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1
R financial time series tips everyone should know about [R Trader]
There are many R time series tutorials floating around on the web this post is not designed to be one of them. Instead I want to introduce a list of the most useful tricks I came across when dealing with financial time series in R. Some of the functions presented here are incredibly powerful but
- 2 hours ago, 7 Jul 2015, 09:58pm -
1
Variance Factors on VIX Futures I – Synthetic Futures [Quanttech]
In her paper on ETNs on VIX futures, Carol Alexander demonstrates how principal component analysis can be used to identify the main variance factors in the term structure of the VIX. Over the next couple of posts I am going to demonstrate how you can implement this. Principal component analysis
- 2 hours ago, 7 Jul 2015, 09:57pm -
8
Value and Momentum are Highly Correlated [Dual Momentum]
One of the most popular research papers on momentum is “Value and Momentum Everywhere” by Asness, Moskowitz, and Pedersen. In June 2013, this was published in the prestigious Journal of Finance. I have an earlier blog post which discussed that paper. However, one important item slipped by me
- 13 hours ago, 7 Jul 2015, 11:12am -
4
Value Investing Research: O-Score and Distress Risk [Alpha Architect]
Book-to-Market Equity, Distress Risk, and Stock Returns, by Griffin and Lemmon (2002 Journal of Finance) investigate the relationship between value premiums and distress risk. There are two schools of thought on the value premium, or the large spread in realized returns between cheap stocks and
- 13 hours ago, 7 Jul 2015, 11:11am -
4
Are Historical Data Prior to 2009 Obsolete for Developing Trading Systems? [Price Action Lab]
I investigate the validity of claims that data prior to 2009 are obsolete for the purpose of trading system development. It is shown that a high proportion of profitable price patterns in more recent daily data maintain their profitability in past data. The results are statistically significant and
- 15 hours ago, 7 Jul 2015, 09:05am -
1
Momentum Premium Explanation [John Orford]
Often skewness is elbowed aside while Sharpe ratios are proffered to the Gods. Reminds me of jumping on the subway in Beijing. The S&P 1500 Momentum index has negative skew - more than you see with the S&P 500 - which accounts for higher returns, exactly the reason why value often beats
- 15 hours ago, 7 Jul 2015, 09:05am -
7
Backtesting in Excel: Adding position sizing [Quants Portal]
In my previous article I started with an example of a vectorised backtest. In this one I will build on homework exercise 2 by adding position sizing. Please download this Excel document to follow the example, Click Here. Now there are many different ways in which to add position sizing and this
- 1 day ago, 6 Jul 2015, 09:01pm -
5
Adding a VIX Signal to Momentum [EconomPic]
Michael Batnick, Director of Research at Ritholtz Wealth Management, and blogger of the always interesting Irrelevant Investor, recently shared the historical performance of U.S. stocks when they fall below their 200-day moving average, something that occurred early last week (bold mine, quotes
- 1 day ago, 6 Jul 2015, 09:01pm -
5
Efficient Frontier Portfolios – Impractical But Still Useful [Capital Spectator]
The concept of building “optimal” portfolios—maximizing return and minimizing risk–is a foundational concept in quantitative finance. Unfortunately, it’s not terribly practical. The problem, as many researchers have demonstrated over the years, is the elusive aspect of developing reliable
- 1 day ago, 6 Jul 2015, 12:28pm -
2
Prices Convolution, A Practical Approach [Quant Dare]
othing could be further from my intention than to give an extensive mathematical approach to this post but an slightly idea is desirable. In this post we will approach to the problem of convolution from a matricial point of view. Well, what we mean by convolution is about composing 2 different
- 1 day ago, 6 Jul 2015, 06:31am -
3
Practical academic paper related to #100 - Trading WTI/BRENT Spread [Quantpedia]
#100 - Trading WTI/BRENT Spread Authors: Donninger Title: The Poverty of Academic Finance Research: Spread Trading Strategies in the Crude Oil Futures Market Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2617585 Abstract: Harvey, Liu and Zhu argue that probably most of the Cross-Section
- 1 day ago, 6 Jul 2015, 06:31am -
2
China Market Analysis [John Orford]
The core of capitalism is its extremely democratic nature. The masses crush wily contrarians on a daily basis, The market can stay irrational longer than you can stay solvent Being correct in science however, is never democratic. One contrarian can commit mass killings amongst cherished beliefs.
- 1 day ago, 6 Jul 2015, 06:30am -
10
Video: James Simons - Numberphile [YouTube]
James Harris Simons has been described as "the world's smartest billionaire", amassing a fortune through the clever use of mathematics and computers. He is now a renowned philanthropist.
- 1 day ago, 6 Jul 2015, 03:07am -
17
Best Links of the Week [Quantocracy]
The best links of the week ending Saturday, 07/04 as voted by our readers: Fitness Landscape Analysis for Computational Finance [Turing Finance] VIX Trading Strategies in June [Volatility Made Simple] Switching From Stocks to Bonds Based on a 200-day Moving Average Crossover [Price Action Lab]
- 2 days ago, 5 Jul 2015, 09:24am -
0
[Academic Paper] Can Anomalies Survive Insider Disagreements? [@Quantivity]
Can Anomalies Survive Insider Disagreements?
- 2 days ago, 5 Jul 2015, 08:02am -
0
[Academic Paper] Mispricing Factors [@Quantivity]
Mispricing Factors
- 2 days ago, 5 Jul 2015, 08:01am -
6
System Trading? Trading Experts? Let’s Be Honest [Price Action Lab]
All trading methods arise from an esoteric complex process that is based on experience with the markets and quantitative skills. Experience is personal and difficult to convey to others. Quantitative knowledge can be achieved only through advanced education, an elaborate process. Furthermore, only
- 4 days ago, 3 Jul 2015, 08:31pm -
1
State of Trend Following in June [Au.Tra.Sy]
Another down month for the State of Trend Following index. After a fairly good start to the year – until mid-March where the index registered its high for the year – the trend has been fairly clearly down. Possibly a drawdown phase following the very strong performance from 2014 and beginning
- 4 days ago, 3 Jul 2015, 08:31pm -
2
[Academic Paper] Defining and Dating Bull and Bear Markets: Two Centuries of Evidence [@Quantivity]
Defining and Dating Bull and Bear Markets: Two Centuries of Evidence
- 4 days ago, 3 Jul 2015, 11:29am -
3
[Academic Paper] Factor Investing Revisited [@Quantivity]
Factor Investing Revisited
- 4 days ago, 3 Jul 2015, 11:27am -
1
Wisdom State of Trend Following - June 2015 [Wisdom Trading]
June 2015: Trend Following DOWN -4.16% — YTD: +0.89% After a good start to the year, with the first three months being up and the index peaking in mid-March, a downtrend has now taken place. This has built a drawdown roughly equal to a third of the Max Drawdown figure (12% vs 34%), which is not
- 4 days ago, 3 Jul 2015, 09:03am -
3
Insuring tomorrow’s decline, today [MKTSTK]
As of pixel time the VIX is up over 7% and the S&P 500 is basically unchanged; we feel this situation arises when traders desire protection today for the possibility of danger tomorrow. In other words, the price of risk is rising and markets are stabilizing. Intuitively (i.e. the feeling our rat
- 5 days ago, 2 Jul 2015, 07:10pm -
2
The First Academic Paper with a Shotgun Picture in it [Alpha Architect]
Here is one of the figures in a Journal of Finance paper published in 2013 by N. Garleanu and L Pedersen. The figure depicts various portfolio optimizations under different assumptions and then has a visualization equivalent with hockey players, skeet shooters, and missile systems. I’m not sure
- 5 days ago, 2 Jul 2015, 07:10pm -
3
Time series analysis and data gaps [EP Chan]
Most time series techniques such as the ADF test for stationarity, Johansen test for cointegration, or ARIMA model for returns prediction, assume that our data points are collected at regular intervals. In traders' parlance, it assumes bar data with fixed bar length. It is easy to see that this
- 5 days ago, 2 Jul 2015, 09:13am -
2
For The VIX, It’s All About The Recovery [Dana Lyons]
We mentioned in a post yesterday on 90% Down Days that one of the challenges for risk managers is to correctly distinguish a minor market “dip” from something that is developing into a more serious decline. One potential aid in addressing that challenge comes from the behavior of the S&P 500
- 5 days ago, 2 Jul 2015, 09:13am -
4
Long/Short Hedge Fund Factors: Low-Cost Downside Protection? [Alpha Architect]
The holy grail of financial markets is finding strategies that have misaligned risk and reward characteristics. In the traditional view, investors try to do the following: Identify strategies that have high returns, then… find ways to get the exposure with the lowest risk possible. However, there
- 6 days ago, 1 Jul 2015, 07:34pm -
1
Serial Correlation in Time Series Analysis [Quant Start]
In last week's article we looked at Time Series Analysis as a means of helping us create trading strategies. In this article we are going to look at one of the most important aspects of time series, namely serial correlation (also known as autocorrelation). Before we dive into the definition of
- 6 days ago, 1 Jul 2015, 07:34pm -
2
When Should You Exit Your Iron Condor? [DTR Trading]
During the last several posts, we expanded our Iron Condor exit analysis to include results where trades were held to higher loss thresholds. You can review both the first and second sets of articles at the following pages: Dynamic Exit Iron Condor Articles High Loss Threshold Iron Condor Articles
- 6 days ago, 1 Jul 2015, 07:33pm -
11
VIX Trading Strategies in June [Volatility Made Simple]
We've tested 23 simple strategies for trading VIX ETPs on this blog (separate and unrelated to our own strategy). And while I can't speak for all traders, based on all of my readings both academic and in the blogosphere, the strategies we've tested are broadly representative of how
- 6 days ago, 1 Jul 2015, 10:21am -
6
Switching From Stocks to Bonds Based on a 200-day Moving Average Crossover [Price Action Lab]
I offer analysis in this blog motivated by a reply to a tweet I made yesterday regarding the essence of the 200-day moving average. I show that the choice of a 200-day moving average for the purpose of stock-bond allocation is sub-optimal. Furthermore, any reduction in drawdown levels can be
- 6 days ago, 1 Jul 2015, 10:21am -
7
Does the VIX Know More than the S&P 500? [Factor Wave]
It is commonly believed that option markets are “smarter” than equity markets. There could be several reasons for this. Trading options is mathematically complex. It involves estimating volatility, solving differential equations and devising hedging algorithms. It is true that most professional
- 6 days ago, 1 Jul 2015, 10:21am -
5
1st of Month by Month (Updated) [Quantifiable Edges]
A few times over the years I have shared this study. It breaks down the bullish “1st trading day of the month” tendency by month. I thought it would be interesting to take another look at it today. Below is an updated version of the study orginally shown here on July 1, 2009. July has continued
- 6 days ago, 1 Jul 2015, 09:39am -
4
Is The Stock Selloff Over -- Or Just Beginning? [Dana Lyons]
“Is this to end or just begin?” - All My Love by Led Zeppelin As risk managers, one of the challenges is to determine whether a market pullback is just a minor dip or a precursor to a larger decline. The correct interpretation determines the appropriateness of “buying the dip” versus selling
- 6 days ago, 1 Jul 2015, 04:43am -
0
Ivy Portfolio July Update [Scott's Investments]
The Ivy Portfolio spreadsheet track the 10 month moving average signals for two portfolios listed in Mebane Faber’s book The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. Faber discusses 5, 10, and 20 security portfolios that have trading signals based on long-term
- 6 days ago, 1 Jul 2015, 04:42am -
2
More on the Momentum++ Strategy [John Orford]
Glenn@AlignCapital mentioned how the seminal Momentum paper by Jegadeesh and Titman (1993) recommends forming and buying a momentum portfolio a week a part. In the cracks of their beseeching everyone to 'skip a week' and avoid wicked 'short term reversals' I accidentally grew the
- 6 days ago, 1 Jul 2015, 04:40am -
1
Forex Trading Diary #7 - New Backtest Interface [Quant Start]
Although I've spent the majority of this month researching time series analysis for the upcoming article series, I've also been working on QSForex attempting to improve the API somewhat. In particular I've made the interface for beginning a new backtest a lot simpler by encapsulating
- 1 week ago, 30 Jun 2015, 06:17pm -
0
The Philosophy of Value Investing - Reject 'New Paradigm" Thinking [Alpha Architect]
Every few years, people start to question whether value investing is dead. A recent Google search along these lines generated 3.1 million results: 2015-06-15 10_49_59-the death of value investing - Google Search Likewise, people sometimes question whether the size effect is permanently going away.
- 1 week ago, 30 Jun 2015, 06:17pm -
2
"Systematic Trading" - the book - now available to pre-order [Investment Idiocy]
Isn't it pretty? The website, and pre-order page, for my magnum opus are now ready: www.systematictrading.org http://www.harriman-house.com/book/view/4598/trading/robert-carver/systematic-trading/ Like it says on the back "This is not just another book with yet another trading system. This
- 1 week ago, 30 Jun 2015, 11:23am -
0
[Academic Paper] Lifetime of a Financial Bubble [@Quantivity]
Lifetime of a Financial Bubble
- 1 week ago, 29 Jun 2015, 11:42pm -
11
Fitness Landscape Analysis for Computational Finance [Turing Finance]
Some of the most interesting new research coming out of the Computational Intelligence Research Group (CIRG), which is applicable to numerous computational finance and machine learning optimization problems, is the development of fitness landscape analysis techniques. Fitness landscape analysis aims
- 1 week ago, 29 Jun 2015, 07:08pm -
4
Building a simple moving average (SMA) crossover strategy in Microsoft Excel [Quants Portal]
In my previous article I introduced the two main methods of backtesting, vectorised and event driven. In this article I will cover an example of a vectorised backtest in Excel. One of the benefits of using Excel is that you are able to see a visual representation of the data as the model progresses.
- 1 week ago, 29 Jun 2015, 07:07pm -
1
Getting started with Backtesting [Quants Portal]
Foreword by Joshua Ulrich: Jacques reached out to me to discuss the Backtesting in Excel and R series on my blog, FOSS Trading. Inspired by that series, Jacques wanted to create a more detailed explanation of how to backtest a strategy in Excel and R, and then to extend the examples to an
- 1 week ago, 29 Jun 2015, 07:07pm -
2
Weekend Effect [Factor Wave]
This is a phenomenon in the equity markets where the market rises over the weekend. There is still some debate over the existence and persistence of this effect but, as long as we carefully define exactly what we mean it is easy to test this idea. We are going to examine the S&P 500 since 1990
- 1 week ago, 29 Jun 2015, 07:06pm -
4
When Random Traders Profit, It is Hard to Prove Skill [Price Action Lab]
It is shown that random, long-only position trading in SPY based on a biased coin has resulted in 100% winners. The simulation results also confirm that proving trading skill requires returns in excess of buy and hold return. The simulation environment A biased coin with p{heads} = 0.9 Toss a coin
- 1 week ago, 29 Jun 2015, 12:56pm -
1
Backtesting With Synthetic and Resampled Market Histories [Capital Spectator]
We’re all backtesters in some degree, but not all backtested strategies are created equal. One of the more common (and dangerous) mistakes is 1) backtesting a strategy based on the historical record; 2) documenting an encouraging performance record; and 3) assuming that you’re done. Rigorous
- 1 week ago, 29 Jun 2015, 12:45pm -
0
New related paper to #118 - Time Series Momentum Effect [Quantpedia]
#118 - Time Series Momentum Effect Authors: Georgopoulou, Wang Title: The Trend is Your Friend: Time-Series Momentum Strategies Across Equity and Commodity Markets Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2618243 Abstract: Using a dataset of 67 equity and commodity indices from 1969
- 1 week ago, 29 Jun 2015, 12:44pm -
0
RUT Iron Condor - High Loss Threshold Results Summary [DTR Trading]
Over the last six blog posts we looked at eight different exit approaches for a standard RUT iron condor with 20 point wings. These exits included: STD - NA%:NA% - exit at 8 DTE. STD - NA%:50% - exit if the trade has a profit of 50% of its initial credit OR 8 DTE. STD - 100%:50% - exit if the trade
- 1 week ago, 29 Jun 2015, 12:43pm -
0
[Academic Paper] Do Index Futures and ETFs Affect Stock Return Correlations? [@Quantivity]
Do Index Futures and ETFs Affect Stock Return Correlations?
- 1 week ago, 29 Jun 2015, 11:39am -
8
Best Links of the Week [Quantocracy]
The best five links of the week ending Saturday, 06/27, as voted by our readers: Interview with Ernest Chan [Better System Trader] Think MPT Doesn't Work? Clearing Up Some Misconceptions [CSS Analytics] Creating an Open Source Hedge Fund Strategy [Quants Portal] Losing Streak Indicator [System
- 1 week ago, 29 Jun 2015, 04:49am -
5
Interview with Andreas Clenow [Better System Trader]
Andreas Clenow is a hedge fund manager who specialises in developing and trading quantitative strategies across all asset classes. He is currently a principal at ACIES Asset Management, which he joined after having successfully established his own hedge fund. Prior to his role as a hedge fund trader
- 1 week ago, 29 Jun 2015, 04:49am -