@systematicls Ya, I see. You're right. They are reliant on them "topping up."
I'm the small percentage of retail algotraders doing ok/well.
Thanks for the reply! I enjoy your tweets.
The context in which people hear about factor models is always about using factor models to hedge. This is ONE side of the story, where you are trying to remove systematic risks from your portfolio.
The real pros understand that factor models are a denoising technique.
They partition returns into “stuff that does not matter” (systematic factor exposure) and “stuff that does matter” (idiosyncratic returns where alpha lives).
The better you model the systematic part, the cleaner the residual and the cleaner the residual, the easier it is to find tradeable alpha.
In today's article, I talk about this phenomenon and how to roll your own factor models no matter what markets you are trading!
As usual, I will be giving out the articles for free to some retweets!
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