Research

The Amaranth Blowup: What a $6.6 Billion Loss Teaches Systematic Traders About Position Sizing
In September 2006, Amaranth Advisors lost $6.6 billion in roughly two weeks. The fund had $9.2 billion in assets under management at the end of August. By mid-September it was effectively finished. The loss came from natural gas spread positions, specifically long winter contracts against short non-winter contracts, spanning delivery dates from 2006 through 2010. Hilary Till's case study, published in the J.P. Morgan Center for Commodities' Global Commodities Applied Research Digest (Summer 2018), reconstructs the positions from the U.S. Senate's 2007 investigation report and runs the numbers that should... Read more...
Trading Black Swan Events: Mean Reversion Strategies for S&P 500 Outliers
Quantitative models often fail because they assume a normal distribution of returns, failing to account for fat tails or extreme outliers. While many traders treat these Black Swan events as risks to be avoided, a 2020 research paper suggests they can be used as high-probability entry signals for short-term mean reversion. The study, Short Term Trading Models, Mean Reversion Trading Strategies and the Black Swan Events, evaluates how these extreme price deviations provide stronger reversion signals than standard technical indicators like Bollinger Bands. Defining the Black Swan Universe The researchers... Read more...
How Walk-Forward Window Length Affects Crypto EMA Strategy Performance
Walk-forward optimization is a standard technique in systematic trading, but one of its foundational inputs is almost never questioned: the choice of training and testing window lengths. Practitioners typically pick these by convention or intuition and then spend their optimization effort on the strategy's signal parameters. Mroziewicz and Slepaczuk flip this around. Rather than treating window lengths as a fixed scaffold for optimization, they treat window length selection as the optimization problem itself, testing 81 combinations of training and testing window durations on intraday Bitcoin data and measuring how much... Read more...
Enhancing Global Equity Returns: Trend-Following and Tail Risk Hedging Overlays
Global developed market equities (MSCI World or ACWI) are the standard growth engine for most portfolios, but they come with a steep price: drawdowns of 30-50% during major crises. Most traditional risk management approaches involves selling equities to buy bonds or cash, which reduces drawdown but also reduces long-term returns. The Holy Grail of portfolio construction is a method that reduces risk without sacrificing return. A 2025 paper by Bruno Schwalbach and Christo Auret, published in the Investment Analysts Journal (Vol. 54, No. 3), proposes a solution using a "Portable... Read more...
Multi-Asset Momentum and Trend-Following in 2016
Most multi-asset portfolios use static allocation: a fixed percentage to equities, a fixed percentage to bonds, rebalanced on a schedule. The TrendFolios paper asks whether replacing that static weight with dynamic signal-driven inclusion decisions across all three buckets simultaneously produces better risk-adjusted returns than a traditional 60/40 over a long period. The test runs from December 1997 through December 2023, which is long enough to include the dot-com collapse, the 2008 financial crisis, the European debt crisis, and 2020. The result is mostly yes, but with a pattern in the... Read more...
Momentum Trading for Individual Investors: What the Research Shows
Most academic momentum research is not directly applicable to individual investors. The standard methodology goes long recent winners, short recent losers, holds hundreds of positions simultaneously, and omits transaction costs. The resulting return figures look compelling on paper but are inaccessible in practice: short selling is unavailable or impractical for most retail accounts, the capital requirements to hold hundreds of positions are substantial, and cost-free assumptions overstate real returns significantly. A 2015 paper by Bryan Foltice (Butler University) and Thomas Langer (University of Munster) addresses this directly. Published in Financial... Read more...