The Research HUB: AQR

Bond Yields

Hey everyone,

In the last article, we went over nonlinear learning. I covered some ideas on signals and regimes. I want to emphasize, the ideas I laid out were very very basic. The level of sophistication and optimization you can achieve in trading is incredibly high. Most people won’t attempt this because they don’t want to push themselves. I am different.

Let me explain part of my research process. I have a spreadsheet with hundreds of sources for researching macro, quant, fundamentals, crypto, and almost every single topic in markets. I go through these resources every month and read all relevant literature. If you are operating in a specific market, start a spreadsheet with all the resources you monitor for that market.

One of the main resources all of us read in markets is AQR research. It’s helpful, simple, and doesn’t usually go too deep on the math side so I like sending it to new people.

Here is the link: https://www.aqr.com/Research-Archive

Research every asset:

When you approach any market, you need to do a deep dive into how every asset works. A long time ago, I made a list of every major asset in US markets. I then began to systematically go through that list and build a model for every asset. Amazing learning experience!

Where should you start though? In my opinion, starting with fixed income and STIR (short-term interest rates) is the best foundation you can have. Why? I think about it like this. When you have a move in any asset, you need to perform an attribution analysis for what is moving it.

Let’s say we have a stock. Generally speaking, 60-70% of a stock’s movement is macro, 20-30% is the sector and 10-20% is the individual company fundamentals. So when I approach an asset, I want to know the top-down macro regime we are in. Having an exceptional understanding of fixed income and STIR is what allows you to have an exceptional understanding of macro.

If you want to understand fixed income and STIR more, there are a number of books I referenced in the book thread here: https://twitter.com/Globalflows/status/1646154915436265479

Bringing it back to AQR, one of the best papers they published is called, “What Drives Bond Yields?” https://www.aqr.com/Research-Archive/Research/White-Papers/What-Drives-Bond-Yields

I am sharing this with you as a precursor because I will be sharing A LOT more bond research and models with you. At this point in my life, bonds are the most interesting part of the market to me. The amount of value you bring to any situation by understanding interest rates is unparalleled. Why? Because bonds are about the price of money and everything is denominated in money. Civilizations rise and fall because of interest rates.

Final Note:

There are many other papers on the AQR website. I would encourage you to go through ALL of them. Just think about it like this, no one with your individual experiences and background has ever read the AQR papers in the way you will. This means you can have a unique perspective which can translate into a unique edge. You might realize something I have never thought of before and if you do, you should message and tell me about it :)

Thanks for reading!