Quant Mashup - CXO Advisory
Researcher Motives [CXO Advisory]
Do motives of financial market researchers justify strong skepticism of their findings? In his brief August 2021 paper entitled “Be Skeptical of Asset Management Research”, Campbell Harvey argues that economic incentives undermine belief in findings of both academic and practitioner financial
- 2 years ago, 20 Sep 2021, 11:12am -
VVIX/VIX as a Return Indicator? [CXO Advisory]
Is the ratio of implied volatility of implied volatility (CBOE VVIX Index), interpretable as a measure of changes in investor fear level, to CBOE VIX Index itself a useful indicator of future stock market returns? To investigate, we relate monthly VVIX/VIX and monthly change in VVIX/VIX to monthly
- 2 years ago, 1 Sep 2021, 10:49am -
Recent Weaknesses of Factor Investing [CXO Advisory]
How have value, quality, low-volatility and momentum equity factors, and combinations of these factors, performed in recent years. In their October 2020 paper entitled “Equity Factor Investing: Historical Perspective of Recent Performance”, Benoit Bellone, Thomas Heckel, François Soupé and
- 3 years ago, 26 Jan 2021, 09:58am -
Fed Model Improvement? [CXO Advisory]
Is there a better way than the Fed model to measure relative attractiveness of equities and bonds. In his October 2020 paper entitled “Towards a Better Fed Model”, Raymond Micaletti examines seven Fed Model alternatives, each comparing a 10-year forward annualized estimate of equity returns to
- 3 years ago, 21 Dec 2020, 11:24am -
QQQ:IWM for Risk-on and GLD:TLT for Risk-off? [CXO Advisory]
A subscriber asked about a strategy that switches between an equal-weighted portfolio of Invesco QQQ Trust (QQQ) and iShares Russell 2000 ETF (IWM) when the S&P 500 Index is above its 200-day simple moving average (SMA200) and an equal-weighted portfolio of SPDR Gold Shares (GLD) and iShares 20+
- 3 years ago, 18 Dec 2020, 11:14am -
Combine Market Trend and Economic Trend Signals? [CXO Advisory]
A subscriber requested review of an analysis concluding that combining economic trend and market trend signals enhances market timing performance. Specifically, per the example in the referenced analysis, we look at combining: The 10-month simple moving average (SMA10) for the broad U.S. stock
- 4 years ago, 11 Nov 2019, 08:28am -
Jim Cramer Using the S&P Oscillator [CXO Advisory]
A reader asked about the usefulness of the S&P Short-range Oscillator as sometimes used by Jim Cramer to forecast U.S. stock market returns. The self-reported “Performance” of the oscillator, relying on in-sample visual inspection with snooped thresholds, is of small use. Since continuous
- 4 years ago, 1 Nov 2019, 10:29am -
Should Investors Care About "the Way Things Are Going"? [CXO Advisory]
Are broad measures of public sociopolitical sentiment relevant to investors? Do they predict stock returns as indicators of exuberance and fear? To investigate, we relate S&P 500 Index return and 12-month trailing S&P 500 price-operating earnings ratio (P/E) to the percentage of respondents
- 4 years ago, 5 Aug 2019, 10:00am -
Financial Experts Ignoring Better Statistical Methods? [CXO Advisory]
Why are expert economic and financial (econometric) forecasters so inaccurate? In his April 2019 presentation package for a graduate course at Cornell entitled “The 7 Reasons Most Econometric Investments Fail”, Marcos Lopez de Prado enumerates shortcomings of standard econometric statistical
- 4 years ago, 17 May 2019, 10:45am -
Equity Factor Census [CXO Advisory]
Should investors trust academic equity factor research? In their February 2019 paper entitled “A Census of the Factor Zoo”, Campbell Harvey and Yan Liu announce a comprehensive database of hundreds of equity factors from top academic journals and working papers through January 2019, including a
- 5 years ago, 9 Apr 2019, 12:32pm -
Mutual Fund Investors Irrationally Naive? [CXO Advisory]
Do retail investors rationally account for risks as modeled in academic research when choosing actively managed equity mutual funds? In their March 2019 paper entitled “What Do Mutual Fund Investors Really Care About?”, Itzhak Ben-David, Jiacui Li, Andrea Rossi and Yang Song investigate whether
- 5 years ago, 4 Apr 2019, 03:08pm -
Classic Cars as an Alternative Investment [CXO Advisory]
Are some types of cars attractive alternative investments? In their September 2018 paper entitled “My Kingdom for a Horse (or a Classic Car)”, Dries Laurs and Luc Renneboog investigate price determinants and investment performance of classic cars from veteran cars (built 1888-1907) through
- 5 years ago, 1 Feb 2019, 08:12pm -
Pump-and-Dump Participation/Losses [CXO Advisory]
A “pump-and-dump” scheme promoter: (1) builds a position in a stock (often a thinly traded penny stock); (2) gooses its price by spreading misleading information; and, (3) liquidates the position once the stock reaches. Who responds to such schemes and what are their returns? In the December
- 5 years ago, 11 Jan 2019, 09:56am -
Toys for Young (and Old) Investors? [CXO Advisory]
Are premium toys attractive alternative investments? In their April 2018 paper entitled “LEGO – The Toy of Smart Investors”, Victoria Dobrynskaya and Julia Kishilova study LEGO sets as an alternative investment. A secondary market for these sets with 10,000+ daily transactions, affordable to
- 5 years ago, 26 Dec 2018, 12:27pm -
Does the Sunspot Cycle Predict Grain Prices? [CXO Advisory]
As a follow-up to “Sunspot Cycle and Stock Market Returns” a reader asked: “Sunspot activity does have a direct relationship to weather. Could one speculate on the agriculture market using the sunspot cycle?” To investigate, we relate sunspot activity to the fairly long U.S. Producer Price
- 5 years ago, 14 Dec 2018, 10:43am -
Sunspot Cycle and Stock Market Returns [CXO Advisory]
A reader asked whether Charles Nenner, self-described as “the talk of Wall Street since accurately predicting some of the biggest moves in the Markets over the past few years,” accurately forecasts equity and commodity markets. We consider the following: In his July 2007 discussion of the
- 5 years ago, 14 Dec 2018, 10:43am -
Free Data and the Collapse of Trading Costs [CXO Advisory]
How have costs of U.S. stock trading data evolved in recent years? In his October 2018 paper entitled “Retail Investors Get a Sweet Deal: The Cost of a SIP of Stock Market Data”, James Angel examines costs of U.S. stock market data. He also describes the production of these data and their
- 5 years ago, 3 Dec 2018, 09:49am -
Investment Strategy Development Coursework [CXO Advisory]
In a series of five presentation slide sets (Lectures 1-8 of 10) on “Advances in Financial Machine Learning”, Marcos Lopez de Prado provides part of Cornell University’s ORIE 5256 graduate course at the School of Engineering (“Special Topics in Financial Engineering V”). The course
- 5 years ago, 23 Nov 2018, 08:21am -
PPI and the Stock Market [CXO Advisory]
Inflation at the producer level (derived from the Producer Price Index – PPI) is arguably an advance indicator for inflation downstream at the consumer level (derived from the Consumer Price Index – CPI). Do investors therefore reliably react to changes in PPI as an indicator of the future
- 5 years ago, 4 Sep 2018, 12:02pm -
Crypto-asset Risks and Returns [CXO Advisory]
How do the major crypto-assets (Bitcoin, Ripple, and Ethereum) stack up against conventional asset classes? In their August 2018 paper entitled “Risks and Returns of Cryptocurrency”, Yukun Liu and Aleh Tsyvinski apply standard tools of asset pricing to measure crypto-asset exposures to: 160
- 5 years ago, 27 Aug 2018, 12:07pm -
Crypto-asset Research Survey [CXO Advisory]
What is the body of academic research on crypto-assets? In their March 2018 paper entitled “Cryptocurrencies as a Financial Asset: A Systematic Analysis”, Shaen Corbet, Brian Lucey, Andrew Urquhart and Larisa Yarovaya review available research on cryptocurrencies as financial assets. They define
- 6 years ago, 25 Apr 2018, 01:01pm -
Chess, Jeopardy, Poker, Go and… Investing? [CXO Advisory]
How can machine investors beat humans? In the introductory chapter of his January 2018 book entitled “Financial Machine Learning as a Distinct Subject”, Marcos Lopez de Prado prescribes success factors for machine learning as applied to finance. He intends that the book: (1) bridge the divide
- 6 years ago, 8 Feb 2018, 11:26am -
Bitcoin Return Based on Supply and Demand Model [CXO Advisory]
Does the increase in number of Bitcoin wallets at a rate that far exceeds growth in number of Bitcoins explain the dramatic rise in Bitcoin price? In the December revision of his paper entitled “Metcalfe’s Law as a Model for Bitcoin’s Value”, Timothy Peterson models Bitcoin price according
- 6 years ago, 26 Jan 2018, 12:31pm -
Cryptocurrencies vs. Other Asset Classes [CXO Advisory]
Are cryptocurrencies potentially useful portfolio diversifiers? In their November 2017 paper entitled “Exploring the Dynamic Relationships between Cryptocurrencies and Other Financial Assets”, Shaen Corbet, Andrew Meegan, Charles Larkin, Brian Lucey and Larisa Yarovaya apply a battery of tests
- 6 years ago, 20 Dec 2017, 12:17pm -
Combine Market Trend and Economic Trend Signals? [CXO Advisory]
A subscriber requested review of an analysis concluding that combining economic trend and market trend signals enhances market timing performance. Specifically, per the example in the referenced analysis, we look at combining: The 10-month simple moving average (SMA10) for the broad U.S. stock
- 6 years ago, 29 Nov 2017, 11:28am -
Are Equity Multifactor ETFs Working? [CXO Advisory]
Are equity multifactor strategies, as implemented by exchange-traded funds (ETF), attractive? To investigate, we consider seven ETFs, all currently available (in order of decreasing assets): Goldman Sachs ActiveBeta U.S. Large Cap Equity (GSLC) – holds large U.S. stocks based on good value, strong
- 6 years ago, 25 Oct 2017, 11:20am -
Are U.S. Equity Momentum ETFs Working? [CXO Advisory]
Are U.S. stock and sector momentum strategies, as implemented by exchange-traded funds (ETF), attractive? To investigate, we consider five momentum-oriented U.S. equity ETFs with assets over $100 million, all currently available (in order of decreasing assets): iShares Edge MSCI USA Momentum Factor
- 6 years ago, 13 Oct 2017, 02:26pm -
What Kind of Asset Is Bitcoin? [CXO Advisory]
Does Bitcoin behave like some other asset class? To investigate, we calculate daily and monthly return correlations between Bitcoin and each of 34 exchange-traded products encompassing eight used in “Simple Asset Class ETF Momentum Strategy ” (SACEMS), 24 considered in “SACEMS Portfolio-Asset
- 6 years ago, 28 Sep 2017, 10:52pm -
Seven Habits of Highly Ineffective Quants [CXO Advisory]
Why don’t machines rule the financial world? In his September 2017 presentation entitled “The 7 Reasons Most Machine Learning Funds Fail”, Marcos Lopez de Prado explores causes of the high failure rate of quantitative finance firms, particularly those employing machine learning. He then
- 6 years ago, 21 Sep 2017, 12:32pm -
Federal Regulations and Stock Market Returns [CXO Advisory]
Do changes in the U.S. federal regulatory burden predict U.S. stock market returns? To check, we consider two measures of the regulatory burden: Annual number of pages in the Federal Register (FR) during 1936-2016 – “…in which all newly proposed rules are published along with final rules,
- 6 years ago, 1 Sep 2017, 11:34am -
Pump-and-Dump via Twitter [CXO Advisory]
Do stock scammers use Twitter to manipulate prices of microcap stocks? In his August 2017 paper entitled “Market Manipulation and Suspicious Stock Recommendations on Social Media”, Thomas Renault performs an event study to analyze returns for microcap stocks around spikes in Twitter activity
- 6 years ago, 17 Aug 2017, 11:04am -
“Sell in May” Over the Long Run [CXO Advisory]
Does the conventional wisdom to “Sell in May” (and “Buy in November”, hence also the term “Halloween Effect”) work over the long run, perhaps due to biological/psychological effects of seasons (Seasonal Affective Disorder)? To check, we turn to the long run dataset of Robert Shiller.
- 6 years ago, 5 May 2017, 02:03pm -
Rough Net Worth Growth Benchmarks [CXO Advisory]
How fast should individuals plan to grow net worth as they age? To investigate, we examine median levels of household (1) total net worth and (2) net worth excluding home equity from several vintages of U.S. Census Bureau data. We make the following head-of-household age cohort assumptions: “Less
- 7 years ago, 17 Jun 2016, 10:00am -
A Few Notes On Adaptive Asset Allocation [CXO Advisory]
In the introductory text for Part I of their 2016 book, Adaptive Asset Allocation: Dynamic Global Porfolios to Profit in Good Times – and Bad, Adam Butler, Michael Philbrick and Rodrigo Gordillo state: “…we have come to stand for something square and real, a true Iron Law of Wealth Management:
- 8 years ago, 24 Mar 2016, 12:51pm -
A Few Notes on DIY Financial Advisor (@AlphaArchitect) [CXO Advisory]
Wesley Gray, Jack Vogel and David Foulke preface their 2015 book, DIY Financial Advisor: A Simple Solution to Build and Protect Your Wealth, by stating that: “This book is a synopsis of our research findings developed while serving as a consultant and asset manager for large family offices. …Our
- 8 years ago, 20 Jan 2016, 09:04am -
Stock Returns Around New Year’s Day [CXO Advisory]
Does the New Year’s Day holiday, a time of replanning and income tax positioning, systematically affect investors in a way that translates into U.S. stock market returns? To investigate, we analyze the historical behavior of the S&P 500 Index during the five trading days before and the five
- 8 years ago, 24 Dec 2015, 08:42am -
Stock Returns Around Christmas [CXO Advisory]
Does the Christmas holiday, a time of putative good will toward all, give U.S. stock investors a sense of optimism that translates into stock returns? To investigate, we analyze the historical behavior of the S&P 500 Index during the five trading days before and the five trading days after the
- 8 years ago, 19 Dec 2015, 09:38am -
Stock Returns Around Thanksgiving [CXO Advisory]
Does the Thanksgiving holiday, a time of families celebrating plenty, give U.S. stock investors a sense of optimism that translates into stock returns? To investigate, we analyze the historical behavior of the S&P 500 Index during the three trading days before and the three trading days after
- 8 years ago, 20 Nov 2015, 12:13pm -
Pros and Cons of New Technology-enabled Indexes [CXO Advisory]
What are pros and cons of extending the definition of financial index beyond conventional market capitalization (buy-and-hold) weighting? In the October 2015 draft of his paper entitled “What Is an Index?”, Andrew Lo proposes that any portfolio satisfying three properties should be considered an
- 8 years ago, 11 Nov 2015, 10:58am -
Simple Tests of Sy Harding’s Seasonal Timing Strategy [CXO Advisory]
Several readers have inquired over the years about the performance of Sy Harding’s Street Smart Report Online (now unavailable due to Mr. Harding’s death), which included the Seasonal Timing Strategy. This strategy combines “the market’s best average calendar entry [October 16] and exit
- 8 years ago, 9 Oct 2015, 10:23am -
A Few Notes on Systematic Trading [CXO Advisory]
Robert Carver introduces his 2015 book, Systematic Trading: A Unique New Method for Designing Trading and Investing Systems, by stating that: “I don’t believe there is any magic system that will automatically make you huge profits, and you should be wary of anyone who says otherwise, especially
- 8 years ago, 30 Sep 2015, 08:05am -
Stock Returns Around Labor Day [CXO Advisory]
Does the Labor Day holiday, marking the end of summer vacations, signal any unusual return effects by refocusing U.S. stock investors on managing their portfolios? By its definition, this holiday brings with it any effects from the turn of the month. To investigate the possibility of short-term
- 8 years ago, 2 Sep 2015, 10:17am -
DJIA-Gold Ratio as a Stock Market Indicator [CXO Advisory]
A reader requested a test of the following hypothesis from the article “Gold’s Bluff – Is a 30 Percent Drop Next?”: “Ironically, gold is more than just a hedge against market turmoil. Gold is actually one of the most accurate indicators of the stock market’s long-term direction. The Dow
- 8 years ago, 13 Aug 2015, 10:01am -
Active Investment Managers and Market Timing [CXO Advisory]
Do active investment managers as a group successfully time the stock market? The National Association of Active Investment Managers (NAAIM) is an association of registered investment advisors. “NAAIM member firms who are active money managers are asked each week to provide a number which
- 8 years ago, 17 Jul 2015, 06:00am -
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
- 8 years ago, 26 Jun 2015, 06:00am -
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
- 8 years ago, 22 Jun 2015, 12:00pm -
Fixing Empirical Finance [CXO Advisory]
What are the most pressing systematic weaknesses in financial research, and how should the investment community address them? In the May 2015 version of his article entitled “The Future of Empirical Finance”, Marcos Lopez de Prado identifies three major problems in empirical finance and proposes
- 8 years ago, 9 Jun 2015, 06:00am -
Inherent Inhibitors of Inference in Financial Markets [CXO Advisory]
Are there intractable weaknesses of historical inference as a tool to predict the behaviors of financial markets? In the May 2015 draft of his article entitled “Beyond Backtesting: The Historical Evidence Trap”, Ulrich Hammerich briefly describes four weaknesses of backtesting more difficult to
- 8 years ago, 8 Jun 2015, 06:00am -
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
- 8 years ago, 20 May 2015, 06:00am -
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
- 8 years ago, 19 May 2015, 12:00pm -