Everything in investing boils down to two things: trend and mean-reversion. It doesn’t matter whether you are a fundamental investor or a quantitative trader, the ultimate bet that you are making is whether the variable of choice is going to continue to trend or mean-revert.
The funny thing about financial time-series is that the same variable can test well both for trend and mean-reversion based on your sampling-frequency and holding period.
For example, the NIFTY can be viewed by an investor as trending over multiple months while a trader might view it as mean-reverting over a couple of days and a speculator might switch back to a view of it as trending over a few hours, etc.
While you go exploring, the first thing you should nail down is your sampling-frequency and holding period.
This week, we discussed auto-correlation on our blog. Understanding ACF and RLE is the foundation for answering the trend/reversion question.
Markets this Week
The US economy is back on its feet and firing on all cylinders. The market finally got down for its eggnog induced high and started waking up to the fact that the Fed is serious about tightening.
The market is pricing in a rate hike by March and two by the end of the year.
The long-end of the curve in both US and Indian bonds have steepened quite a bit compared to where they were last year.
Rising rates are usually bad news for Emerging Markets and risk-assets in general. So, brace yourself!
Links
The Global Transmission of U.S. Monetary Policy (pdf)
When (If Ever) Has it Paid to Wait for a Stock Market Correction? (SSRN)
Reviews of all the books you ever wanted to read but didn’t. By a quant: Robert's Book Reviews
Quant and Volatility content: Moontower Wiki
Can data be directly monetized? Perhaps not. (threadreaderapp)