegant characterization of performance and for concise proofs. The statistics of the Sharpe Ratio are covered in some detail. The decomposition of payoffs into timing components, factor and idiosyncratic PnL, and stock selection versus sizing of positions is rigorously demonstrated. Model error plays an important role in this part. If an optimization problem is Othello, then model error must be Iago: it can drive the optimization insane. Unlike in Shakespeare's tragedies, we can try to rewrite the ending and save Desdemona at last.
The third part is the shortest. It contains results about intertemporal volatility allocation and performance attribution. These are essential components of the investment process, and belong in a book with the word "Elements"in its title.