Quant Mashup
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1
A Look At The S&P 500 Death Cross [Quantifiable Edges]
Notable on Friday was that the 50-day moving average of the SPX closed below its 200-day moving average. This is often referred to as a “Death Cross”. (When the 50ma is above the 200ma that is a “Golden Cross”.) This is the first Death Cross since early 2012. Let’s take a brief look at
- 9 hours ago, 31 Aug 2015, 12:45pm -
1
Dip Buyers Are Gamblers [Price Action Lab]
During high volatility periods and especially near major tops and bottoms there are opportunities for dip buyers. The gains are random and those who think they were able to predict them usually return them back to the market if they continue this pattern of trading. A backtest also offers an example
- 9 hours ago, 31 Aug 2015, 12:45pm -
1
Daily Academic Alpha: Fed Forecasts-Folly or Fact? [Alpha Architect]
Macroeconomic forecasting is incredibly difficult. The results from this paper suggest that the brainpower of the Fed’s 100 person economics team can predict 3 to 6 months out with a reasonable degree of success, but beyond that time horizon (e.g., 1-year), basic forecasting models perform just as
- 9 hours ago, 31 Aug 2015, 12:44pm -
0
Steady Vol & Skewerage Combination Critique [John Orford]
Recently Big 'O' Sharpe scrubbed out my Steady Vol and Skewerage strategies. I've never been sentimental. Bullet to the head. Move on. But Wait! I forgot, that I once combined both strategies together, like so, weight.INDEX_SP500 = 1 / realisedVol - skewChange; and weighted on a
- 9 hours ago, 31 Aug 2015, 12:44pm -
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[Academic Paper] Supply and Demand of S&P 500 Put Options  [@Quantivity]
Supply and Demand of S&P 500 Put Options
- 21 hours ago, 31 Aug 2015, 12:16am -
0
[Academic Paper] Low-Beta Investment Strategies  [@Quantivity]
Low-Beta Investment Strategies
- 21 hours ago, 31 Aug 2015, 12:14am -
0
[Academic Paper] Persistency of the Momentum Effect: The Role of Consistent Winners and Losers  [@Quantivity]
Persistency of the Momentum Effect: The Role of Consistent Winners and Losers
- 1 day ago, 30 Aug 2015, 04:11pm -
3
Large Down Mornings in SPY [Godel's Market]
What has happened in the past when the SPY opens 3.5% or more down? I ran the numbers and have some code for doing it yourself. I found that there's typically a profitable day ahead, and even if not profitable, the day tends to have enough upside (Open to High) to be of great interest. Here is
- 1 day ago, 30 Aug 2015, 01:18pm -
2
The value-at-risk fiasco [Statistical Ideas]
If you were a looking at a portfolio that was a mix of 1 unit S&P 500 and 1 unit Shanghai Stock Exchange (SSE), then you are likely to consider value-at-risk (VAR) to feel cozy with your overall portfolio risk. This measure however is not considered a coherent risk measure that satisfies all of
- 1 day ago, 30 Aug 2015, 01:17pm -
0
Lazy IDE Update [John Orford]
Bar some evolutionary improvements, the Lazy Backtest IDE is now about as efficient as it is possible to be. This enables me to introduce the latest feature - Big 'O' analytics. The IDE generates multiple backtesting results in the background by changing the starting dates of backtests.
- 1 day ago, 30 Aug 2015, 01:17pm -
6
Best Links of the Week [Quantocracy]
The best quant mashup links for the week ending Saturday, 08/29 as voted by our readers: A New Harry Long Strategy, And Plans For Hypothesis-Driven Development [QuantStrat TradeR] Performance of Two Strategies in Momersion Regimes [Price Action Lab] Quant-Trader or Trader-Quant? [MKTSTK] Combining
- 1 day ago, 30 Aug 2015, 07:41am -
0
[Academic Paper] Principal Component Analysis of High Frequency Data  [@Quantivity]
Principal Component Analysis of High Frequency Data
- 1 day ago, 30 Aug 2015, 06:22am -
0
[Academic Paper] Large-Dimensional Factor Modeling Based on High-Frequency Observations  [@Quantivity]
Large-Dimensional Factor Modeling Based on High-Frequency Observations
- 1 day ago, 30 Aug 2015, 06:18am -
4
Introduction to Monte Carlo Analysis Part 2 [Quants Portal]
Markov Chains, Central Limit Theorem and the Metropolis-Hastings In the previous article I gave a generic overview of Monte Carlo as well as introduced importance sampling. We now dive deeper by giving strict definitions of some of the widely used and yet misunderstood or rather commonly neglected
- 2 days ago, 29 Aug 2015, 09:39am -
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Multivariate volatility forecasting [Eran Raviv]
Last time we showed how to estimate a CCC and DCC volatility model. Here I describe an advancement labored by Engle and Kelly (2012) bearing the name: Dynamic equicorrelation. The idea is nice and the paper is well written. Departing where the previous post ended, once we have (say) the DCC
- 2 days ago, 29 Aug 2015, 09:38am -
0
Multiscale Noisy-Rational-Expectations Equilibrium [Alex Chinco]
1. Motivation Evolutionarily Slow. In modern financial markets, people simultaneously trade the exact same assets on vastly different timescales. For example, a Jegadeesh and Titman (1993)-style momentum portfolio turns over half its holdings once every 6 months. By contrast, Kirilenko, Kyle,
- 2 days ago, 29 Aug 2015, 09:38am -
1
Steady Vol & Big 'O' Sharpe [John Orford]
Big 'O' Sharpe changes backtest starting dates day by day until the lowest Sharpe is found. When strategies rebalance on periodic basis it turns out that such very small changes cause very large differences in results. Big 'O' Sharpe is the pessimistic grumpy brother of the
- 2 days ago, 29 Aug 2015, 09:38am -
3
Avoiding Stock Market Crashes with the Hi-Lo Index of the S&P500 [iMarketSignals]
This daily indicator is calculated as the ratio of the number of S&P500 stocks that have reached new 3-month-highs minus those that have reached new 3-month-lows, divided 500. Exiting and entering the stock market according the indicator’s signals would have avoided major drawdowns of the
- 3 days ago, 28 Aug 2015, 12:28pm -
2
Visualizing Stock Market Risk: 7/1926 to 6/2015 [Alpha Architect]
How crazy is current market action? Not that crazy. …and if you lived through 2008, definitely not that crazy. Seeing a -3%+ or a +3% observation is roughly a 1/100 event, or ~ 2.5 times a year. Obviously, return events are not independent and volatility tends to cluster, but the numbers above
- 3 days ago, 28 Aug 2015, 12:27pm -
3
Are Spikes Predictive? [Factor Wave]
Yesterday I looked at stock market returns in the week and month after a large daily decline and found that it is usually a good time to buy more equities. Especially because, as long-term investors, our strongly held prior is that equity markets appreciate over time. But what about spikes? Do large
- 3 days ago, 28 Aug 2015, 12:27pm -
4
Missing the Best and the Worst [Flirting with Models]
Numerous marketing pieces circulating around the web show the detriment that trying to time the market can have on a portfolio. These pieces often look similar to this chart, which shows the cumulative growth of $1 invested in the S&P 500 ETF (SPY) assuming that a given number of best days are
- 3 days ago, 28 Aug 2015, 10:13am -
1
Why Thursday’s Volume Was Disappointing For Bulls [Quantifiable Edges]
Thursday’s rally was accompanied by the lightest volume in 5 days. The relatively low volume could be worrisome for bulls. The importance of volume can be seen in the studies below. The first one looks at 2%+ SPX gains when volume comes in relatively high. 2015-08-28 image1 A week later ¾ of the
- 3 days ago, 28 Aug 2015, 10:13am -
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5 Ways to Plot Returns [John Orford]
There's an infinite number of ways to plot financial time series, let's look at the main ones. The most basic way is just plonking returns on a plot. This has one very nice feature. The returns are comparable across time, which makes a lot of sense, right? A return at the beginning of our
- 3 days ago, 28 Aug 2015, 10:13am -
2
Introduction to Algorithmic Trading with Ernie Chan, Ph.D. [Adam H Grimes]
I tweeted a few days ago that I had big news–huge news–gigantic news about the trading course, and I do. I have been very pleased with the reception the course has gotten, and I’ve heard from many traders that it has been a pivotal piece in their development. I decided that the time has come
- 3 days ago, 27 Aug 2015, 10:51pm -
0
A Gap -n- Go From A 50-Day Low [Quantifiable Edges]
The study below is one that appeared in the Quantifinder yesterday afternoon. There were a few like it. This study looks at big gaps up from 50-day lows that go unfilled and close above the open. 2015-08-27 image1 The suggestion here is that the overwhelming 1-day bullishness (big gap and move
- 3 days ago, 27 Aug 2015, 10:51pm -
3
Extreme Moves as Market Predictors [Factor Wave]
The last week has been interesting. Not always fun but at least always interesting. Extreme moves in the market are something of a double-edged sword when it comes to learning. First, extreme moves are "special". Obviously so in terms of frequency, but also in terms of the investor
- 4 days ago, 27 Aug 2015, 12:37pm -
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Projections of Closing Prices Required for Moving Averages to Cross [Price Action Lab]
The calculation of the closing price required for a moving average crossover to occur is straightforward as shown in this blog. In the 1990s I used projections of closing prices that cause a moving average crossover for entering MOC orders in advance. During that time most markets were driven by
- 4 days ago, 27 Aug 2015, 12:36pm -
3
Plotting Time Series in R using Yahoo Finance data [Revolutions]
I recently rediscovered the Timely Portfolio post on R Financial Time Series Plotting. If you are not familiar with this gem, it is well-worth the time to stop and have a look at it now. Not only does it contain some useful examples of time series plots mixing different combinations of time series
- 4 days ago, 27 Aug 2015, 12:36pm -
4
Luck [John Orford]
My grandfather was a gambler. Nice. Smart. But he thought he was smarter than everybody else in the room. I haven't gambled much, as a direct consequence of what happened decades before I was born. Going to the bookies is popular in Ireland but unheard of in our family. I started playing Poker
- 4 days ago, 27 Aug 2015, 12:35pm -
0
RUT Strangle - High Loss Threshold - 80 DTE [DTR Trading]
This post reviews the backtest results of selling one-lot options strangles on the Russell 2000 Index (RUT), initiated at 80 days-to-expiration (DTE). The results in this post were derived from 2200 individual trades entered by the backtester. The results are grouped by the delta of the short
- 4 days ago, 27 Aug 2015, 12:34pm -
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The Art of Backtesting [Cantab Capital]
Backtesting is at the heart of systematic investment. Done correctly, and it can recreate reality closely enough to identify systematic patterns which are likely to persist in the future. Patterns discovered by a robust backtest can be exploited to generate returns. But there are many subtle
- 4 days ago, 27 Aug 2015, 05:45am -
2
Academic Paper Analyses - Federal Open Market Committee Meeting Effect on Stocks [Quantpedia]
Authors: Nilsson Title: The Pre-FOMC Drift Explored Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2640477 Abstract: The pre-FOMC drift was first published in 2011 and is a strong driver of equity market performance over the last 30 years. The effect is able to explain approximately half
- 4 days ago, 27 Aug 2015, 05:42am -
10
Quant-Trader or Trader-Quant? [MKTSTK]
The term “quant trader” gets thrown around a lot these days. For any trader who has been in the industry for more than a decade, the adoption of the term is driven by survival. There’s a running joke in some HFT circles: these days, older traders would never get past HR using the same criteria
- 5 days ago, 26 Aug 2015, 01:15pm -
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Let's talk "Year-to-Date" [Flirting with Models]
We have a pretty arbitrary practice in the financial services industry: we reset the performance clock of portfolios to zero every January. Consider this hypothetical scenario: it’s December and markets are up 20% for the year. They even got a nice 5% pop in the last month. The clock strikes
- 5 days ago, 26 Aug 2015, 10:26am -
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The Trajectory of a Crash [Philosophical Economics]
It’s amazing to think that just last Monday, August 17th, the S&P 500 closed at 2102. Today, it closed at 1868, falling 11.1% in 6 trading days. The shocking speed of the decline has injected a level of fear into markets not scene since the fall of 2011, when the Eurozone debt crisis was
- 5 days ago, 26 Aug 2015, 10:25am -
3
Super Reliable Backtesting [John Orford]
Big 'O' is a measure of many things, with respect to backtesting it helps because results are always ambiguous. Backtesting results are almost iffy for a variety of reasons, but a salient one is the 'day bump' problem. Say, I have a strategy that trades at the 'beginning of
- 5 days ago, 26 Aug 2015, 10:25am -
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I’m Back, A New Harry Long Strategy, And Plans For Hypothesis-Driven Development [QuantStrat TradeR]
I’m back. Anyone that wants to know “what happened at Graham”, I felt there was very little scaffolding/on-boarding, and Graham’s expectations/requirements changed, though I have a reference from one of the quantitative directors. In any case, moving on. Harry Long recently came out with a
- 6 days ago, 25 Aug 2015, 08:54pm -
4
Timing the Markets with Value and Trend [Meb Faber]
I like Five Thirty Eight. Their data driven approach certainly appeals like a quant to me. However, like many people out there, when they apply their logic to the stock market things start to go a little screwy. They posted a piece titled :”Worried About The Stock Market? Whatever You Do, Don’t
- 6 days ago, 25 Aug 2015, 08:29pm -
1
Impossible Trinity Of Sizing [Algo Trading 101]
What is the Impossible Trinity When we think about the number of lots to trade (position sizing), we may face an interesting situation called the Impossible Trinity of Sizing. The Impossible Trinity of Sizing is a trilemma which states that it is impossible for us to control over all 3 of the
- 6 days ago, 25 Aug 2015, 08:28pm -
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Combining Value and Momentum in Stock Selection and Market Timing [Alpha Architect]
Recently, we wrote two posts about how to combine Value and Momentum for stock selection purposes (Part 1 and Part 2). We followed this piece with a post on combining value and momentum for market timing purposes. In this post, we review the use of combined Value and Momentum for both stock
- 6 days ago, 25 Aug 2015, 12:01pm -
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Robots Do Not Take Vacations and a Six Other Facts of Markets [Price Action Lab]
The robot is the modern slave: no vacation, no coffee break. It is also a good tool to execute a correction during times humans are on vacation. This and other facts are included below. Fact 1: The last 5-day correction close to -10% occurred in August of 2011. Robots had a party then. SPX_20150824
- 6 days ago, 25 Aug 2015, 11:09am -
2
Behavioral Analysis of Technical Analysis [Factor Wave]
I recently wrote about the link between quantitative analysis and technical analysis (deeply upsetting some people in the process). Today I'm going to write about the link between behavioral finance and technical analysis. But possibly not in the way you will be expecting. It is common for
- 6 days ago, 25 Aug 2015, 11:09am -
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Performance of Two Strategies in Momersion Regimes [Price Action Lab]
In this blog we analyze the performance of two popular mean-reversion trading systems in momersion regimes, i.e., when there is no clear indication whether a market is driven by momentum or mean-reversion. One conclusion is that one of the systems may not operate based on pure mean-reversion. The
- 1 week ago, 24 Aug 2015, 09:41pm -
3
Autoregressive Moving Average ARMA(p, q) Models for Time Series Analysis - Part 2 [Quant Start]
In Part 1 we considered the Autoregressive model of order p, also known as the AR(p) model. We introduced it as an extension of the random walk model in an attempt to explain additional serial correlation in financial time series. Ultimately we realised that it was not sufficiently flexible to truly
- 1 week ago, 24 Aug 2015, 09:40pm -
2
The Cheap Volatility Illusion [Larry Swedroe]
As I write this on Aug. 10, despite all the economic problems facing investors (such as Greece, the slowing Chinese economy, a bear market in Chinese stocks, the collapse in commodity prices and Puerto Rico’s default), the VIX index, a measure of the market’s expectation of 30-day volatility,
- 1 week ago, 24 Aug 2015, 09:40pm -
2
Avoid Buying Put Insurance When You are Most Afraid [Alpha Architect]
A timely piece on S&P 500 put option prices. The authors find that S&P 500 put options get too expensive during wild times because of 2 effects: Demand for insurance sky rockets (investor utility demands safety) Supply for insurance becomes restricted (credit constraints cripple market
- 1 week ago, 24 Aug 2015, 12:32pm -
2
Pyfolio - a new Python library for performance and risk analysis [Quantopian]
Today, we are happy to announce pyfolio, our open source library for performance and risk analysis. We originally created this as an internal tool to help us vet algorithms for consideration in the Quantopian hedge fund. Pyfolio allows you to easily generate plots and information about a stock,
- 1 week ago, 24 Aug 2015, 12:30pm -
3
Atom Smashing Returns [John Orford]
My Lazy PCA analysis tool plots returns against lagged returns and then fits principal components to the data. ('SP5HBI' S&P 500 High Beta index weekly) The surprising thing is that the fitted components almost always have a slope of plus or minus one (except when there's a lack
- 1 week ago, 24 Aug 2015, 12:30pm -
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What does it mean that the stock market broke a 949 day streak last Friday? [MKTSTK]
Last Friday the S&P 500 did something it hadn’t done in a very long time (949 trading days to be exact): it went down by more than 3% in a day. Nearly eight months ago we highlighted the length of this non-losing streak as it stood then at 787 trading days (the market seems to like palindromes
- 1 week ago, 24 Aug 2015, 12:27pm -
0
RUT Strangle - High Loss Threshold - 73 DTE [DTR Trading]
This post reviews the backtest results of selling one-lot options strangles on the Russell 2000 Index (RUT), initiated at 73 days-to-expiration (DTE). The results in this post were derived from 2312 individual trades entered by the backtester. The results are grouped by the delta of the short
- 1 week ago, 24 Aug 2015, 12:27pm -