Quant Mashup
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1
Why Steady Vol Works [John Orford]
Contrary to what people say every now and again, history never ends. Not like humans end with a monotonous beep out of a heart monitor. Life goes on, hearts keep thumping. When I was an English teacher in Germany. One of my students showed up for the first day of class. She was unemployed and the
- 5 hours ago, 24 May 2015, 05:41am -
4
Two-Period RSI Versus a Two-Day Losing Streak [Price Action Lab]
The RSI indicator has served as the foundation of several popular short-term trading strategies over the years mainly due to its popularity. In the article I compare the results of a basic system based on a two-period RSI to those of a system that is based on a two-day losing streak. Larry Connors
- 14 hours ago, 23 May 2015, 08:29pm -
2
Small Cap Volatility Hitting Historic Lows [Dana Lyons]
If it feels like the stock market hasn’t moved in a few days, you’re not imagining things. With the long weekend approaching, it seems as though Wall Streeters (or their robots) packed up and departed for the mythological “Hamptons” days ago. As it pertains to the small caps, as represented
- 1 day ago, 23 May 2015, 06:34am -
2
ATAA Conference Trip Report [Alvarez Quant Trading]
I am back from the Australian Technical Analysis Association meeting in the Gold Coast, Australia. I had a great time meeting readers of the blog and other traders. Lots of good presentations. My favorites include those by Alan Clement and Andrew Gibbs, which provided me with new research ideas.
- 1 day ago, 23 May 2015, 06:14am -
1
Narrowest SPX 6 month range in 10 years $SPX $SPY [@NautilusCap]
Narrowest SPX 6 month range in 10 years $SPX $SPY
- 1 day ago, 23 May 2015, 06:13am -
0
Week after Memorial Day holiday pretty bullish $SPX $SPY [@NautilusCap]
Week after Memorial Day holiday pretty bullish $SPX $SPY
- 1 day ago, 23 May 2015, 06:13am -
0
visNetwork, Currencies, and Minimum Spanning Trees [Timely Portfolio]
Just because I’m ignorant doesn’t mean I won’t try things. Feel free to correct any ignorance that follows. More than anything I would like to feature the new htmlwidget visNetwork. I thought the example from Minimum Spanning Trees in R applied to currency data (similar to this research paper
- 1 day ago, 23 May 2015, 06:12am -
1
[Academic Paper] Regulating Greed Over Time [@Quantivity]
Regulating Greed Over Time
- 1 day ago, 22 May 2015, 08:06pm -
3
Andrew Swanscott Interviewed me at Better System Trader (and Quantocracy readers liked it!) [Quantifiable Edges]
Need something to listen to on your Memorial Day weekend car trip? Can’t bear to be without the markets for 3 days? Check Andrew Swanscott’s interview with me at his great new site, Better System Trader. It was published just a few days ago and joins a growing list of excellent podcasts that
- 2 days ago, 22 May 2015, 09:30am -
2
Dow Divergences Part 3: The Double Dose [Dana Lyons]
Today, we wrap up our mini-series on divergences among the Dow Jones indices. In previous installments, we learned that large negative divergences on the part of the Dow Jones Transportation Average (DJT) versus the Dow Jones Industrial Average (DJIA) were largely overrated. Of course, that is
- 2 days ago, 22 May 2015, 03:25am -
0
Wanting for the 1% decline [Statistical Ideas]
A 1% decline is -to some degree- an arbitrary level. But it's a small enough level that we typically see the markets fall on a later date by at least this amount, from any given or current day's intraday high. For this "chronically up" market, May 11 was the last time this
- 2 days ago, 22 May 2015, 03:25am -
3
New related paper to #237 - Dispersion Trading [Quantpedia]
#237 - Dispersion Trading Authors: Deng Title: Volatility Dispersion Trading Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1156620 Abstract: This papers studies an options trading strategy known as dispersion strategy to investigate the apparent risk premium for bearing correlation risk
- 2 days ago, 21 May 2015, 05:51pm -
6
Mini Mashup: Changes Afoot in VIX Trading [Quantocracy]
There are some changes afoot in the VIX trading space with the launch of the VIX ETFs VXUP and VXDN. Even if you don’t trade those specific products, they might be having a knock-on effect on VIX futures, which would impact all other VIX ETF/ETNs like VXX and XIV. There is a subset of our
- 2 days ago, 21 May 2015, 02:14pm -
3
The Risks of Owning an Individual Stock [Alpha Architect]
How risky is it to buy an individual stock? This is a question investors should ask themselves when deciding to buy a single stock. However, many investors tend to get caught up in the story about why company XYZ is going to double over the next year. As an educated investor, it makes sense to know
- 2 days ago, 21 May 2015, 02:07pm -
2
The Perils of Day and Position Trading in Zero-Sum Markets. Part Three: Forex Day Trading [Price Action Lab]
This is the third part of a four part series on the perils of day and position trading in futures and forex markets. In this part, the results of simulations involving a large number of random trading systems using intraday EURUSD data confirm the empirical fact that only a very small percentage of
- 2 days ago, 21 May 2015, 12:10pm -
0
Will Natural Gas Soar With the Wind in June? [Jay On The Markets]
See Jay’s recent post: One More Plunge for Crude Oil? OK, my last article (Will Natural Gas Break Wind in June?) did sound a little apocalyptic regarding the prospects for natural gas in June. But maybe that did not present the full picture. While that previous article did detail a bearish
- 2 days ago, 21 May 2015, 12:09pm -
0
Put/Call ratios pretty low... $SPX $SPY [@NautilusCap]
Put/Call ratios pretty low... $SPX $SPY
- 2 days ago, 21 May 2015, 12:09pm -
0
SPX Iron Condor - High Loss Threshold - 52 DTE [DTR Trading]
This post looks at a standard (STD) one-lot iron condor on the S&P 500 Index (SPX), initiated at 52 days-to-expiration (DTE). The results in this post were derived from approximately 3200 individual trades entered by the backtester. For background on the setup for the backtests, as well as the
- 2 days ago, 21 May 2015, 12:09pm -
2
Intermarket Analysis: The Pathfinder | Trading Strategy (Filter) [Oxford Capital]
I. Trading Strategy Developer: Nelson F. Freeburg. Concept: The currency trading strategy based on the intermarket analysis. Source: Freeburg, N. F. (Dec. 1993). Formula Research, Quantitative Treatment of the Financial Markets. Memphis, TN: Formula Research, Inc. Research Goal: Performance
- 3 days ago, 20 May 2015, 10:06pm -
0
An Unfolding Finite Difference Algorithm in Javascript [John Orford]
very model's assumptions get thrown out the window as soon as things get really rocky. Every model is short vol. Even those for which getting volatility right is crucial! Take the binomial tree approach to pricing options for example. See my previous post here. From 'Paul Wilmott
- 3 days ago, 20 May 2015, 10:06pm -
0
The Europe Catch-Up Trade... $FEZ [@NautilusCap]
The Europe Catch-Up Trade... $FEZ
- 3 days ago, 20 May 2015, 07:39pm -
7
New Paper from GestaltU and QuantStrat TradeR: Momentum and Markowitz: A Golden Combination (PDF)
Mean-Variance Optimization (MVO) as introduced by Markowitz (1952) is often presented as an elegant but impractical theory. MVO is "an unstable and error-maximizing" procedure (Michaud 1989), and "is nearly always beaten by simple 1/N portfolios" (DeMiguel, 2007). And to quote
- 4 days ago, 20 May 2015, 06:52am -
1
A Few Notes on Invest with the Fed [CXO Advisory]
In the introduction to their 2015 book entitled Invest with the Fed: Maximizing Portfolio Performance by Following Federal Reserve Policy, authors Robert Johnson, Gerald Jensen and Luis Garcia-Feijoo state: “Our purpose in writing this book is to provide a general overview of the Fed’s role in
- 4 days ago, 20 May 2015, 06:00am -
1
Why We've Done Away with Down Voting [Quantocracy]
After a few days of living with our (pretty awesome) new voting feature at Quantocracy, we’ve opted to do away with down voting. Readers can now choose to either vote up or not vote at all on each link. We try to keep things friendly around these parts, and the down voting just began to feel a
- 4 days ago, 20 May 2015, 05:51am -
3
A Magical Metric That Isn’t [Larry Swedroe]
I was recently asked to comment on an article that appears in the April 2015 issue of the American Association of Individual Investors Journal. The article is based on the paper “Mutual Fund’s R2 as Predictor of Performance,” which was published in the March 2013 issue of The Review of
- 4 days ago, 20 May 2015, 04:23am -
3
Dow Divergences Part 2: Utilities [Dana Lyons]
This is part 2 of our series (or mini-series…TBD) on divergences. As we stated yesterday, divergences (in which one index achieves a new high whereas another does not) are generally over-cited as red flags. The problem is that the timing of their repercussions on the market - if any actually
- 4 days ago, 20 May 2015, 04:23am -
1
Will Natural Gas Break Wind in June? [Jay On The Markets]
See Jay’s recent post: One More Plunge for Crude Oil? If you are an ardent believer in the phrase “if something looks too good to be true it probably is”, then you’d better brace yourself. Because a “sure-fire, can’t miss, you can’t lose” thing is on the horizon in natural gas. Well
- 4 days ago, 20 May 2015, 04:22am -
1
[Academic Paper] Modelling Systemic Price Cojumps with Hawkes Factor Models [@Quantivity]
Modelling Systemic Price Cojumps with Hawkes Factor Models
- 4 days ago, 20 May 2015, 02:06am -
4
Tactical Asset Allocation: Beware of Geeks Bearing Formulas [Alpha Architect]
How Should I Tactically Allocate my Assets? A lot of investors ask this question as their wealth grows and the number of financial products grows exponentially. In order to generate a response, investors pay money to professional finance geeks who often present complex formulas as a solution to the
- 4 days ago, 19 May 2015, 01:00pm -
2
Dow Divergences Part 1: Transports [Dana Lyons]
Divergences are one of the most oft-cited arguments in calling tops. They are also perhaps the least accurate. That’s because divergences (whereby one index reaches a new high while another fails to do so) both A) occur frequently and B) can persist for lengthy periods of time. For those reasons,
- 4 days ago, 19 May 2015, 01:00pm -
3
Bayesian Inference of a Binomial Proportion - The Analytical Approach [Quant Start]
In the previous article on Bayesian statistics we examined Bayes' rule and considered how it allowed us to rationally update beliefs about uncertainty as new evidence came to light. We mentioned briefly that such techniques are becoming extremely important in the fields of data science and
- 4 days ago, 19 May 2015, 12:21pm -
3
Daily Academic Alpha: Which Trend is Your Friend? [Alpha Architect]
Which Trend Is Your Friend? Managed-futures funds (sometimes called CTAs) trade predominantly on trends. There are several ways of identifying trends, either using heuristics or statistical measures often called "filters." Two important statistical measures of price trends are time series
- 4 days ago, 19 May 2015, 12:18pm -
0
Stock Returns Around Memorial Day [CXO Advisory]
Does the Memorial Day holiday signal any unusual return effects? By its definition, this holiday brings with it any effects from three-day weekends and sometimes the turn of the month. Prior to 1971, the U.S. celebrated Memorial Day on May 30. Effective in 1971, Memorial Day became the last Monday
- 4 days ago, 19 May 2015, 12:00pm -
2
Is your glide path too risky? [Flirting with Models]
The theory behind the glide path is easily distilled: as we grow older and approach retirement, we transition from an primary objective of growth to one of capital preservation. Our allocation profile, therefore, should follow this transition. Close to retirement, when capital preservation is
- 4 days ago, 19 May 2015, 11:28am -
0
SPX Iron Condor - High Loss Threshold - 38 DTE [DTR Trading]
This is the first article in a series where we will look at the performance of the iron condor options strategy, where the loss exits will be greater than the profit exits. For background on the setup for the backtests, as well as the nomenclature used in the charts and tables below, please see the
- 4 days ago, 19 May 2015, 11:28am -
3
What Drives the S&P 500 Equal-Weight Return Premium? [Alpha Architect]
A recent academic paper, Equal or Value Weighting? Implications for Asset-Pricing Tests, highlights two methods of weighting: Equal-weight and Value weight. As the paper states: With monthly rebalancing, an equal-weighted portfolio outperforms a value-weighted portfolio in terms of total mean
- 5 days ago, 18 May 2015, 02:34pm -
6
A Basic Logical Invest Global Market Rotation Strategy [QuantStrat TradeR]
This may be one of the simplest strategies I've ever presented on this blog, but nevertheless, it works, for some definition of "works". Here's the strategy: take five global market ETFs (MDY, ILF, FEZ, EEM, and EPP), along with a treasury ETF (TLT), and every month, fully invest
- 5 days ago, 18 May 2015, 02:33pm -
6
Systems building - futures rolling [Investment Idiocy]
Trading futures has one fairly substantial complication compared to many other assets. You can't just buy 'the CME Gold future'. There is no such thing. You need to select which delivery date future you are trading. Do you want to trade June 2015, July, August....? Once you've
- 5 days ago, 18 May 2015, 02:33pm -
4
There is No Overnight Edge in SPY [Price Action Lab]
In January of 2011 there was an article in Bespoke about an overnight edge in SPY. I responded with two articles that showed that the edge was purely hypothetical. Since then, it is not even an issue of a hypothetical edge simply because the edge is gone, terminated, hasta la vista. See details
- 5 days ago, 18 May 2015, 02:33pm -
3
Truths about stop-losses that nobody wants to believe [Quant Investing]
If you're a long-term reader of my articles, or a subscriber to the newsletter, you will know that I am not a great supporter of a stop-loss system. This is mainly been because some testing we did came to the conclusion that a stop-loss strategy leads to lower returns even though it did reduce
- 5 days ago, 18 May 2015, 02:32pm -
0
Iron Condor Series - Higher Loss Thresholds [DTR Trading]
During my series on dynamic exits of iron condors, I received several requests for an expansion of these backtests. Specifically, people asked if I could run the tests with larger loss thresholds. I thought this was a good idea. I've decided to postpone the series on the Strangle options
- 5 days ago, 18 May 2015, 02:32pm -
1
Making Comparisons in Finance [John Orford]
There was a period not so long ago on a planet not so far when I lost all concept of value. I had lived in many countries in as many months and lost track of what anything was worth. Euros, USD, SGD, IDR and AUD became indistinguishable units of exchange, a means to an end, I handed over a fist of
- 5 days ago, 18 May 2015, 02:31pm -
0
Most narrow SPX run to new highs since 2007 top $SPY [@NautilusCap]
Most narrow SPX run to new highs since 2007 top $SPY
- 5 days ago, 18 May 2015, 12:23pm -
2
Why Friday’s Quiet OpEx Could Mean Trouble This Week [Quantifiable Edges]
Despite the options expiration, SPY volume came in at the lowest level of the week. When combined with the fact that the VIX also closed at a recent low it brought about a bearish study from the Quantifinder. Results below are all updated. The low VIX typically suggests complacency. It also
- 6 days ago, 18 May 2015, 08:59am -
10
Interview with Rob Hanna [Better System Trader]
Rob Hanna has been a full-time market professional since 2001. He first began publishing his market views and research in 2003. From 2003 to 2007 his column “Rob Hanna’s Putting It All Together” could be found twice a week on TradingMarkets.com. In 2008 Rob began Quantifiable Edges and in 2012
- 6 days ago, 17 May 2015, 12:22pm -
4
Shorting extremes in a bear market [Better System Trader]
In Episode 7 of the podcast Rob Hanna provides an idea for shorting extremes in a bear market: I got one in bear markets that shows all right, what happens if… you sold short every 20 day high below the 200 day moving average or something like that and exited when it got back below the 20 day
- 6 days ago, 17 May 2015, 12:21pm -
6
Quant Geek Weekend Homework: Academic Finance Research [Alpha Architect]
Post-discovery Performance: Will Anomalies Fade Away After Discovery? (Qu, Lu, Sun and Yan) The Search for Crisis Alpha: Weathering the Storm Using Relative Momentum (Newfound Research) Are Your Backtest Results fooling you? Try Monte Carlo Analysis (Better System trader) Buffett’s Alpha
- 1 week ago, 16 May 2015, 01:31pm -
5
Quasi-Maximum Likelihood [Eran Raviv]
Beauty.. really? well, beauty is in the eye of the beholder. One of the most striking features of using Maximum Likelihood (ML) method is that by merely applying the method, conveniently provides you with the asymptotic distribution of the estimators. It can’t get more general than that. The
- 1 week ago, 16 May 2015, 01:30pm -
2
Singular Value Diversification Strategy [John Orford]
Being a loser is an art. I am not interested in being a good loser, but in knowing when to quit. The art of quitting can be acquired after a little numerical analysis. (Not necessarily due to all the confusing linear algebra!) In the world of numerical solutions there is no correct answer. Knowing
- 1 week ago, 15 May 2015, 11:57pm -
1
New related paper to #5 - FX Carry Trade [Quantpedia]
The paper gives evidence of a novel pricing factor for the cross-section of carry trade returns based on trade relations between countries. In particular, we apply network theory on countries' bilateral trade to construct a measure for countries' exposure to a global trade risk. A higher
- 1 week ago, 15 May 2015, 01:52pm -