This chapter includes reference sections with a list of academic/professional papers that can be used as a source of alpha ideas.

Note that the third-party links mentioned below are for reference purpose and user’s convenience only. These third-party sites may have their own terms of use and the reader is strongly urged to read and abide by them.

FINANCE BASICS

There is also a lot of information available on the web on the terms included in this section. We will provide links to additional information where possible but the reader is strongly encouraged to do a web search or research these terms on public open sources such as Wikipedia, Google Scholar, Investopedia, etc.

1. Active Portfolio Management
   • Source: Active Portfolio Management: A Quantitative Approach for Producing Superior Returns and Controlling Risks, by Richard Grinold and Ronald Kahn
   • Comment: Foundations, expected returns and valuations, and implementations.
2. Market Neutral
   • Comment: Defines the terms market neutral, equity market neutral, and provides illustrations.
3. Capital Asset Pricing Model
   • Source: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=440920
   • Comment: Gives an introduction to CAPM, its formula, security market line, asset pricing, asset-specific required return, risk and diversification, efficient frontier, market portfolio, assumptions of CAPM.
4. Fama and French Model
   • Source: http://www.moneychimp.com/articles/risk/multifactor.htm
   • Source:  http://www.portfoliosolutions.com/our-process-2/confidencemap-planning/understanding-risk/
   • Comment: This gives an introduction, portfolio analysis, investing for the future, and conclusions inferred from analyzing the Fama-French model.
5. Market Efficiency
   • Source: http://www.investopedia.com/articles/02/101502.asp
   • Comment: Explains what market efficiency is; the effect, challenge, and degrees of efficiency, and the bottom line.
6. Information Ratio
   • Source: http://www.cfapubs.org/doi/abs/10.2469/ipmn.v2011.n1.7
   • Source: http://seekingalpha.com/article/63911-clarifying-the-information-ratio-and-sharpe-ratio
   • Comment: Formula and definition of IR, comparing Sharpe and information ratio.
7. Corporate Fundamental Analysis
   • Source: https://www.tradeking.com/education/stocks/fundamental-analysis-explained
   • Source: http://www.euroinvestor.com/ei-news/2012/02/12/stock-school-5-important-elements-in-fundamental-analysis/15694
   • Comment: Gives introduction, procedure, its strength and weaknesses, and five important elements in fundamental analysis.

CLASSICAL PAPERS FOR QUANT RESEARCH

1. The Cross-Section of Expected Stock Returns
   • Source: http://www.bengrahaminvesting.ca/Research/Papers/French/The_Cross-Section_of_Expected_Stock_Returns.pdf
   • Comment: This is the famous “Fama-French” paper, which proposed the “Fama-French” factor, and the basics of cross-sectional equity research methods.
2. Size, Value, and Momentum in International Stock Returns
   • Source: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1720139
   • Comment: The “Fama-French” factors applied in international markets.
3. Value and Momentum Everywhere
   • Source: http://schwert.ssb.rochester.edu/f532/AMP12.pdf
   • Comment: A good introduction to value and momentum; they can generate abnormal returns for individual stocks within several countries, across country equity indices, government bonds, currencies, and commodities.
4. Mean Reversion in Stock Prices: Evidence and Implications
   • Source: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=227278
   • Comment: One of the earliest papers reflecting the mean-reversion nature of stock prices.
5. Price Momentum and Trading Volume
   • Source: http://technicalanalysis.org.uk/volume/LeSw00.pdf
   • Comment: Gives insight to what the role of volume is: past trading volume provides an important link between “momentum” and “value” strategies.

OVERFITTING RISK AND WHERE TO FIND ALPHAS

1. Anomalies and Market Efficiency
   • Source: http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.197.5770&rep=rep1&type=pdf
2. Seven Market Anomalies Investors Should Know
   • Source: http://www.investopedia.com/articles/financial-theory/11/trading-with-market-anomalies.asp
3. What You See May Not Be What You Get: A Brief, Nontechnical Introduction to Overfitting in Regression-Type Models
   • Source: http://people.duke.edu/~mababyak/papers/babyakregression.pdf
4. The Probability of Backtest Overfitting
   • Source: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2326253
5. What Happened to the Quants in August 2007? Evidence from Factors and Transactions Data
   • Source: http://www.argentumlux.org/documents/august07b_2.pdf

ALPHA RESEARCH PAPERS

1. Allen, E., Larson, C. and R.G. Sloan (2011). Accrual reversals, earnings and stock returns. Working paper, University of California, Berkeley.
2. Ang, A., Hodrick, R.J., Xing, Y. and Zhang, X. (2006). The cross-section of volatility and expected returns. Journal of Finance LXI, 1. p. 259–299.
3. Bali, T.G. and N. Cakici (2008). Idiosyncratic volatility and the cross section of expected returns. Journal of Financial & Quantitative Analysis 43, 1. p. 29–58.
4. Bali, T.G. and A. Hovakimian (2009). Volatility spreads and expected stock returns. Management Science 55, 11. p. 1797–1812.
5. Bandyopadhyay, S.P., Huang, A.G. and T.S. Wirjanto (2010). The accrual volatility anomaly. Working paper, University of Waterloo.
6. Basu, S. (1975). The information content of price-earnings ratios. Financial Management 4, 2. p. 53–64.
7. Bauman, W.S. and R. Dowen (1988). Growth projections and common stock returns. Financial Analysts Journal, July/August.
8. Beneish, M.D. and D.C. Nichols (2009). Identifying overvalued equity. Working paper, Indiana University.
9. Boehme, R.D., Danielsen, B.R., Kumar, P., and S.M.Sorescu (2009). Idiosyncratic risk and the cross-section of stock returns: Merton (1987) meets Miller (1977). Journal of Financial Markets 12. p. 438–468.
10. Bourguignon, F. and M. de Jong (2006). The importance of being value. Journal of Portfolio Management Spring. p. 74–79.
11. Daniel, K. and S. Titman (1997). Evidence on the characteristics of cross sectional variation in stock returns. Journal of Finance 52. p. 1–33.
12. Fama, E.F. and J.D. MacBeth (1973). Risk, retrun and equilibrium: Empirical tests. Journal of Political Economy 81. p. 607–636.
13. Kaplan, S.N. and L. Zingales (1997). Do investment-cash flow sensitivities provide useful measures of financing constrains? Quarterly Journal of Economics 112. p. 169–215.
14. Livdan, D., Sapriza H. and L. Zhang (2009). Financially constrained stock returns. Journal of Finance 64. p. 1827–1862.
15. Parker, J.A. and C. Julliard (2005). Consumption risk and the cross section of expected returns. Journal of Political Economy 113. p. 186–222.
16. Spiess, D.K. and J. Affleck-Graves (1999). The long-run performance of stock returns following debt offerings. Journal of Financial Economics 54. p. 45–73.

Note: Please refer to our website at worldquantchallenge.com for the monthly updated reading list.