Quant Mashup
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2
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
- 36 minutes ago, 28 Aug 2015, 12:28pm -
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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
- 36 minutes ago, 28 Aug 2015, 12:27pm -
1
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
- 37 minutes ago, 28 Aug 2015, 12:27pm -
1
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
- 2 hours ago, 28 Aug 2015, 10:13am -
0
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
- 2 hours 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
- 2 hours ago, 28 Aug 2015, 10:13am -
1
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
- 14 hours 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
- 14 hours 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
- 1 day 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
- 1 day 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
- 1 day ago, 27 Aug 2015, 12:36pm -
1
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
- 1 day 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
- 1 day 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
- 1 day ago, 27 Aug 2015, 05:45am -
1
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
- 1 day ago, 27 Aug 2015, 05:42am -
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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
- 1 day 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
- 2 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
- 2 days ago, 26 Aug 2015, 10:25am -
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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
- 2 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
- 2 days ago, 25 Aug 2015, 08:54pm -
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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
- 2 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
- 2 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
- 3 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
- 3 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
- 3 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
- 3 days 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
- 3 days 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,
- 3 days 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
- 4 days 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,
- 4 days 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
- 4 days 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
- 4 days 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
- 4 days ago, 24 Aug 2015, 12:27pm -
0
OMXS30 Turn of the Month August [Stockdotnu]
Ahead of the upcoming Turn of the Month May/June, the statistics are always calculated after closing price and from year 1987 to 2014. This statistics applies only to Turn of the Month August/September. Last trading day of the month is -1 and the first trading day of the new month is 1. The trading
- 4 days ago, 24 Aug 2015, 12:27pm -
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Best Links of the Week [Quantocracy]
The best quant mashup links for the week ending Saturday, 08/22 as voted by our readers: The Kalman Filter and Pairs Trading [MKTSTK] The Gamblers’ Fallacy [Factor Wave] Strategy Gamma Overview [John Orford] The Health of Stock Mean Reversion: Dead, Dying or Doing Just Fine [Alvarez Quant Trading]
- 5 days ago, 23 Aug 2015, 02:12am -
1
ORBP with Momentum Filter | Trading Strategy (Filter & Exit) [Oxford Capital]
I. Trading Strategy Developer: Toby Crabel (ORBP: Opening Range Breakout Preference). Source: Crabel, T. (1990). Day Trading with Short Term Price Patterns and Opening Range Breakout. Greenville: Traders Press, Inc. Concept: Volatility expansion with a trend filter. Research Goal: Performance
- 5 days ago, 23 Aug 2015, 02:12am -
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Financial Rohrschach Plot [John Orford]
Here's a cumulative return plot of the lazy Drop the Mic trading strategy outlined yesterday. Long periods of flatlining show when the strategy is in hibernation. Just for fun, here is how the strategy weights its holding in the S&P 500 over time. How often do you see a symmetric picture
- 5 days ago, 23 Aug 2015, 02:12am -
0
Market crash statistics [Statistical Ideas]
It surely was a frightening week in global financial markets. The largest 500 American stocks (S&P) dropped 6%. China's Shanghai Stock Exchange (SSE) doubled this risk, as it dropped 12%. Now there is an overall fear in the markets that we have not had in years. While these perilous
- 5 days ago, 23 Aug 2015, 02:11am -
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Parallels Of Betting & Investing [Larry Swedroe]
Two of the most-well-known factors that help explain stock returns are the value effect (where equities with lower prices relative to metrics—such as book value, earnings, cash flow, sales and dividends—tend to outperform the equities with higher prices relative to those metrics), and the
- 6 days ago, 21 Aug 2015, 07:57pm -
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Market Efficiency Hates Bad Weather [Alpha Architect]
Building on research in psychology, we predict that unpleasant weather negatively affects capital market participants’ moods and activity levels, causing a muted response to information events… The table below highlights that unpleasant weather seems to be correlated with slower market
- 1 week ago, 21 Aug 2015, 10:33am -
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Lazy Financial Strategies [John Orford]
One of the major themes of War and Peace will resonate with all practitioners of stochastic finance. Essentially, Napoleon's nemesis, the Russian general Kutuzov, keeps dropping back before the invading French until at last he spots a weakness in the French and pounces. Tolstoy tells us that
- 1 week ago, 21 Aug 2015, 10:33am -
1
Moods and the Market [Factor Wave]
At the start of the week I wrote a post about the effect of weather and the markets. Leo Cheng thought (quite reasonably) that this might just be data mining. If you look at enough things, some will appear to have an influence on the market just by chance. I've done a little more reading and I
- 1 week ago, 21 Aug 2015, 10:32am -
0
RUT Strangle - High Loss Threshold - 66 DTE [DTR Trading]
This post reviews the backtest results of selling one-lot options strangles on the Russell 2000 Index (RUT), initiated at 66 days-to-expiration (DTE). The results in this post were derived from 2336 individual trades entered by the backtester. The results are grouped by the delta of the short
- 1 week ago, 21 Aug 2015, 10:30am -
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The Gamblers' Fallacy [Factor Wave]
This is somewhat based on an an article I wrote for the sadly departed "Active Trader" magazine but is more directly spurred by a conversation I had with a reader about my last post. Her point was that by buying dips we are just engaging in a classic Martingale, buying when things go
- 1 week ago, 20 Aug 2015, 10:31am -
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More thoughts on Global Sector ETFs [Flirting with Models]
I was recently quoted in ETF.com and its sister publication, ETF Report, in an article titled Global Sector Investing in Early Stages. The article discusses global sectors – and in particular, global sector ETFs – and why they haven't seen the growth of their domestic peers. At Newfound, we
- 1 week ago, 20 Aug 2015, 10:30am -
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Millennium Auto-Correlation Apocoplyse [John Orford]
You can count dead air on the radio by the millisecond, when you expect to hear something but don't, your ears become acutely aware of not hearing anything at all. This doesn't happen with white space on a page. Look at a well designed website; your eyes will happily swim around it;
- 1 week ago, 20 Aug 2015, 10:30am -
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[Academic Paper] Dynamic Mode Decomposition for Financial Trading Strategies  [@Quantivity]
Dynamic Mode Decomposition for Financial Trading Strategies
- 1 week ago, 20 Aug 2015, 12:22am -
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[Academic Paper] Forecasting Stock Market Returns over Multiple Time Horizons  [@Quantivity]
Forecasting Stock Market Returns over Multiple Time Horizons
- 1 week ago, 20 Aug 2015, 12:19am -
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Crisis Alpha: Surprising Ways to Hedge Stock Portfolio Risk [Alpha Architect]
Investing in the current environment is difficult. Most, if not all, asset classes have high nominal prices, suggesting low nominal expected returns. Not exactly exciting. And for many investors who are retired and/or have near-term liquidity needs, investing in equity exposures–while necessary to
- 1 week ago, 19 Aug 2015, 09:22pm -
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Correlation and correlation structure [Eran Raviv]
Given a constant speed, time and distance are fully correlated. Provide me with the one, and I’ll give you the other. When two variables have nothing to do with each other, we say that they are not correlated. You wish that would be the end of it. But it is not so. As it is, things are perilously
- 1 week ago, 19 Aug 2015, 09:21pm -