The first part of the paper after the title, you will have something called as abstract. Now abstract, what it contains? Basically, the entire paper is summarized in about 150 to 200 words, sometimes less than 100 words. Abstract will tell you the main question of the paper. What the paper does and what results they get, the authors get. So these are all summarized briefly. So if you just read that track, unless you have an understanding of the literature, unless you have an idea of what the paper is trying to do you may not understand much. You can just read the abstract, it's not too taxing. It's just 100, 200 words, as I've told you before. But I don't think you'll get the full sense of what's going on by just reading the abstract. Once you move on, the next four to five pages of the paper is the introduction. Now, what the introduction does, this section. If you have some background in the literature, if you read the introduction, you'll understand the entire paper. Introduction, what introduction does is gives you a motivation for the paper, why the authors actually started this inquiry. What is the background? What had happened in the past and how authors contribute to the literature and of course, their main results. They also briefly talk about data sources. They'll also talk about what methodology they employ, that's really important. As I've told you that every user usually asks for robustness tests. The authors have to show that they're results are robust to alternative explanations. So a lot of these things are briefly explained in the introduction. Now the question is, purely from a trading point of view do you need to read the introduction or not? I encourage you to read the introduction. And those parts which are technicals, where you have the statistical terminologies, where there is lot of math, you may just ignore it. What you need to understand is that, what is the trading strategy that is being employed here? And from where do you get the data to replicate these trading strategies? If you get a broad idea of this and what are the kind of returns this trading strategy has generated in the past. And also what is the economic reason why this trading strategy works. If you understand this much, once after reading the introduction, I think you are in good shape. After this, you have institutional background. Now institutional background basically describes the institutional setup of the country from which the others use the data. Most of the papers are obviously from the United States, but there are papers who have data from other countries that also used. Now one important check that you have to do here is a, are the authors using some proprietary data? Now sometimes what happens is authors go to some government agency or Central Bank and get some data. Now if this trading strategy depends on having access to this data, you can just forget that paper. It may not be possible for an individual investor to get this kind of data whereas academic researchers will have access. So you should ensure that the trading strategy is not a result of a typical institutional feature which is applicable to a particular country. Then the trading strategy also of course applies to only that country. If that institutional structure is not available elsewhere, then you can't do anything. Suppose, I'll give you an example. Suppose that trading strategy was shorting, and the country where you want to use this strategy, shorting is not allowed. Then there is no point in going through that paper. Where shorting is not allowed of course there is no way you can replicate this strategy in the country where you want to trade. So from that point of view all to read institutional structure. If your instructor is typically not very, very technical, it explains the market structure in that country in brief. So it's not very dense, you can glance through the structure. Then the next part, usually the word data sources. This is very, very important. I've already given you a hint when you read the institution structure itself, you should have an idea that whether this is something which is typical to a particular country. Data sources as I've told before, you should examine, you should look whether the authors are using some proprietary data or it's a public data. If it's proprietary data, stop, forget that paper. You only look at papers where data source is public, anyone can access. By public I don't mean free, sometime you have to pay. But since you are going to trade, and if you're confident about the strategy it's not a bad idea to even access paid data. But most of the data sources are free, are freely available. Once you understand the data source, the author also describes how he arranges data, how he or she organizes data. All that you can have a look at and understand. Then the next part is the most important part. Once get used to reading papers, you can actually start from there. If you actually understand the abstract fully, you can just get into this next part that I'm going to describe. This is about trading algorithm. Now that is why we are interested in the paper. From a trading point of view, our interest is more in this algorithm rather than the knowledge that is coming from the paper. Of course, we are illustrating knowledge, but the primary interest is this algorithm. This is the meat of the paper, that a trader has to understand if you are to implement. So what does this section do? Here, the author describes the exact formula that he uses for trading. So here, a prospective trader should go through this line by line, word by word, understand this fully. What do I mean by understand this fully? You should be able to generate this data and code this formula using whatever software that you are comfortable with and come out with an output that the author comes out with. In other words, you should be able to replicate the formula. That's the level of comfort that one should have. Now how do you get it? So what we will do in this course is that for some papers, we will take you through this formula in detail, step by step. We will tell you what are the components of this of formula. Where do we get the data from? We will actually show an illustration with an actual company and show you how to create these kind of scores. We will also show how do you trade, and finally, we will also present the results that the author has obtained. And since we are in India, so what we'll do is if you apply the same strategy on Indian stocks, then what would have been your results? Even that we will show for the kind of strategies. What we encourage you to do is once that is done, of course the easy way is to just try this on stocks and see whether it works. As I warned you before, it may not work in the same form where it does work 20 years before. You need to improvise, so the first thing is, you should first try whether you can replicate on your own. And then try to apply this on a mark portfolio. And once you are confident that this works, and then only you should try trading. And based on the insights that you obtain, you should try to generalize, that's our advice. Now, coming back to the sections of the paper. Paper doesn't stop at that. Once your trading strategy algorithm is done, then that author gets into the next part of the paper which is hypothesis. What does he do here? Here, the other tries to explain different hypothesis as to why this trading strategy works. And why he also presents a tension in the hypothesis. There will be reasons why this change strategy works. There will be reasons why it should not work. And then he shows the purpose of the paper is to empirically test which of the hypotheses holds. As an aside please remember, you can never accept a hypothesis. You can only reject it something. And all the other ways the author approaches, author rejects all other explanations. And then comes to a conclusion that possibly this must be the reason why it was. Now again, this is more for an academic audience. It's nice to know I want to repeat this once again. I'm not discouraging you from reading the paper, don't think after this module, don't think that you should not read the entire paper, no that's not the purpose. It's good, somebody who reads and understand the entire paper will do better than someone who reads only a part of it. But then the purpose of this module is to tell you that you need not understand the entire paper, purely from a trading point of view. You just have to understand the trading strategy that comes out of the paper. How to implement it, data sources and the expected results, and the ways you're back testing it, that's the purpose of this module. So purely from that utilitarian point of view, you can try to ignore this hypothesis part. You will not lose much.
