Oct. 7, 2018
This HTML file: The CAPM Revisited II is the continuation of my last article: The Capital Asset Pricing Model Revisited. This new file makes the case that the use of a trading strategy optimizer might force to consider not detrending price series since some of the information is lost in the process. It also makes the case that the alpha generation is important since it can make quite a difference in the end.
This file explores the impact of 3 equations representing stochastic stock price series generated from normalized distributions. The program code will generate 5,000 portfolios each time it is ran, each with 100 normally distributed stock price series out of an infinite stock universe. Modifying the code will let you explore other alternatives just by changing a few numbers like simulating for 50,000 portfolios or 1000 stocks at a time.
(click to enlarge)
The last equation should prove to be the most important. Nonetheless, it says the obvious. To outperform your peers, you need all the help you can get. And most of it will come from you.
Read the HTML file.
Note: in a Quantopian forum (Link no longer available due to Quantopian shut down), one can clone an attached notebook and then modify its code. (Registration was free).
Created... October 7, 2018, © Guy R. Fleury. All rights reserved.