Do any of the major U.S. stock market sectors systematically lead or lag the overall market, perhaps because of some underlying business/economic cycle? To investigate, we examine the behaviors of the nine sectors defined by the Select Sector Standard & Poor’s Depository Receipts (SPDR), all

The Trading Calendar presents full-year and monthly cumulative performance profiles for the overall stock market (S&P 500 Index) based on its average daily behavior since 1950. How much do the corresponding monthly behaviors of the various stock market sectors deviate from an overall market

One of the most widely used trend-following approaches are Donchian Channels which were popularized by the famous “Turtle Traders.” In fact, it was the subject of Donchian Channels that started my collaboration with Corey Rittenhouse with the popular post Percent Exposure Donchian Channel

Until recently, the longest back test using stock market data was Geczy and Samonov’s 2012 study of relative strength momentum called “212 Years of Price Momentum: The World’s Longest Backtest: 1801-2012”. The length of that study has now been exceeded by an 800 year backtest of trend

I previously mentioned in the QuantStart: 2014 In Review article that I would be spending some of 2015 writing about automated forex trading. Given that I myself usually carry out research in equities and futures markets, I thought it would be fun (and educational!) to write about my experiences of

A forewarning, this post is me going out on a limb, to say the least. In fact, it’s a post/project requested from me by Brian Peterson, and it follows a new paper that he’s written on how to thoroughly replicate research papers. While I’ve replicated results from papers before (with FAA and

DAX Leadership could signal Europe outperformance

Once upon a time there was only one factor—the market, a la the capital asset pricing model. But after a half century of crunching the numbers since CAPM was born, “now we have a zoo of new factors,” as Professor John Cochrane observed a few years ago. In theory, identifying more factors opens

This paper empirically studies how the interaction between short-term investors and analyst recommendations is related to a speculative component in stock prices. Using a new measure of the holding duration of institutional investors (called Stock Duration), we document that frequently traded stocks

I like to think of myself as a creative, independent thinker. Of course I’d also like to think of myself as handsome, charming and witty and look how that’s worked out. But I digress. Anyway, on my Twitter feed last week I posted a link to a piece from Stock Trader’ Almanac regarding a

For the accompanying table we went back to 1938 for the S&P 500 and the Dow — the year in which the January Barometer came to life — and back to 1971 for NASDAQ when that index took its current form. The accuracy ratios listed are based on whether or not the given month’s move — up or

How’s that rebalancing strategy working out for ‘ya? Results will vary, of course, depending on when we run the analysis, the architecture of the strategy, and a number of other variables. Deciding if the results are satisfying or disappointing could be due to any number of factors, such as the

In January 2012 I announced a new portfolio, a Benjamin Graham “inspired” value stock portfolio. The Graham portfolio is an attempt to add a value strategy to Scott’s Investments, which is otherwise focused on momentum, trend, income and market timing strategies. The portfolio tracks ret

In the preface to the eleventh (2015) edition of his book entitled A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, author Burton Malkiel states: “The message of the original edition was a very simple one: Investors would be far better off buying and holding

The majority of readers will already be familiar with the fact that the CBOE Volatility Index® (VIX®) is not a tradable asset (it is just a number), and trading the VIX® in fact means trading its derivatives (futures) or even derivatives of derivatives (options on futures, ETFs/ETNs like XIV®

In this post we will look at the equity curves for the three versions of the RUT "no touch" Iron Condor (IC) trades at 66 days to expiration (DTE). The three versions tested were: Standard: 10 put credit spreads, and 10 call credit spreads Delta Neutral: 10 put credit spreads, and from 5

Risk. The only ingredient of life that makes us growing and pushing outside our comfort zones. In finance, taking the risk is a risky business. Once your money have been invested, you need to keep your eyes on the ball that is rolling. Controlling the risk is the art and is the science: a

We have updated the details of the Reversion-to-Value (RTV) Model and the Real Earnings Yield (REY) Model of the U.S. stock market to incorporate data for 2014.

Again, before starting this post, I’d like to inform readers that the book Quantitative Trading With R, written by Harry Georgakopoulos, with contributions from myself, is now available for order on Amazon. Already, it has garnered a pair of five-star reviews, and it deals not only with

Gross margin peak for INTC spells trouble for Semis $SMH

Collectively, the Wizards added another good month to an already very good 2014 (the come-back year for trend following). A near-100% of positive results for the year, with an average just shy of +25% and a handful of strong performers.

In July 2012 I published a strategy about an end of month strategy in S&P 500. Here are the criterias: Entry: Day 29, 30 or 31 of the month must be negative. Then enter on close. Exit: Two successive positive closes in a row, OR SPY hits a 1% target. (no stops). Here are the results from 2005

Before I get into the meat of this article, I wanted to share some of my thoughts regarding this blog. Over the past few months the site has undergone many changes in the front and back end. The site has a more professional theme, mail subscriptions have been moved to a third party with more

Hi everyone! I am happy to announce that our book shipment has arrived and Quantitative Value is back on the market at $19.99! We ordered 760 copies, but our daily sales have really accelerated as of late, so don't wait to grab a copy. David wasn't smiling this much when we were hand

This is a test of a strategy from Ilya Kipnis of QuantStrat TradeR for trading VIX ETPs like XIV and VXX. Ilya provides a framework for testing the robustness of a given set of trading parameters. I encourage you to read Ilya’s piece, but that isn’t the subject of this post. Here I test the

I’ve been doing a lot of writing about Momentum Based ETF Rotation Systems lately and for good reason. The systems are low maintenance and have historically provided a good return in a variety of market conditions. In this post we’re going to look at backtest results for the Schwab Commission

One thing that stood out about Wednesday’s action was that the market closed down but still enjoyed a strong reversal of the lows. In the study below I combined the multi-day pullback concept with the fact that the market saw a relatively strong close.

One area of recent interest for me is trading rotational strategies on a monthly timeframe using S&P500 stocks and ETFs. Areas of exploration include Momentum and Dual Momentum. Recently I came across The Secret to Momentum is the 52-Week High??? on Alpha Architect, a blog I highly recommend on

Predictable variation in equity returns might reflect either (1) predictable changes in expected returns or (2) market inefficiency and stock price "overreaction." These explanations can be distinguished by examining returns over short time intervals since systematic changes in fundamental

Notes From Academia: Exercise Boundary Violations in American-Style Options Here is the link to the research paper - Exercise Boundary Violations in American-Style Options: The Rule, not the Exception Abstract: An exercise boundary violation (EBV) occurs when the current bid price for an American

In this post we will look at the equity curves for the three versions of the RUT "no touch" Iron Condor (IC) trades at 80 days to expiration (DTE). The three versions tested were: Standard: 10 put credit spreads, and 10 call credit spreads Delta Neutral: 10 put credit spreads, and from 5

I recently read an article which showed how to download Option Chain data from Google Finance using R. Interestingly, that article appears to be a close adaption of another article which does the same thing using Python. While playing around with the code from these articles I noticed a couple of

This is a follow up to the posts here and here from the always excellent Trading the Odds. We’ve covered TTO’s work previously when we looked at their variation of a “VRP” strategy, comparing implied vs historical volatility to trade VIX ETPs like XIV and VXX. In these new posts, TTO looked

Well.. better late than never: The solid winner this year is: R vs MATLAB (Round 3) Followed by a far second Mom, are we bear yet? (2) and third: Detecting bubbles in real time And my own personal favorite for the year:

Crude oil has a tendency to bottom in mid-February and then rally through July (highlighted in yellow in second chart below). It is that early February low that can give traders an edge by buying ahead of a seasonally strong period. Going long crude oil’s July contract on or about February 13 and

The first professional book on Python programming is coming up very soon! Designed around Quants, Risk Analysts, and Algorithmic Traders in mind, Volume I of Python for Quants will deliver all what is essential to start coding in Python straight away! For more details and sneak peek click here:

Stocks and bonds are negatively correlated. Translation: they must move against each other most of the time. Because intuitively, stocks bear higher risk than bonds so investors go to stocks when they want to take more risks and flee to bonds when they feel a storm is coming. Plus the numbers tell

Over the past thirty-two years, since 1983, the S&P 500’s performance during January’s option expiration week has been essentially a mixed bag. Monday has been up 18 of the last 32 years, Friday is similar; up 16 and down 16, and the entire week has been down roughly three times

Financial intermediaries trade frequently in many markets using sophisticated models. Their marginal value of wealth should therefore provide a more informative stochastic discount factor (SDF) than that of a representative consumer. Guided by theory, we use shocks to the leverage of securities

Our first guest for the “Interviewing the Quants” series is Vangelis Maderakis. Many of you probably know him as Sanz Prophet through the eponymous blog (sanzprophet.blogspot.com). Recently, he became a partner at Logical Invest, a successful business dedicated to logical, rules based

Scott’s Investments provides a free “Dual ETF Momentum” spreadsheet which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum. Antonacci has a new book out, Dual Momentum Investing: An Innovative

In this post we will look at the backtest results (summary statistics) for the three versions of the SPX "no touch" Iron Condor (IC) trades. The three versions tested were: Standard: 10 put credit spreads, and 10 call credit spreads Delta Neutral: 10 put credit spreads, and from 5 to 10

This is the first article in what will become a set of tutorials on how to carry out natural language document classification, for the purposes of sentiment analysis and, ultimately, automated trade filter or signal generation. This particular article will make use of Support Vector Machines (SVM)

Different commodity including some volatility and bitcoin futures settle to an average value. For example VSTOXX settles to 1 minute sampled average value of the index in the last half hour of trading, Bitmex XBT/USD futures settle to 1 minute sampled average value of the last two hours of trading,

Simply looking at a graph of a VIX ETP like VXX or XIV doesn’t tell us much about the underlying forces at play in the VIX complex. ETP prices are merely the end result of the relationship between these underlying forces (which is why traders shouldn’t rely too heavily on price to

First off, before beginning this post, I’d like to make my readers aware of the release of a book that I contributed almost an entire chapter for. Quantitative Trading With R is a primer on quantitative trading in R written by Harry Georgakopoulos, one of Chicago’s better quants. I

Research in experimental psychology suggests that, in violation of Bayes' rule, most people tend to “overreact” to unexpected and dramatic news events. This study of market efficiency investigates whether such behavior affects stock prices. The empirical evidence, based on CRSP

In a post on LinkedIn I referred to the concept of CrashMetrics and how it can be used for portfolio protection. It’s a simple approach to the management of extreme risk that works rather well. It can be summarized as “CAPM for crashes”. Here’s how it works. Let’s

ear cycle for S&P500 and the top graph shows mean and median for year 1957 to 2014, the second graph is from 2000 to 2014. The graph is marked with year trading days from 1 to 249.