Markets: A Rigorous Course
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Readings and resources

Core about 5 min

Read first (in this order)

  1. Lo, A. W. (2002). "The Statistics of Sharpe Ratios." Financial Analysts Journal 58(4), 36–52. doi:10.2469/faj.v58.n4.2453. Short and complete; 4.5 follows it.
  2. Harvey, C. R., Liu, Y. and Zhu, H. (2016). "… and the Cross-Section of Expected Returns." Review of Financial Studies 29(1), 5–68.
  3. Bailey, D. H. and López de Prado, M. (2014). "The Deflated Sharpe Ratio: Correcting for Selection Bias, Backtest Overfitting and Non-Normality." Journal of Portfolio Management 40(5). https://papers.ssrn.com/abstract=2460551
  4. López de Prado, M. (2018). Advances in Financial Machine Learning, Wiley. Ch. 11 (dangers of backtesting), Ch. 12 (backtesting through cross-validation), Ch. 14 (backtest statistics). Ch. 7 for purged CV (with M13).
  5. Chan, E. (2013). Algorithmic Trading: Winning Strategies and Their Rationale, Wiley. Ch. 1 (backtesting pitfalls), Ch. 6 (interday momentum).

Evidence papers

  • Jegadeesh, N. and Titman, S. (1993). "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency." Journal of Finance 48(1), 65–91. https://ideas.repec.org/a/bla/jfinan/v48y1993i1p65-91.html
  • Moskowitz, T. J., Ooi, Y. H. and Pedersen, L. H. (2012). "Time Series Momentum." Journal of Financial Economics 104(2), 228–250. Data: https://www.aqr.com/Insights/Datasets/Time-Series-Momentum-Original-Paper-Data
  • Daniel, K. and Moskowitz, T. J. (2016). "Momentum Crashes." Journal of Financial Economics 122(2), 221–247. Working paper: https://www.nber.org/papers/w20439 (the numbers quoted in this module are from the working paper, sample 1927:01–2013:03).
  • Barroso, P. and Santa-Clara, P. (2015). "Momentum Has Its Moments." Journal of Financial Economics 116(1).
  • Lo, A. W. and MacKinlay, A. C. (1990). "When Are Contrarian Profits Due to Stock Market Overreaction?" Review of Financial Studies 3(2). Source of Proposition 4.6.
  • Jegadeesh, N. (1990). "Evidence of Predictable Behavior of Security Returns." Journal of Finance 45(3); Lehmann, B. (1990). "Fads, Martingales, and Market Efficiency." Quarterly Journal of Economics 105(1). Short-term reversal.
  • George, T. J. and Hwang, C.-Y. (2004). "The 52-Week High and Momentum Investing." Journal of Finance 59(5).
  • McLean, R. D. and Pontiff, J. (2016). "Does Academic Research Destroy Stock Return Predictability?" Journal of Finance 71(1), 5–32. https://ideas.repec.org/a/bla/jfinan/v71y2016i1p5-32.html
  • Brock, W., Lakonishok, J. and LeBaron, B. (1992). "Simple Technical Trading Rules and the Stochastic Properties of Stock Returns." Journal of Finance 47(5), 1731–1764. https://ideas.repec.org/a/bla/jfinan/v47y1992i5p1731-64.html
  • Sullivan, R., Timmermann, A. and White, H. (1999). "Data-Snooping, Technical Trading Rule Performance, and the Bootstrap." Journal of Finance 54(5), 1647–1691. https://ideas.repec.org/a/bla/jfinan/v54y1999i5p1647-1691.html

Statistics

  • White, H. (2000). "A Reality Check for Data Snooping." Econometrica 68(5), 1097–1126.
  • Hansen, P. R. (2005). "A Test for Superior Predictive Ability." Journal of Business & Economic Statistics 23(4).
  • Romano, J. P. and Wolf, M. (2005). "Stepwise Multiple Testing as Formalized Data Snooping." Econometrica 73(4).
  • Holm, S. (1979). "A Simple Sequentially Rejective Multiple Test Procedure." Scandinavian Journal of Statistics 6(2), 65–70.
  • Benjamini, Y. and Hochberg, Y. (1995). "Controlling the False Discovery Rate." JRSS B 57(1), 289–300. Benjamini, Y. and Yekutieli, D. (2001). Annals of Statistics 29(4).
  • Bailey, D. H., Borwein, J., López de Prado, M. and Zhu, Q. J. (2017). "The Probability of Backtest Overfitting." Journal of Computational Finance. https://papers.ssrn.com/abstract=2326253
  • Bailey, D. H. and López de Prado, M. (2012). "The Sharpe Ratio Efficient Frontier." Journal of Risk 15(2). Source of PSR and MinTRL.
  • Politis, D. N. and Romano, J. P. (1994). "The Stationary Bootstrap." JASA 89(428).
  • Leadbetter, M. R., Lindgren, G. and Rootzén, H. (1983). Extremes and Related Properties of Random Sequences and Processes, Springer, Ch. 1 (maxima of Gaussian sequences).

Swing-trading books (primary sources for 4.2) Weinstein, S. (1988), Secrets for Profiting in Bull and Bear Markets. O'Neil, W. (2009), How to Make Money in Stocks, 4th ed. Minervini, M. (2013), Trade Like a Stock Market Wizard; (2017) Think & Trade Like a Champion. Darvas, N. (1960), How I Made $2,000,000 in the Stock Market. Read them as hypothesis generators.

Lectures López de Prado, "The 7 Reasons Most Machine Learning Funds Fail" (slides, https://papers.ssrn.com/abstract=3031282). MIT 18.S096 (2013), Lecture 6 "Regression Analysis" and Lecture 8 "Time Series Analysis I": https://ocw.mit.edu/courses/18-s096-topics-in-mathematics-with-applications-in-finance-fall-2013/

Indian sources

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