Quant Mashup - Quantpedia
Why have asset price properties changed so little in 200 years? [Quantpedia]
We first review empirical evidence that asset prices have had episodes of large fluctuations and been inefficient for at least 200 years. We briefly review recent theoretical results as well as the neurological basis of trend following and finally argue that these asset price properties can be
- 6 years ago, 30 Mar 2017, 11:37pm -
Momentum and Reversal Combined with Volatility Effect in Stocks [Quantpedia]
Folks from Quantopian did a new independent analysis of a strategy we have in our database. An article is written by Jeremy Muhia and is focused on Momentum and Reversal Combined with Volatility Effect in Stocks (Strategy #155): https://www.quantopian.com/posts/do-momentum-and-reversals-coexist
- 7 years ago, 23 Mar 2017, 08:28pm -
Analysis of Asymmetrical Moving Average for Buy/Sell Signals [Quantpedia]
ost market participants are risk adverse and people tend to close their long positions once they perceive a formation of downturn in the market. Large sudden price drops can always be observed near the end of uptrends. On the other hand, people tend to have their own preferences in deciding the
- 7 years ago, 16 Mar 2017, 05:32pm -
FX Carry Risk Mitigation Papers [Quantpedia]
We analyze the worst currency carry loss episodes in recent decades, including causes, attribution by currency, timing, and the duration of carry drawdowns. To explore the determinants of the length of carry losses, a model of carry drawdown duration is estimated. We find evidence that drawdown
- 7 years ago, 10 Mar 2017, 03:31am -
The No-Short Return Premium [Quantpedia]
Theory predicts that securities with greater limits to arbitrage are more subject to mispricing and thus should command a higher return premium. We test this prediction using the unique regulatory setting from the Hong Kong stock market, in which some stocks can be sold short and others cannot. We
- 7 years ago, 6 Mar 2017, 03:37am -
How Short Positions Affect Factor Investing? [Quantpedia]
The performances of factor investing rely heavily on short sales, not only for building the initial long-short strategy, but also for regularly rebalancing the positions. Since short selling is subject to both legal restrictions and substantial costs, this paper examines how severely restrictions on
- 7 years ago, 23 Feb 2017, 09:43pm -
Are Hedge Funds Betting Against Low-Volatility Stocks? [Quantpedia]
The low-volatility anomaly is often attributed to limits to arbitrage, such as leverage, short-selling and benchmark constraints. One would therefore expect hedge funds, which are typically not hindered by these constraints, to be the smart money that is able to benefit from the anomaly. This paper
- 7 years ago, 10 Feb 2017, 11:07am -
Value and Growth Stock Behavior During Market Declines [Quantpedia]
Using data for five major stock market declines during the 1987-2008 period, this paper provides evidence that value stocks are generally less sensitive to major stock market declines than growth stocks, controlling for beta, firm size, and industry group. Further analysis using several hundred
- 7 years ago, 4 Feb 2017, 02:59am -
Common Factor Structure in a Cross-Section of Stocks [Quantpedia]
We seek to describe the broad cross-section of average stock returns. We follow the APT literature and estimate the common factor structure among a large cross-section containing 278 decile portfolios (associated with 28 market anomalies). Our statistical model contains seven common factors (with an
- 7 years ago, 26 Jan 2017, 11:19am -
PutWrite vs. BuyWrite Index Differences [Quantpedia]
The CBOE PutWrite Index has outperformed the BuyWrite Index by approximately 1.1 percent per year between 1986 and 2015. That is pretty impressive. But troubling. Yes – troubling – because the theory of put-call parity tells us that such outperformance should be almost impossible via a
- 7 years ago, 22 Jan 2017, 11:02am -
Purifying Factor Premiums in Equity Markets [Quantpedia]
In this paper we consider the question of how to improve the efficacy of strategies designed to capture factor premiums in equity markets and, in particular, from the value, quality, low risk and momentum factors. We consider a number of portfolio construction approaches designed to capture factor
- 7 years ago, 15 Jan 2017, 08:57pm -
Seasonalities in Stock Returns [Quantpedia]
Existing research has documented cross-sectional seasonality of stock returns – the periodic outperformance of certain stocks relative to others during the same calendar month, weekday, or pre-holiday periods. A model based on the differential sensitivity of stocks to investor mood explains these
- 7 years ago, 8 Jan 2017, 11:58pm -
Trading Strategy Series with @Quantopian: Cross-Sectional Equity Mean Reversion [Quantpedia]
Quantopian & Quantpedia Trading Strategy Series continues ... Now with a 4th article, again written by Matthew Lee, focused on Cross-Sectional Equity Mean Reversion (Strategy #13):
- 7 years ago, 29 Dec 2016, 08:27pm -
An Effect of Monetary Conditions on Carry Trades [Quantpedia]
This paper investigates the relation between monetary conditions and the excess returns arising from an investment strategy that consists of borrowing low-interest rate currencies and investing in currencies with high interest rates, so-called "carry trade". The results indicate that carry
- 7 years ago, 22 Dec 2016, 05:03pm -
An Interesting Analysis of Shiller's CAPE Ratio [Quantpedia]
Robert Shiller shows that Cyclically Adjusted Price to Earnings Ratio (CAPE) is strongly associated with future long-term stock returns. This result has often been interpreted as evidence of market inefficiency. We present two findings that are contrary to such an interpretation. First, if markets
- 7 years ago, 18 Dec 2016, 05:55am -
Sources of Return for CTAs - A Brief Survey of Relevant Research [Quantpedia]
This survey paper will discuss the (potential) structural sources of return for both CTAs and commodity indices based on a review of empirical research articles from both academics and practitioners. The paper specifically covers (a) the long-term return sources for both managed futures programs and
- 7 years ago, 11 Dec 2016, 01:23am -
An Impact of Correlation and Volatility on a Pairs Trading Strategy [Quantpedia]
This paper explains the idiosyncratic risk puzzle in a novel test setting with a combination of arbitrage risk and arbitrage asymmetry as in Stambaugh/Yu/Yuan (2015). We utilize the popular investment strategy pairs trading to identify a different kind of mispricing and find a dominant negative
- 7 years ago, 1 Dec 2016, 07:50pm -
Market Leverage as an Explanation of Low Volatility Anomaly [Quantpedia]
The 'low-beta' or 'low-volatility anomaly' is one of the most researched in the field of 'alternative beta'. Despite strong published evidence going back to the 1970s that high beta/volatility stocks underperform relative to expectations generated by the Capital Asset
- 7 years ago, 27 Nov 2016, 06:59am -
What is the Capacity of Smart Beta Strategies? [Quantpedia]
Using a transaction cost model, and an assumption for the smart beta premium observed in data, we estimate the capacity of momentum, quality, value, size, minimum volatility, and a multi-factor combination of the first four strategies. Flows into these factor strategies incur transaction costs. For
- 7 years ago, 16 Nov 2016, 06:37pm -
A Reversal-Based Trading Strategy Around Earnings Announcements [Quantpedia]
This study documents that earnings announcements serve as a reality check on short-term, fear and greed driven price development: stocks with extreme abnormal returns in the week before an earnings announcement experience strong price reversal around the announcement. A trading strategy that
- 7 years ago, 3 Nov 2016, 10:19am -
Tail Protection of Trend-Following Strategies [Quantpedia]
The performance of trend following strategies can be ascribed to the difference between long-term and short-term realized variance. We revisit this general result and show that it holds for various definitions of trend strategies. This explains the positive convexity of the aggregate performance of
- 7 years ago, 22 Oct 2016, 06:00pm -
Zero-Crossing Variant of Pairs Trading Strategy [Quantpedia]
Pairs trading is a venerable trading strategy. There is agreement that it worked fine in the far past. But it is less clear if it still profitable today. In this working paper the universe of eligible pairs is defined by the holdings of a given ETF. It is shown that the stocks must be from ETFs
- 7 years ago, 14 Oct 2016, 01:45pm -
Cointegration and Pairs Trading in Stocks [Quantpedia]
We examine a new method for identifying close economic substitutes in the context of relative value arbitrage. We show that close economic substitutes correspond to a special case of cointegration whereby individual prices have approximately the same exposure to a common nonstationary factor. A
- 7 years ago, 7 Oct 2016, 01:40pm -
Option Pricing Methods in the Late 19th Century [Quantpedia]
This paper examines option pricing methods used by investors in the late 19th century. Based on the book called “PUT-AND-CALL” written by Leonard R. Higgins in 1896 and published in 1906 it is shown that investors in that period used routinely the put-call parity for option conversion and static
- 7 years ago, 30 Sep 2016, 10:03am -
Does Interest Rate Exposure Explain the Low Volatility Anomaly? [Quantpedia]
We show that part of the outperformance of low volatility stocks can be explained by a premium for interest rate exposure. Low volatile portfolios have a positive exposure to interest rates, whereas the more volatile stocks have a negative exposure. Incorporating an interest rate premium explains
- 7 years ago, 25 Sep 2016, 07:01pm -
Carry Trade Returns and Political Risks [Quantpedia]
This paper elucidates the channels through which sovereign risk, exchange rates and currency risk premia are related. I show that the channels are different depending on whether a country is classified as emerging or an advanced economy. Generally, for emerging market economies, local sovereign risk
- 7 years ago, 13 Sep 2016, 11:39am -
Quantopian Trading Strategy Series: Reversal during Earnings Announcements [Quantpedia]
We are really excited that Quantopian & Quantpedia Trading Strategy Series continues with a second article focused on Reversal Effect during Earning Announcements (Strategy #307). Click on a "View Notebook" button to read a complete analysis:
- 7 years ago, 9 Sep 2016, 12:52pm -
Effect of Maturity Structure of Roll Yields in Commodity Futures Strategies [Quantpedia]
We investigate the maturity-structure of roll strategy returns in the energy futures markets. Our innovation is to report and analyze the risk/return profile, the Sharpe ratio, and the asset pricing loadings of rollover strategies based on futures contracts of the same underlying commodity but with
- 7 years ago, 5 Sep 2016, 04:44am -
Equity Anomalies Persist in International Markets [Quantpedia]
Motivated by McLean and Pontiff (2016), we study the pre- and post-publication return predictability of 138 anomalies in 39 stock markets. Based on more than a million anomaly country-months, we find that the United States is the only country with a statistically significant and economically
- 7 years ago, 24 Aug 2016, 12:33am -
Two Recent Papers Related to FX Carry Strategy [Quantpedia]
In this paper, we analyse the relationship between the currency carry return and volatility and liquidity risk factors. We find that both categories of risk factors are relevant to understanding and explaining carry return, with an outperformance for volatility ones especially the global FX
- 7 years ago, 15 Aug 2016, 10:54am -
Using Fundamentals to Improve Pairs Trading Strategy [Quantpedia]
Pairs trading strategy’s return depends on the divergence/convergence movements of a selected pair of stocks’ prices. However, if the stable long term relationship of the stocks changes, price will not converge and the trade opened after divergence will close with losses. We propose a new model
- 7 years ago, 8 Aug 2016, 03:19am -
Asset Class Risk Premiums Explained by Skewness [Quantpedia]
We present extensive evidence that "risk premium" is strongly correlated with tail-risk skewness but very little with volatility. We introduce a new, intuitive definition of skewness and elicit an approximately linear relation between the Sharpe ratio of various risk premium strategies
- 7 years ago, 28 Jul 2016, 11:08am -
Impact of 1987 Black Monday on Trading Behavior of Stock Investors [Quantpedia]
Using a simple sign test, we report new empirical evidence, taken from both the US and the German stock markets, showing that trading behavior substantially changed around Black Monday in 1987. It turned out that before Black Monday investors behaved more as in the momentum strategy; and after Black
- 7 years ago, 20 Jul 2016, 10:59am -
Quantpedia Trading Strategy Series at Quantopian [Quantpedia]
We are really excited that we can announce, that Quantopian started to publish series of articles where they will really deeply analyze some of Quantpedia's suggested strategies. We think, that Soeng Lee from Quantopian did a really good job with a first article, so we just wanted to point that
- 7 years ago, 15 Jul 2016, 11:46am -
Has Momentum Lost Its Momentum? [Quantpedia]
We evaluate the robustness of momentum returns in the US stock market over the period 1965 to 2012. We find that momentum profits have become insignificant since the late 1990s partially driven by pronounced increase in the volatility of momentum profits in the last 14 years. Investigations of
- 7 years ago, 11 Jul 2016, 11:09am -
Taxonomy of CTAs [Quantpedia]
Recently a range of alternative risk premia products have been developed promising investors hedge fund/CTA like returns with higher liquidity, transparency and relatively low fees. The attractiveness of these products rests on the assumption that they can deliver similar returns. Using a novel
- 7 years ago, 1 Jul 2016, 11:53am -
Momentum Anomaly and Baseball Cards [Quantpedia]
We show that the market for baseball cards exhibits anomalies that are analogous to those that have been documented in financial markets, namely, momentum, price drift in the direction of past fundamental performance, and IPO under performance. Momentum profits are higher among active players than
- 7 years ago, 26 Jun 2016, 02:30am -
Information Ratio Analysis of Time-Series Momentum Strategy [Quantpedia]
In the past 20 years, momentum or trend following strategies have become an established part of the investor toolbox. We introduce a new way of analyzing momentum strategies by looking at the information ratio (IR, average return divided by standard deviation). We calculate the theoretical IR of a
- 7 years ago, 17 Jun 2016, 10:00am -
Trend Model via Difference Between Long and Short-Term Variance [Quantpedia]
We relate the performance of trend following strategy to the difference between a long-term and a short-term variance. We show that this result is rather general, and holds for various definitions of the trend. We use this result to explain the positive convexity property of CTA performance and show
- 7 years ago, 8 Jun 2016, 09:29am -
Factor Attribution of Jim Cramer's Mad Money Charitable Trust [Quantpedia]
This study analyzes the complete historical performance of Jim Cramer’s Action Alerts PLUS portfolio from 2001 to 2016 which includes many of the stock recommendations made on Cramer’s TV show “Mad Money”. Both since inception of the portfolio and since the start of “Mad Money” in 2005
- 7 years ago, 3 Jun 2016, 09:31am -
Forecasting the VIX to Improve VIX-Derivatives Trading [Quantpedia]
Konstantinidi et. al. state in their broad survey of Volatility-Index forecasting: "The question whether the dynamics of implied volatility indices can be predicted has received little attention". The overall result of this and the quoted papers is: The VIX is too a very limited extend (R2
- 7 years ago, 25 May 2016, 10:57am -
Cliff Asness's (AQR) View on Factor Timing [Quantpedia]
Everyone seems to want to time factors. Often the first question after an initial discussion of factors is “ok, what’s the current outlook?” And the common answer, “the same as usual,” is often unsatisfying. There is powerful incentive to oversell timing ability. Factor investing is often
- 7 years ago, 11 May 2016, 11:10am -
Quantopian Paper About In vs Out-of-Sample Performance of Trading Algorithms [Quantpedia]
When automated trading strategies are developed and evaluated using backtests on historical pricing data, there exists a tendency to overfit to the past. Using a unique dataset of 888 algorithmic trading strategies developed and backtested on the Quantopian platform with at least 6 months of
- 7 years ago, 4 May 2016, 11:22am -
A New Analysis of Commodity Momentum Strategy [Quantpedia]
Conventional momentum strategies rely on 12 months of past returns for portfolio formation. Novy-Marx (2012) shows that the intermediate return momentum strategy formed using only twelve to seven months of returns prior to portfolio formation significantly outperforms the recent return momentum
- 7 years ago, 26 Apr 2016, 05:33pm -
Analysis of US Dollar Carry Trades in the Era of 'Cheap Money' [Quantpedia]
In this paper, we employ a unique dataset of actual US dollar (USD) forward positions against a number of currencies taken by so-called Commodity Trading Advisors (CTAs). We investigate to what extent these positions exhibit a pattern of USD carry trading or other patterns of currency trading over
- 7 years ago, 20 Apr 2016, 11:02am -
How to Select the Best Commodity CTAs [Quantpedia]
This study documents persistent, net-of-fees, alpha-generating commodity trading advisor funds focused on commodity investment ("Commodity Funds"). The baseline for performance measurement is a new benchmark model that includes factors established in the literature. A nonparametric
- 7 years ago, 7 Apr 2016, 03:23pm -
Benchmarking Commodity CTAs [Quantpedia]
While much is known about the financialization of commodities, less is known about how to profitably invest in commodities. Existing studies of Commodity Trading Advisors (CTAs) do not adequately address this question because only 19% of CTAs invest solely in commodities, despite their name. We
- 7 years ago, 31 Mar 2016, 01:53pm -
Smart Beta Strategies in Australia [Quantpedia]
"Smart beta" investing is an alternative to the traditional active and passive approaches to funds management, whereby investors adopt a systematic method that provides exposure to factors that are argued to be related with expected returns at low cost. Therefore, the question of how smart
- 8 years ago, 24 Mar 2016, 12:50pm -
Covered Calls Uncovered [Quantpedia]
Equity index covered calls have historically provided attractive risk-adjusted returns largely because they collect equity and volatility risk premia from their long equity and short volatility exposures. However, they also embed exposure to an uncompensated risk, a naïve equity market reversal
- 8 years ago, 17 Mar 2016, 04:07pm -
A Closer Look At Ben Graham’s "Net Current Asset Value" (NCAV) Rule [Quantpedia]
Following Ben Graham’s “net current asset value” (NCAV) rule for stock selection (“net net” strategy), we provide evidence that buying stocks in companies with per share NCAV greater than the current share price produced superior risk-adjusted returns over the 1975- 2010 period. The risk
- 8 years ago, 9 Mar 2016, 01:38pm -