Quantocracy

Quant Blog Mashup

ST
  • Quant Mashup
  • About
    • About Quantocracy
    • FAQs
    • Contact Us
  • ST
Quant Mashup - SR SV
Inflation as equity trading signal [SR SV]
Academic research suggests that high and rising consumer price inflation puts upward pressure on real discount rates and is a headwind for equity market performance. A fresh analysis of 17 international markets since 2000 confirms an ongoing pervasive negative relation between published CPI dynamics
- 3 days ago, 16 May 2022, 08:43pm -
Economic growth and FX forward returns [SR SV]
Economic growth differentials are plausible predictors of foreign exchange return trends because they are related to differences in monetary policy and return on investment. Suitable metrics for testing growth differentials as trading signals must replicate historic information states. Two types of
- 2 weeks ago, 1 May 2022, 03:40am -
How to use FX carry in trading strategies [SR SV]
FX forward-implied carry is a valid basis for trading strategies because it is related to divergences in monetary and financial conditions. However, nominal carry is a cheap and rough indicator: related PnLs are highly seasonal, sensitive to global equity markets, and prone to large drawdowns.
- 1 month ago, 18 Apr 2022, 10:30am -
Equity convexity and gamma strategies [SR SV]
Equity convexity means that a stock outperforms in times of large upward or downward movements of the broad market: its elasticity to the market return is curved upward. Gamma is a measure of that convexity. All else equal, positive gamma is attractive, as a stock would outperform in market rallies
- 1 month ago, 4 Apr 2022, 11:48pm -
Predicting volatility with neural networks [SR SV]
Predicting realized volatility is critical for trading signals and position calibration. Econometric models, such as GARCH and HAR, forecast future volatility based on past returns in a fairly intuitive and transparent way. However, recurrent neural networks have become a serious competitor. Neural
- 1 month ago, 21 Mar 2022, 10:46am -
How to manage systemic risk in asset management [SR SV]
Systemic crises are rare but critical for long-term performance records. When the financial system fails, good trades become bad trades and many sensible investment strategies incur outsized losses due to deleveraging and liquidation pressure. Managers have two principal sets of tools to address
- 2 months ago, 4 Mar 2022, 10:26am -
How to estimate factor exposure, risk premia, and discount factors [SR SV]
The basic idea behind factor models is that a large range of assets’ returns can be explained by exposure to a small range of factors. Returns reflect factor risk premia and price responses to unexpected changes in the factors. The theoretical basis is arbitrage pricing theory, which suggests that
- 3 months ago, 23 Jan 2022, 10:28am -
Variance risk premia for patient investors [SR SV]
The variance risk premium manifests as a long-term difference between option-implied and expected realized asset price volatility. It compensates investors for taking short volatility risk, which typically comes with a positive correlation with the equity market and occasional outsized drawdowns. A
- 4 months ago, 10 Jan 2022, 12:03pm -
Classifying market regimes [SR SV]
Market regimes are clusters of persistent market conditions. They affect the relevance of investment factors and the success of trading strategies. The practical challenge is to detect market regime changes quickly and to backtest methods that may do the job. Machine learning offers a range of
- 4 months ago, 27 Dec 2021, 10:43pm -
The risk-reversal premium [SR SV]
The risk reversal premium manifests as an overpricing of out-of-the-money put options relative to out-of-the-money call options with equal expiration dates. The premium apparently arises from equity investors’ demand for downside protection, while most market participants are prohibited from
- 5 months ago, 11 Dec 2021, 10:52am -
How to construct a bond volatility index and extract market information [SR SV]
Volatility indices, based upon the methodology of the Cboe volatility index (VIX), serve as measures of near-term market uncertainty across asset classes. They are constructed from out-of-the-money put and call premia using variance swap pricing. Volatility indices for fixed income markets are of
- 5 months ago, 28 Nov 2021, 08:40pm -
Fundamental value strategies [SR SV]
Value opportunities arise when market prices deviate from contracts’ present values of all associated entitlements or obligations. However, this theoretical concept is difficult and expensive to apply. Instead, simple valuation ratios, such as real interest rates or equity earnings yields with
- 6 months ago, 14 Nov 2021, 07:43pm -
Measuring the value-added of algorithmic trading strategies [SR SV]
Standard performance statistics are insufficient and potentially misleading for evaluating algorithmic trading strategies. Metrics based on prediction errors mistakenly assume that all errors matter equally. Metrics based on classification accuracy disregard the magnitudes of errors. And traditional
- 7 months ago, 18 Oct 2021, 10:36am -
Ten things investors should know about nowcasting [SR SV]
Nowcasting in financial markets is mainly about forecasting forthcoming data reports, particularly GDP releases. However, nowcasting models are more versatile and can be used for a range of market-relevant information, including inflation, sentiment, weather, and harvest conditions. Nowcasting is
- 8 months ago, 5 Sep 2021, 10:00pm -
Macro trends for trading models [SR SV]
Unlike market price trends, macroeconomic trends are hard to track in real-time. Conventional econometric models are immutable and not backtestable for algorithmic trading. That is because they are built with hindsight and do not aim to replicate perceived economic trends of the past (even if their
- 8 months ago, 23 Aug 2021, 10:31pm -
Machine learning for portfolio diversification [SR SV]
Dimension reduction methods of machine learning are suited for detecting latent factors of a broad set of asset prices. These factors can then be used to improve estimates of the covariance structure of price changes and – by extension – to improve the construction of a well-diversified minimum
- 9 months ago, 9 Aug 2021, 10:08am -
Accounting data as investment factors [SR SV]
Corporate balance sheet data are important building blocks of quantitative-fundamental (“quantamental”) investment factors. However, accounting terms are easily misunderstood and confused with economic concepts. Accounting is as much driven by assessment of risk as it is by economic value. For
- 9 months ago, 26 Jul 2021, 10:17am -
Diversified reward-risk parity [SR SV]
Risk parity is a portfolio construction technique that seeks to equalize risk contributions from the different components of the portfolio. Risk parity with respect to uncorrelated risk sources maximizes diversification. Simple risk parity rules are based on the inverses of market beta, price
- 10 months ago, 12 Jul 2021, 01:00pm -
A market-to-book formula for equity strategies [SR SV]
A new proxy formula for equity market-to-book ratios suggests that (the logarithm of) such a ratio is equal to the discounted expected value of (i) differences between return on equity and market returns and (ii) the net value added from share issuance or repurchases. A firm with a higher
- 10 months ago, 28 Jun 2021, 11:23am -
Markets’ neglect of macro news [SR SV]
Empirical evidence suggests that investors pay less attention to macroeconomic news when market sentiment is positive. Market responses to economic data surprises have historically been muted in high sentiment periods. Behavioral research supports the idea that investors prefer heuristic
- 11 months ago, 14 Jun 2021, 09:23am -
Factor momentum: a brief introduction [SR SV]
Standard equity factors are autocorrelated. Hence, it is not surprising that factor strategies have also displayed momentum: past returns have historically predicted future returns. Indeed, factor momentum seems to explain all return momentum in individual stocks and across industries. Momentum has
- 11 months ago, 31 May 2021, 09:49am -
The macro forces behind equity-bond price correlation [SR SV]
Since the late 1990s, the negative price correlation of equity and high-grade bonds has reduced the volatility of balanced portfolios and boosted Sharpe ratios of leveraged “long-long” equity-bond strategies. However, this correlation is not structurally stable. Over the past 150 years,
- 1 year ago, 17 May 2021, 09:45am -
Macro information waste and the quantamental solution [SR SV]
Financial markets are not macro information efficient. This means that investment decisions miss out on ample relevant macroeconomic data and facts. Information goes to waste due to research costs, trading restrictions, and external effects. Evidence of macro information inefficiency includes
- 1 year ago, 3 May 2021, 10:55am -
Statistical arbitrage risk premium [SR SV]
Any asset can use a portfolio of similar assets to hedge against its factor exposure. The factor residual risk of the hedged position is called statistical arbitrage risk. Consequently, the statistical arbitrage risk premium is the expected return of such a hedged position. A recent paper shows that
- 1 year ago, 19 Apr 2021, 11:11am -
Building a real-time market distress index [SR SV]
A new Fed paper explains how to construct a real-time distress index, using the case of the corporate bond market. The index is based on metrics that describe the functioning of primary and secondary markets and, unlike other distress measures, does not rely on prices and volatility alone. Thus, it
- 1 year ago, 22 Mar 2021, 09:33pm -
Understanding the disposition effect [SR SV]
Investors have a tendency to sell assets that have earned them positive returns and are reluctant to let go of those that have brought them losses. This behavioural bias is called “disposition effect” and is attributed to loss aversion and regret avoidance. It has been widely documented by
- 1 year ago, 22 Feb 2021, 10:07am -
Contagion and self-fulfilling dynamics [SR SV]
Contagion and self-fulfilling feedback loops are propagation mechanisms at the heart of systemic financial crises. Contagion refers to the deterioration of fundamentals through the financial network, often through a cascade of insolvencies. A critical factor is the similarity of assets held by
- 1 year ago, 8 Feb 2021, 08:32am -
Macro uncertainty as predictor of market volatility [SR SV]
Market volatility measures the size of variations of asset returns. Macroeconomic uncertainty measures the size of unpredictable disturbances in economic activity. Large moves in macroeconomic uncertainty are less frequent and more persistent than shifts in market volatility. However, macroeconomic
- 1 year ago, 25 Jan 2021, 11:11am -
Classifying market states [SR SV]
Typically, we cannot predict a meaningful portion of daily or higher-frequency market returns. A more realistic approach is classifying the state of the market for a particular day or hour. A powerful tool for this purpose is artificial neural networks. This is a popular machine learning method that
- 1 year ago, 10 Jan 2021, 10:36am -
What traders should know about seasonal adjustment [SR SV]
The purpose of seasonal adjustment is to remove seasonal and calendar effects from economic time series. It is a common procedure but also a complex one, with side effects. Seasonal adjustment has two essential stages. The first accounts for deterministic effects by means of regression and selects a
- 1 year ago, 26 Dec 2020, 06:39pm -
Inflation and precious metal prices [SR SV]
Theory and plausibility suggest that precious metal prices benefit from inflation and negative real interest rates. This makes gold, silver, platinum, and palladium natural candidates for hedges against inflationary monetary policy. Long-term empirical evidence supports the inflation-precious metal
- 1 year ago, 14 Dec 2020, 10:30am -
Real-time growth estimation with reinforcement learning [SR SV]
Survey data and asset prices can be combined to estimate high-frequency growth expectations. This is a specific form of nowcasting that implicitly captures all types of news on the economy, not just official data releases. Methods for estimation include the Kalman filter, MIDAS regression, and
- 1 year ago, 9 Dec 2020, 10:03am -
Estimating the positioning of trend followers [SR SV]
There is a simple method of approximating trend follower positioning in real-time and without lag. It is based on normalized returns in liquid futures markets over plausible lookback windows, under consideration of a leverage constraint, and uses estimated assets under management as a scale factor.
- 1 year ago, 22 Nov 2020, 11:07am -
Forecasting energy markets with macro data [SR SV]
Recent academic papers illustrate how macroeconomic data support predictions of energy market flows and prices. Valid macro indicators include shipping costs, industrial production measures, non-energy industrial commodity prices, transportation data, weather data, financial conditions indices, and
- 1 year ago, 9 Nov 2020, 08:09am -
Fundamental trend following [SR SV]
Fundamental trend following uses moving averages of past fundamental data, such as valuation metrics or economic indicators, to predict future fundamentals, analogously to the conventions in price or return trend following. A recent paper shows that fundamental trend following can be applied to
- 1 year ago, 1 Nov 2020, 07:55pm -
Prospect theory value as investment factor [SR SV]
Prospect theory value is a valid investment factor, particularly in episodes of apparent market inefficiency. Prospect theory is a popular model of irrational decision making. It emphasizes a realistic mental representation of expected gains and losses and an individual’s evaluation of such
- 1 year ago, 18 Oct 2020, 08:55pm -
R tidyverse for macro trading research [SR SV]
The tidyverse is a collection of packages that facilitate data science with R. It is particularly powerful for macro trading research because [a] it supports efficient and standardized work with R’s vast universe of econometric models, [b] is well adapted for analyzing data vintages (i.e. data
- 1 year ago, 20 Sep 2020, 11:25pm -
Nowcasting with MIDAS regressions [SR SV]
Nowcasting macro-financial indicators requires combining low-frequency and high-frequency time series. Mixed data sampling (MIDAS) regressions explain a low-frequency variable based on high-frequency variables and their lags. For instance, the dependent variable could be quarterly GDP and the
- 1 year ago, 6 Sep 2020, 11:38am -
Market-implied macro shocks [SR SV]
Combinations of equity returns and yield-curve changes can be used to classify market-implied underlying macro news. The methodology is structural vector autoregression. Theoretical ‘restrictions’ on unexpected changes to this multivariate linear model allow identifying economically
- 1 year ago, 24 Aug 2020, 10:23am -
Measures of market risk and uncertainty [SR SV]
In financial markets, risk refers to the probability distribution of future returns. Uncertainty is a broader concept that encompasses ambiguity about the parameters of this probability distribution. There are various types of measures seeking to estimate risk and uncertainty: [1] realized and
- 1 year ago, 8 Aug 2020, 09:51am -
Nowcasting for financial markets [SR SV]
Nowcasting is a modern approach to monitoring economic conditions in real-time. It makes financial market trading more efficient because economic dynamics drive corporate profits, financial flows and policy decisions, and account for a large part of asset price fluctuations. The main technology
- 1 year ago, 27 Jul 2020, 12:40pm -
Joint predictability of FX and bond returns [SR SV]
When macroeconomic conditions change rational inattention and cognitive frictions plausibly prevent markets from adjusting expectations for futures interest rates immediately and fully. This is an instance of information inefficiency. The resulting forecast errors give rise to joint predictability
- 1 year ago, 25 May 2020, 10:00am -
Equilibrium theory of Treasury yields [SR SV]
An equilibrium model for U.S. Treasury yields explains how macroeconomic trends and related expectations for future short-term interest rates shape the yield curve. Long-term yield trends arise from learning about stable components in GDP growth and inflation. They explain the steady rise of
- 2 years ago, 4 May 2020, 09:26am -
Macro trading and macroeconomic trend indicators [SR SV]
Macroeconomic trends are powerful asset return factors because they affect risk aversion and risk-neutral valuations of securities at the same time. The influence of macroeconomics appears to be strongest over longer horizons. A macro trend indicator can be defined as an updatable time series that
- 2 years ago, 13 Apr 2020, 11:29am -
A statistical learning workflow for macro trading strategies [SR SV]
Statistical learning for macro trading involves model training, model validation and learning method testing. A simple workflow [1] determines form and parameters of trading models, [2] chooses the best of these models based on past out-of-sample performance, and [3] assesses the value of the
- 2 years ago, 4 Apr 2020, 01:10pm -
The basics of low-risk strategies [SR SV]
Low-risk investment strategies prefer leveraged low-risk assets over high-risk assets. The measure of risk can be based on price statistics, such as volatility and market correlation, or fundamental features. The rationale for low-risk strategies is that leverage is not available for all investors
- 2 years ago, 29 Mar 2020, 12:26pm -
How loss aversion increases market volatility and predicts returns [SR SV]
Loss aversion means that people are more sensitive to losses than to gains. This asymmetry is backed by ample experimental evidence. Loss aversion is not the same as risk aversion, because the aversion is disproportionate towards drawdowns below a threshold. Importantly, loss aversion implies that
- 2 years ago, 21 Mar 2020, 09:16pm -
Lagged correlation between asset prices [SR SV]
Efficient market theory assumes that all market prices incorporate all information at the same time. Realistically, different market segments focus on different news flows, depending on the nature of the traded security and their research capacity. Such specialization makes it plausible that lagged
- 2 years ago, 7 Mar 2020, 10:48am -
Detecting market price distortions with neural networks [SR SV]
Detecting price deviations from fundamental value is challenging because the fundamental value itself is uncertain. A shortcut for doing so is to look at return time series alone and to detect “strict local martingales”, i.e. episodes when the risk-neutral return temporarily follows a random
- 2 years ago, 23 Feb 2020, 10:04am -
Tracking investor expectations with ETF data [SR SV]
Retail investors’ return expectations affect market momentum and risk premia. The rise of ETFs with varying and inverse leverage offers an opportunity to estimate the distribution of such expectations based on actual transactions. A new paper shows how to do this through ETFs that track the
- 2 years ago, 8 Feb 2020, 08:54pm -
  • Page
  • 1
  • 2
  • 3

Welcome to Quantocracy

This is a curated mashup of quantitative trading links. Keep up with all this quant goodness with our daily summary RSS or Email, or by following us on Twitter, Facebook or StockTwits. Read on readers!

Sources included on mashup:

Top Ranked by Readers


Allocate Smartly
EconomPic
Financial Hacker
Flirting with Models
Hudson and Thames
Investment Idiocy
Quant Start
QuantStrat TradeR
Robot Wealth
Turing Finance

 

Other Great Sources


Alex Chinco
Alpaca
Alpha Architect
Alpha Scientist
Alvarez Quant Trading
Artur Sepp
Asm Quant
Auquan
Better Buy And Hold
Better System Trader
Black Arbs
Blue Owl Press
Blue Sky AM
Build Alpha
Capital Spectator
CSS Analytics
Cuemacro
Dekalog Blog
DileQuante
DTR Trading
Dual Momentum
ENNlightenment
EP Chan
Eran Raviv
Factor Investor
Factor Research
Following the Trend
Foss Trading
Gekko Quant
Geodesic Edge
GestaltU
Invest Resolve
Investing for a Living
Jonathan Kinlay
Kid Quant
KKB Research
Koppian Adventures
Light Finance
Machine Factor Tech
Mark Best
Markov Processes
Mathematical Investor
Meb Faber
Only VIX
Open Source Quant
OSM
Oxford Capital
Patrick Aschermayr
Patrick David
Philipp Kahler
Philosophical Economics
Portfolio Optimizer
Propfolio Management
Python For Finance
Quant at Risk
Quant Connect
Quant Fiction
Quant For Hire
Quant Insti
Quant Journey
Quant Rocket
Quantifiable Edges
Quantpedia
Quants Portal
Quantum Financier
Quintuitive
R Trader
Ran Aroussi
Relative Value Arbitrage
Reproducible Finance
Return and Risk
Scalable Capital
Scott's Investments
Six Figure Investing
Sober Quant
SR SV
Sutherland Research
System Trader Show
Systematic Edge
Thiago Marzagao
Throwing Good Money
Timely Portfolio
Todo Trader
Top of the Bell Curve
Tr8dr
Trade with Science
Trading with Python
TrendXplorer
Two Centuries Investments
Voodoo Markets
Wisdom Trading

 

Other Great Aggregators


Abnormal Returns
Academic Quant News
Carl Carrie
PyQuant News
Quant Conferences
R-Bloggers

Copyright © 2015-2022 · Site Design by: The Dynamic Duo