Harnessing Neuroscientific Insights to Generate Alpha

Doran, J; Payzan-LeNestour, E; Pradier, L; Putnins, T

Harnessing Neuroscientific Insights to Generate Alpha

Doran, J Payzan-LeNestour, E Pradier, L Putnins, T

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Publisher:: Chartered Financial Analysts Institute
Publication Type:: Journal Article
Citation:: Financial Analysts Journal, 2022, 78, (2), pp. 79-95
Issue Date:: 2022

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Field	Value	Language
dc.contributor.author	Doran, J
dc.contributor.author	Payzan-LeNestour, E
dc.contributor.author	Pradier, L
dc.contributor.author	Putnins, T https://orcid.org/0000-0001-5731-499X
dc.date.accessioned	2022-04-19T04:22:49Z
dc.date.available	2022-04-19T04:22:49Z
dc.date.issued	2022
dc.identifier.citation	Financial Analysts Journal, 2022, 78, (2), pp. 79-95
dc.identifier.issn	0015-198X
dc.identifier.issn	1938-3312
dc.identifier.uri	http://hdl.handle.net/10453/156444
dc.description.abstract	Building on evidence from neuroscience and psychology, we predict that prolonged exposure to high volatility causes market participants to subsequently underestimate volatility (and vice versa), leading to predictability in stock returns. We find VIX distortions consistent with this prediction and construct a trading strategy that exploits it. Applied to SPY ETFs and VIX futures contracts, the strategy significantly outperforms a buy-and-hold index portfolio, with higher annualized performance, lower volatility, and alphas exceeding 4%.
dc.language	en
dc.publisher	Chartered Financial Analysts Institute
dc.relation.ispartof	Financial Analysts Journal
dc.relation.isbasedon	10.1080/0015198X.2022.2034468
dc.rights	info:eu-repo/semantics/closedAccess
dc.subject	1501 Accounting, Auditing and Accountability, 1502 Banking, Finance and Investment
dc.subject.classification	Finance
dc.title	Harnessing Neuroscientific Insights to Generate Alpha
dc.type	Journal Article
utslib.citation.volume	78
utslib.for	1501 Accounting, Auditing and Accountability
utslib.for	1502 Banking, Finance and Investment
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	closed_access	*
pubs.consider-herdc	true
dc.date.updated	2022-04-19T04:22:44Z
pubs.issue	2
pubs.publication-status	Published
pubs.volume	78
utslib.citation.issue	2

Abstract:

Building on evidence from neuroscience and psychology, we predict that prolonged exposure to high volatility causes market participants to subsequently underestimate volatility (and vice versa), leading to predictability in stock returns. We find VIX distortions consistent with this prediction and construct a trading strategy that exploits it. Applied to SPY ETFs and VIX futures contracts, the strategy significantly outperforms a buy-and-hold index portfolio, with higher annualized performance, lower volatility, and alphas exceeding 4%.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/156444