The devil is in the detail they say. And one detail that has been nagging me extra lately is the issue mentioned in A few simple rows – Restated  that I’m still not sure if my model successfully can ensure positive asset weight only. A feature which I believe is essential for having an investment strategy accessible to anyone, and not only hedge funds. As you will see in this post, this issue is an easy fix. Although, the solution was not what I expected.  I will demonstrate two different models for obtaining dynamic and optimal values of theta, followed by two different methods for translating these thetas into asset weight within my portfolio. In total, this will result in four different model+method combinations for which each combination’s portfolio performance is presented in the end. Are you ready? Model A The first model is the one currently used for obtaining the values of theta within my investment strategy up to date. Since I have already shown you all details behind...

A lot of developments have been made since I first started to open the black box  and shared my investment strategy with you in as in  A few simple rows . Also, as promised, I will today show you the details of my most recent strategy. Namely, the Dolvol + Mom (Dynamic) strategy from Let’s turn the GAS on .  A lot of the things that I show here today are already included in old posts. And for any frequent readers, that may seem a bit repeating. However, since I want everything that I do here to be as open and accessible as possible, I have decided to compile all my most up-to-date work here in one place.  Starting with the method, my investment strategy uses a combination of the parametric portfolio policy  and a generalized autoregressive score  (GAS) model to decide which stocks within the OMX Stockholm 30 Index  to invest in each month.  In essence, I model the asset weights of each stock each month as where 1/N stands for equally weighted benc...

It’s time to present a new alteration of my investment strategy. In doing so, I take use of a model that I have been aiming to include ever since the very start of this project. Namely, the generalized autoregressive sore model, or GAS.  The idea is to use GAS in combination with the parametric portfolio policy  and thereby obtain more dynamic or time-varying values of theta to determine the asset weights. I will soon show you how to do so in practice, and I will also show that this yields good potential for higher returns. But first and foremost, here follows some more theoretical details concerning GAS. I. Generalized Autoregressive Score (GAS) In short, I use GAS for modelling dynamic variables (i.e., dynamic values of theta) via functions of lagged and predetermined variables. This is probably best expressed in the equation below. Omega (ω) stands for the long run or unconditional mean. Hence, this is the value that theta is supposed to converge towards in the long run. B...