Quant Mashup 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(...) Style Momentum in Australia? [Alpha Architect]Jegadeesh and Titman (1993) popularized a simple idea: "past winners outperform past losers." Post JT, the relative strength, or "momentum anomaly," was forever ingrained in the minds of academic researchers (which is odd, since the idea had been around 50 years prior to JT 1993,(...) Introduction to Zipline in Python [Quant Insti]Python has emerged as one of the most popular language for programmers in financial trading, due to its ease of availability, user-friendliness and presence of sufficient scientific libraries like Pandas, NumPy, PyAlgoTrade, Pybacktest and more. Python serves as an excellent choice for automated(...) Where are the billionaire financial academics? [Mathematical Investor]According to the just-published 2016 Rich List of the World's Top-Earning Hedge Fund Managers by Institutional Investor's Alpha magazine, eight of the top ten earners fall into the "quant" category, and half of the 25 richest of the year are quants. The firms listed include the(...) Combining Different Momentum Factors [Systematic Relative Strength]Momentum can be calculated in a number of different ways. As long as you are measuring the strength of price appreciation over an intermediate time horizon most logical calculation methods will work to one degree or another. The standard, academic definition of momentum usually means taking the(...) RNeat – Square Root Neural Net Trained Using Augmenting Topologies [Gekko Quant]A simple tutorial demonstrating how to train a neural network to square root numbers using a genetic algorithm that searches through the topological structure space. The algorithm is called NEAT (Neuro Evolution of Augmenting Topologies) available in the RNeat package (not yet on CRAN). The training(...) The Case for Buying Bonds in Inflationary Historical Environments [EconomPic]I made a recent short-term case for bonds in a recent post given my view that low rates may be disinflationary, despite my view that they have a "horrific risk / return profile" over the longer-term. This post will highlight that what matters over the longer term is the level of inflation(...) 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(...) Research Review | 15 July 2016 | Portfolio Analysis [Capital Spectator]Asset Allocation: A Recommendation for Resolving the Collision between Theory and Practice Larry J. Prather (Southeastern Oklahoma State University), et al. April 26, 2016 We examine the creation of a low-cost optimal risky portfolio that individual investors can easily construct and manage. We(...) Interview With Artur Sepp: Part Two [Factor Wave]This is the second and concluding part of our interview with Artur Sepp. Q: If you had an account of $100k, what would you trade? A: Well, if I had $100k I would manage it using the three strategies. The core strategy is based on the dividend growth. I would be very conservative with the companies I(...) Developing A Volatility Carry Strategy [Jonathan Kinlay]By way of introduction we begin by reviewing a well known characteristic of the iPath S&P 500 VIX ST Futures ETN (NYSEArca:VXX). In common with other long-volatility ETF /ETNs, VXX has a tendency to decline in value due to the upward sloping shape of the forward volatility curve. The chart below(...) High Sigma Events - They're Not All Black Swans [Six Figure Investing]After every crash or major geopolitical event that roils the market we are exposed to graphics like this one containing sigma numbers: Black Swan The message associated with these charts is usually, "We should be very worried because the events that just occurred were really unlikely." The(...) Momentum Rotation Multiple System Results [DTR Trading]In the last two posts (here and here) we looked at the performance of a simple 60 day momentum rotation system. In this post, we will look at variations on that simple system, and how these variations performed during the same time period, using the same 10 ETF products. The 10 ETFs used by all of(...) Optimization Mean Reversion [Alvarez Quant Trading]Often one runs a optimization of a testing idea, then using some set metrics from these results, one picks a variation to trade. What often comes as a surprise to people, and myself the first time I saw this, is that your optimization runs are often mean reverting. What do I mean by this? For(...) Inferring Trader Horizons from Trading Volume [Alex Chinco]1. Motivating Example This post shows that, if traders face convex transaction costs (i.e., it costs them more per share to buy 2 shares of stock than to buy 1 share of stock), then it is possible to infer traders’ investment horizons from trading-volume data. To see why, imagine you are a trader(...) An Introduction to Portfolio Component Value At Risk [QuantStrat TradeR]This post will introduce component value at risk mechanics found in PerformanceAnalytics from a paper written by Brian Peterson, Kris Boudt, and Peter Carl. This is a mechanism that is an easy-to-call mechanism for computing component expected shortfall in asset returns as they apply to a portfolio.(...) Mailbag: Can You Get A Job In HFT Without A Degree? [Quant Start]I was emailed yesterday with an interesting career question about working in High Frequency Trading (HFT). The question posed was "Is it possible to get a HFT-related job in a big company without a formal degree?". The short answer is that yes, it is possible. The longer answer is that it(...) The Folly of Stock Market Forecasting [Alpha Architect]The idea that one can predict stock market movements is somewhat insane. The major problem with stock market forecasting is the lack of evidence that it is possible. I am unaware of any market commentator that has been successful–on a consistent basis–at predicting the future direction of the(...) Candid Conversation with an Algorithmic Trader (Part 2) [Quant Insti]If you don’t know who you are, the stock market is an expensive place to find out – George Goodman In the previous post, I had a conversation with a few experts in the field of Algorithmic Trading to gain some insights into this seemingly “black-box”. That conversation not only helped me(...) Multi-Factor: Mix or Integrate? [Flirting with Models]Recently a paper was published by AQR where the authors advocate for an integrated approach to multi-factor portfolios, preferring securities that exhibit strong characteristics across all desired factors instead of a mixed approach, where securities are selected based upon extreme exposure to a(...) Interview With Artur Sepp [Factor Wave]Artur Sepp is a rare example of a quant who combines excellent technical skill with a practical understanding of markets. If you can't learn from his presentations the fault is more likely to be yours rather than his. He recently agreed to do an interview for us. Here is the first part. Q: What(...) 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(...) An Extremely Quick Move From A 50-Day Low To A 50-Day High [Quantifiable Edges]Remarkable about Friday’s 50-day high close is that it came just 8 trading days after SPX closed at a 50-day low. That’s quite rare to see. The study below is from this weekend’s Quantifiable Edges Subscriber Letter. It looks at all the instances since 1950 of a move from a 50-day closing low(...) Should system traders override their systems? [Better System Trader]What an eventful few weeks we’ve had since the last episode. The results of the Brexit decision took a lot of people by surprise and the markets reacted accordingly. What was interesting about this market event is that we all knew the date and time period when the Brexit votes would start rolling(...) Best Links of the Last Two Weeks [Quantocracy]The best quant mashup links for the two weeks ending Saturday, 07/09 as voted by our readers: Backtesting Based on Multiple Signals – Beware of Overfitting [Alpha Architect] Cloud-Based Automated Trading System with Machine Learning [Quant Insti] Alpha’s measurement problem [Flirting with(...) An Alternative Investment Strategy with Value and Momentum [Alpha Architect]Anyone who follows our website should be familiar with the extensive evidence behind our favorite stock selection strategies: Value Investing Momentum Investing The evidence suggests that high-conviction ( We document why high conviction is important for both value and momentum strategies here and(...) Visualizing Fixed Income ETFs with T-SNE [Quant Dare]In recent articles we were talking about PCA and ISOMAP, as techniques for dimensionality reduction. On this occasion, we put the focus on T-SNE, in relation with visualization and understanding of multidimensional datasets in a low dimension space, where the human eye can find patterns easily.(...) Momentum Rotation 60 Day ROC System Metrics [DTR Trading]It's been a while since my last post. I had planned on writing this particular article about three months ago, but work got in the way of my writing and testing Over the next few weeks I will try to close out this series on momentum rotation using my 60 day ROC example written for AmiBroker.(...) Intro to Algorithmic Trading with Heikin-Ashi [Quantiacs]Algorithmic trading is a field that’s generally quite daunting to beginners, forcing them to juggle learning advanced programming techniques and market mechanics. Throughout the process there’s usually not a lot of guidance, and even less coding examples. Our goal is to demystify this process(...) Trend Following vs Countertrend Trading Strategies [QuantLab.co.za]Introduction A blog series to contrast the key distinctions between trend following and countertrend strategies during building, testing and trading. In this post we examine the effects of data integrity and simulated trade sample size on backtested performance. Price Data Integrity One of the major(...) Advanced Algorithmic Trading and QSTrader - Second Update [Quant Start]This is a quick update post to let readers know that the pre-order release of Advanced Algorithmic Trading has had a new update, adding over 50 pages of material. This brings the current release up to 250 pages. To access the new content, customers simply need to follow the download link received in(...) Mini-Meucci : Applying The Checklist - Steps 10+ [Return and Risk]In this final leg of The Checklist tour we'll be looking at the Dynamic Allocation step and touch briefly on ex-post Performance Analysis. Dynamic Allocation Essentially this involves repeating the previous 9-steps on a periodic basis (e.g. a sequence of monthly allocations) according to a(...) Trend Following UP in June (Thanks Brexit) [Wisdom Trading]Brexit might have been globally thought of as bad news for the markets, but it was good for trend following. It marked a quick up movement in last month’s performance, quickly reversing the negative performance of the month to turn it back positive, after the 23rd June vote. The YTD performance is(...) Alpha's measurement problem [Flirting with Models]Alpha is the holy grail of asset management: risk-free excess returns generated by investment skill. Alpha is one of the most commonly quoted summary statistics – yet measuring alpha is surprisingly difficult. Without an understanding of measurement uncertainty, fit of our model, or even the risk(...) State of Trend Following in June [Au Tra Sy]The month of June started positive for the trend following index, before a V-shaped movement pre/post-Brexit, that ended the month in positive territory. The YTD figure is still in the red. Please check below for more details. Detailed Results The figures for the month are: June return: 2.94% YTD(...) Cloud-Based Automated Trading System with Machine Learning [Quant Insti]Maxime Fages Maxime’s career spanned across the strategic aspects of value and risk, with a particular focus on trading behaviors and market microstructure over the past few years. He embraced a quantitative angle in M&A, fund management or currently corporate strategy and has always been an(...) Human significance, economic significance and statistical significance [Eran Raviv]We are now collecting a lot of data. This is a good thing in general. But data collection and data storage capabilities have evolved fast. Much faster than statistical methods to go along with those voluminous numbers. We are still using good ole fashioned Fisherian statistics. Back then, when you(...) Quantified News Analytics: Profitability vs Pitfalls [Quant Insti]As sources and volumes of news have grown, so has the techniques to gather, extract, aggregate and categorise them. Important news can result in large positive or negative returns. However, owing to many news sources, we need to ask a fundamental question: Is news analytics profitable in every(...) Podcast with Wes Gray of Alpha Architect (h/t Abnormal Returns) [Big Picture]This week on our Masters in Business podcast, we speak with Wes Gray, former Captain in U.S. Marines, and founder of Alpha Architect. He studied economics at Wharton, graduated with honors before getting his MBA and PhD at University of Chicago. Instead of heading to Wall Street like so many MBAs,(...) 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(...) Video: Factor Models for Traders by EP Chan (h/t Quant News)Factor models are not just for long-term investors. They can help traders find out why their strategies are suffering. This talk highlights the difference between factor and "alpha" models, and what short-term factors traders can use. The Case for Momentum in Expensive Markets [EconomPic]Charlie Bilello, one of my favorite follows on Twitter, analyzed the relationship between market valuation and future returns (over various time horizons) in a recent post Valuation, Timing, and a Range of Outcomes. The post contained some very insightful tables, such as the one below, where he(...) Questioning Everything You Knew about Asset Allocation [Alpha Architect]Is a 100% stock allocation crazy? As long as one addresses their needs for liquidity (as to avoid extracting capital from the markets at bad times) and can tolerate the market price volatility, a 100% or near-100% allocation to equities is not as outlandish as one might suspect. Focusing on(...) Can a simple Market Internals technique actually improve trading strategy results? [Better System Trader]In my 10+ years’ full-time trading career, I have found very few tools and tactics that would get my attention so deeply as Market Internals. In 2014, I spent about 6 months in a row with this unique traders tool, exploring its possibilities every single day, searching for new and creative(...) Deciphering Correlation Hedged Momentum [TrendXplorer]In a new SeekingAlpha contribution (pending approval) we combine PAA’s protective multi-market breadth approach with a generalized momentum metric based on correlation hedged returns. The resulting model is called Generalized Protective Momentum (GPM). In this blogpost the correlation hedge is(...) Pruitt, The Ultimate Algorithmic Trading System Toolbox [Reading the Markets]I am in the process of learning to code in Python and am, I must admit, no programming genius. So I was delighted to see that George Pruitt, best known for his book on TradeStation’s EasyLanguage (Building Winning Trading Systems with TradeStation) had written a new book that covered not only the(...) Backtesting Based on Multiple Signals - Beware of Overfitting [Alpha Architect]One of the dangers of being a quantitative investor is that when you see patterns in historical data you might wrongly assume they will repeat. Put another way, you might believe an effect is driven by a genuine relationship, when in reality the results are spurious and the result of luck. We wrote(...) The Trouble with Alpha: Part I (h/t @AbnormalReturns) [Dynamic Beta]Investors equate “alpha” to outperformance. A high alpha fund presumably delivers substantial excess returns relative to its benchmark. True alpha is short-hand for manager skill. Statistically, alpha simply is the result of a linear regression between two return streams. The regression finds(...) Volatility and measures of risk-adjusted return with Python [Quant Insti]In this post we see how to compute historical volatility in python, and the different measures of risk-adjusted return based on it. We have also provided the python codes for these measures which might be of help to the readers. Introduction Volatility measures the dispersion of returns for a given(...) 6 Reasons Why Your Fund Checklist is Hurting Performance [Flirting with Models]Summary Most advisors have a fund checklist or screen: a list of selection criteria they employ to help determine whether a fund is worthy of further evaluation. The vast majority of checklists we see employ a performance screen based on a 3- or 5-year period. We believe that employing such a(...)