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1
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
- 6 hours 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
- 6 hours 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
- 6 hours 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
- 6 hours ago, 29 Jun 2015, 12:43pm -
4
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
- 14 hours ago, 29 Jun 2015, 04:49am -
3
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
- 14 hours ago, 29 Jun 2015, 04:49am -
1
How regression statistics mislead experts [Eran Raviv]
This post concerns a paper I came across checking the nominations for best paper published in International Journal of Forecasting (IJF) for 2012-2013. The paper bears the annoyingly irresistible title: “The illusion of predictability: How regression statistics mislead experts”, and was written
- 14 hours ago, 29 Jun 2015, 04:48am -
0
Improved Fractal Strategy [John Orford]
little scepticism is healthy, however, many of you know the feeling of being plagued non-stop by this awkward feeling. My level of scepticism is always bobbing around unhealthy levels. So it's nice when a guy like Ilya questions numbers and kicks the tyres a little. An opportunity to treble
- 14 hours ago, 29 Jun 2015, 04:47am -
2
Lazy Backtesting Update [John Orford]
The S&P Dow Jones data source is now available to use in the Lazy Backtesting IDE. All manner of interesting investable strategies and asset classes, including volatility and retirement date targeting; Vix contango & backwardation and other quant-style strategies; which you can combine,
- 1 day ago, 28 Jun 2015, 03:53am -
1
Bad Breadth Milestone A Warning For Stocks? [Dana Lyons]
We’ve been discussing the weakening market breadth recently, especially as it pertains to New Highs vs. New Lows. Again, our contention is that the more stocks participating in a rally, the healthier the rally is. The most recent example of this weak breadth was Wednesday’s post on the fact that
- 1 day ago, 28 Jun 2015, 03:52am -
0
[Academic Paper] Structured Products: Performance, Costs and Investments [@Quantivity]
Structured Products: Performance, Costs and Investments
- 2 days ago, 27 Jun 2015, 08:40am -
3
The Decision Moose Asset Allocation Framework [CXO Advisory]
A reader suggested a review of the Decision Moose asset allocation framework of William Dirlam. “Decision Moose is an automated framework for making intermediate-term investment decisions.” Decision Moose focuses on asset class momentum, as augmented by monetary policy, exchange rate and
- 3 days ago, 26 Jun 2015, 06:00am -
4
The Market For ‘Lemons’: A Lesson For Dividend Investors [Research Affiliates]
Central banks the world over are buying high-quality bonds, thereby removing them from the market and forcing savers to find alternative strategies to meet their income needs. In this environment of financial repression and near-zero interest rates, dividend-yield (or equity income) investing has
- 3 days ago, 26 Jun 2015, 04:33am -
3
Estimating Crash-Risk Potential For The US Stock Market [Capital Spectator]
History shows rather clearly that the stock market is prone to extreme events, aka crashes. The challenge is deciding when the risk for a repeat performance is unusually high. The literature offers endless possibilities, which is a reminder that the market can crumble for any number of reasons. The
- 3 days ago, 26 Jun 2015, 04:31am -
0
Risk Aversion, Information Choice, and Price Impact [Alex Chinco]
Kyle (1985) introduces an information-based asset-pricing model where informed traders keep trading until the marginal benefit of holding one additional share of the asset is exactly offset by the marginal cost of this last trade’s price impact. This model has really nice intuition, but it also
- 3 days ago, 26 Jun 2015, 04:31am -
7
Think MPT Doesn’t Work? Clearing Up Some Misconceptions [CSS Analytics]
I have spent many years toiling with creating different asset allocation methodologies including the application of traditional and non-traditional portfolio optimization. Given the recent flare of articles on this topic in the blogosphere, I felt it was worthwhile to share my two cents. Applying
- 4 days ago, 25 Jun 2015, 04:29am -
4
Backtesting – A Cautionary Example [Scott's Investments]
My previous article detailed backtest results for the ETFReplay.com portfolio. Aggregate, risk-adjusted results since 2004 were impressive when compared to a 60/40 Vanguard mutual fund. However, results over the past 2-3 years lagged the benchmark. The test below was conducted using Portfolio123
- 4 days ago, 25 Jun 2015, 12:46am -
1
How to Get a List of all NASDAQ Securities as a CSV file using Python? [Quant at Risk]
This post will be short but very informative. You can learn a few good Unix/Linux tricks on the way. The goal is well defined in the title. So, what’s the quickest solution? We will make use of Python in the Unix-based environment. As you will see, for any text file, writing a single line of Unix
- 4 days ago, 25 Jun 2015, 12:45am -
2
Lazy PCA Site Update [John Orford]
There's been a bunch of feature suggestions since the last update to the Lazy PCA site. All the code is on Github, if you have a little Javascript experience, I will gladly walk you through it. Please keep shooting feature ideas over too though. You know when you're done with an app when
- 4 days ago, 25 Jun 2015, 12:45am -
3
Mutual Fund Sector Rotation – Ideas from readers [Alvarez Quant Trading]
he post ETF Sector Rotation generated good ideas on what to try differently. This post will research two ideas using Fidelity sector mutual funds. The previous post focused on two ideas on the Select Sector SPDR ETFs. Mutual Fund Universe These tests will use the Fidelity Sector Mutual Funds. The
- 5 days ago, 24 Jun 2015, 12:51pm -
4
How to Make Money in Markets: Understanding Expectation Errors [Alpha Architect]
A new working paper from Gennaili, Ma, and the one-the-only Andrei Shleifer. Expectations and Investment Using micro data from Duke University quarterly survey of Chief Financial Officers, we show that corporate investment plans as well as actual investment are well explained by CFOs’ expectations
- 5 days ago, 24 Jun 2015, 12:47pm -
5
A Random Ass Kicking of Wall Street [Following the Trend]
A random number generator can beat your mutual fund. Given a choice between a random portfolio and a mutual fund, I’ll go with the randomizer every day of the week and twice on Sundays. You think I’m joking? I’m not joking. Trashing the mutual fund industry is almost like beating a dead horse.
- 5 days ago, 24 Jun 2015, 12:47pm -
2
Stops IV: The Trailing Stop [Factor Wave]
A reader asked if there was any real difference between using a fixed stop at a given distance from our entry price or a trailing stop which we move so it stays a certain distance from the highest amount the investment has made. A trailing stop is a very comforting strategy. It seems to protect us
- 5 days ago, 24 Jun 2015, 12:46pm -
0
New related paper to #8 - FX Momentum [Quantpedia]
Authors: Grobis, Heinonen Title: Is Momentum in Currency Markets Driven by Global Economic Risk? Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2619146 Abstract: This article documents a robust link between the returns of the momentum anomaly implemented in currency markets and global
- 5 days ago, 24 Jun 2015, 12:46pm -
1
Modeling Interest Rates Meucci Style [Return and Risk]
I have signed up for Attilio Meucci’s ARPM Bootcamp next month (July 13-18) in NYC http://www.symmys.com/arpm-bootcamp, and need to do quite a bit of prep as it’s going to be a deep-dive… The Advanced Risk and Portfolio Management Bootcamp provides in-depth understanding of buy-side modeling
- 5 days ago, 24 Jun 2015, 06:21am -
2
Will the quants blow up the markets again? [Humble Student of the Markets]
Josh Brown had a fascinating post which postulated that the quants pose a significant systemic risk to market volatility: There’s an interesting idea going around that asset management – specifically the metastasizing quantitative strategies run via black box are where the next big scare is due
- 5 days ago, 24 Jun 2015, 06:21am -
1
A Conjecture Which Unifies Timing Strategies [John Orford]
When arrested in Asia (many countries, not everywhere) never step into the station. Once you put a foot inside, there's an unstoppable force pulling you deeper into the bowels of the judicial system. Conviction rates in Japan, Korea and China are 99%+. For comparison, conviction rates are in
- 5 days ago, 24 Jun 2015, 06:20am -
4
Beginner's Guide to Time Series Analysis [Quant Start]
Over the last few years we've looked at various tools to help us identify exploitable patterns in asset prices. In particular we have considered basic econometrics, statistical machine learning and Bayesian statistics. While these are all great modern tools for data analysis, the vast majority
- 5 days ago, 23 Jun 2015, 07:36pm -
3
Fad Investments (the Case of Good Harbor) [EconomPic]
Investment News outlines an arbitration request by an investor seeking damages for being placed in two funds; one to F-Squared (an outright fraud) and another to Good Harbor's U.S. Tactical Core Fund (GHUIX). The adviser placed approximately $900,000 of the investor's savings, which his
- 5 days ago, 23 Jun 2015, 07:35pm -
3
Oh Those Summer Nights [Overnight Edges]
Danny Zucco and Sandy loved the Summer Nights, but how have they played out for the market over the years? Below I examine two time periods. As you’ll see, the edge may be shifting. First, let’s look at numbers from the summers of 2000 – 2012 (from the night of June 21st – the night of
- 5 days ago, 23 Jun 2015, 07:35pm -
1
Trading Stocks using Bonds [Jay On The Markets]
In case you are new to this game or just in case you never noticed, there are a lot of ways to play this game. This article details one. I can’t honestly say that this is a good strategy – the test period is relatively short, it uses leverage so it is risky, and drawdowns may be more than some
- 5 days ago, 23 Jun 2015, 07:34pm -
4
The Probability of Something that has Never Occurred [Factor Wave]
An astute reader of the post on Risk pointed out that one of the reasons risk management is hard is because it often involves estimating the chance of something that has never happened before. For example, what is the probability of the US defaulting on its debt or of Apple going bankrupt? Sometimes
- 5 days ago, 23 Jun 2015, 07:34pm -
3
How The Russell 2000 has Dominated the S&P 500 in Late June [Quantifiable Edges]
Yesterday I published a study that showed the week after June opex has exhibited weakness in recent years. An astute newsletter subscriber suggested to me that this could be partially due to Russell rebalancing, which always happens at the end of June. His comments led me to wonder how the Russell
- 6 days ago, 23 Jun 2015, 08:59am -
4
New Backtests for ETFReplay Portfolio [Scott's Investments]
I am frequently asked about various strategy and portfolio performance metrics and backtests. A reader recently asked if there are any current backtests for the ETFReplay 6/3/3 Portfolio so I decided now is the appropriate time to provide updated results. The strategy background is available here
- 6 days ago, 23 Jun 2015, 04:11am -
8
Creating an Open Source Hedge Fund Strategy [Quants Portal]
The idea is to build a quantitative hedge fund strategy based on momentum investing. With the obvious interest that I see on Quantocracy, I felt that this would be a topic that many of us are interested in. I didn’t want to run the risk of previous employers saying I used their IP, so I hired 4
- 6 days ago, 23 Jun 2015, 04:10am -
2
An Investable 'Investable Vix' Strategy [John Orford]
The ideas I sketch out every afternoon are fanciful sweet little things, decorated to perfection. Then someone ventures a bite and sometimes finds that that's all they are. Fanciful. Readers are fantastic guinea pigs! Ilya got in touch about this post about diversification and rightly mentioned
- 6 days ago, 23 Jun 2015, 04:09am -
3
Stops III [Factor Wave]
The previous simulation was performed for only a specific process: geometric Brownian motion with a positive drift. It is possible, if a little harder, to do similar analyses for cases where the trade has a more complex, realistic set of outcomes. We can add fat-tails, crashes and skewness. We can
- 6 days ago, 22 Jun 2015, 08:04pm -
2
Stock Market Behavior Around Mid-year and 4th of July [CXO Advisory]
The middle of the year might be a time for funds to dress their windows and investors to review and revise portfolios. The 4th of July celebration might engender optimism among U.S. investors. Are there any reliable patterns to daily U.S. stock market returns around mid-year and the 4th of July? To
- 1 week ago, 22 Jun 2015, 12:00pm -
2
Modeling "Safe" Spending Rates For Retirement Portfolios [Capital Spectator]
Deaccumulation is the new new thing in finance for an obvious reason: the US population is aging, which means that retirement becomes an increasingly pressing issue for financial planning. Perhaps the leading challenge for this critical task (other than accumulating a sufficient pot of money) is
- 1 week ago, 22 Jun 2015, 10:52am -
3
The Turn of the Month Effect [Factor Wave]
The six FactorWave factors are size, value, quality, momentum, low beta and the market. These have all been studied in many markets and across many time-frames by both academic researchers and practitioners. The amount of evidence for their existence and profitability is overwhelming. However they
- 1 week ago, 22 Jun 2015, 10:51am -
3
The Perils of Day and Position Trading in Zero-Sum Markets. Part Four: Forex Position Trading [Price Action Lab]
This is the fourth and last part of a series of articles 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 backtested on EURUSD data confirm the empirical fact that only a very small
- 1 week ago, 22 Jun 2015, 10:45am -
2
High Frequency Trading & Price Efficiency [Larry Swedroe]
The effect of high-frequency trading on market quality has generated strong interest among academics, investors and regulators alike. To further explore the impact high-frequency trading can have on the markets, Jennifer Conrad, Sunil Wahal and Jin Xiang—authors of the study “High Frequency
- 1 week ago, 22 Jun 2015, 10:44am -
1
This Week In June [Quantifiable Edges]
The week after June opex is one that has struggled quite a bit in recent times. This can be seen in the table below, which shows full-week performance dating back to 1999 when the bearish inclination seemed to kick in. As you can see, it has been quite a streak of bearishness. Thirteen out of
- 1 week ago, 22 Jun 2015, 09:00am -
6
Losing Streak Indicator [System Trader Success]
In a recent article written by Michael Harris on his blog, he compared the performance of the 2-period RSI indicator popularized by Larry Connors and Cesar Alvarez with a two-day losing streak indicator. The two-day losing streak indicator simply buys the market after two consecutive losing days.
- 1 week ago, 22 Jun 2015, 06:59am -
2
Trading Moving Averages with Less Whipsaws [Quintuitive]
Using a simple moving average to time markets has been a successful strategy over a very long period of time. Nothing to brag home about, but it cuts the drawdown of a buy and hold by about a half, sacrificing less than 1% of the CAGR in the process. In two words, simple yet effective. Here are the
- 1 week ago, 22 Jun 2015, 01:54am -
3
Big O Notation in Finance [John Orford]
'O' is notation in mathematics which describes getting ever closer to something. For example, in computer science it describes the efficiency that algorithms chomp inputs and produce results. In statistics it's related to how probabilities converge. E.g. the probability of very large
- 1 week ago, 22 Jun 2015, 01:54am -
0
[Academic Paper] Forecasting Directional Changes in Financial Markets [@Quantivity]
Forecasting Directional Changes in Financial Markets
- 1 week ago, 21 Jun 2015, 08:24pm -
15
Interview with Ernest Chan [Better System Trader]
Ernie Chan is an expert in the application of statistical models and software for trading currencies, futures, and stocks. He has built and traded numerous quantitative models for investment banks and hedge funds. He is now the Managing Member of QTS Capital Management, commodity pool operator and
- 1 week ago, 21 Jun 2015, 06:13pm -
3
Fractal Investment Strategy [John Orford]
Martin Stisen got in touch after reading about the Mean Reversion + Momentum Strategy last week with an idea. Using the Hurst exponent to predict future returns. Quirky ideas are exciting. The Hurst exponent was originally found by observing how the Nile River waxed and waned over the years and now
- 1 week ago, 21 Jun 2015, 06:13pm -
0
[Academic Paper] Developing & Backtesting Systematic Trading Strategies [@Quantivity]
Developing & Backtesting Systematic Trading Strategies
- 1 week ago, 21 Jun 2015, 12:23pm -