Quant Mashup
Market Efficiency Hates Bad Weather [Alpha Architect]
Building on research in psychology, we predict that unpleasant weather negatively affects capital market participants’ moods and activity levels, causing a muted response to information events… The table below highlights that unpleasant weather seems to be correlated with slower market
- 8 years ago, 21 Aug 2015, 10:33am -
Lazy Financial Strategies [John Orford]
One of the major themes of War and Peace will resonate with all practitioners of stochastic finance. Essentially, Napoleon's nemesis, the Russian general Kutuzov, keeps dropping back before the invading French until at last he spots a weakness in the French and pounces. Tolstoy tells us that
- 8 years ago, 21 Aug 2015, 10:33am -
Moods and the Market [Factor Wave]
At the start of the week I wrote a post about the effect of weather and the markets. Leo Cheng thought (quite reasonably) that this might just be data mining. If you look at enough things, some will appear to have an influence on the market just by chance. I've done a little more reading and I
- 8 years ago, 21 Aug 2015, 10:32am -
RUT Strangle - High Loss Threshold - 66 DTE [DTR Trading]
This post reviews the backtest results of selling one-lot options strangles on the Russell 2000 Index (RUT), initiated at 66 days-to-expiration (DTE). The results in this post were derived from 2336 individual trades entered by the backtester. The results are grouped by the delta of the short
- 8 years ago, 21 Aug 2015, 10:30am -
The Gamblers' Fallacy [Factor Wave]
This is somewhat based on an an article I wrote for the sadly departed "Active Trader" magazine but is more directly spurred by a conversation I had with a reader about my last post. Her point was that by buying dips we are just engaging in a classic Martingale, buying when things go
- 8 years ago, 20 Aug 2015, 10:31am -
More thoughts on Global Sector ETFs [Flirting with Models]
I was recently quoted in ETF.com and its sister publication, ETF Report, in an article titled Global Sector Investing in Early Stages. The article discusses global sectors – and in particular, global sector ETFs – and why they haven't seen the growth of their domestic peers. At Newfound, we
- 8 years ago, 20 Aug 2015, 10:30am -
Millennium Auto-Correlation Apocoplyse [John Orford]
You can count dead air on the radio by the millisecond, when you expect to hear something but don't, your ears become acutely aware of not hearing anything at all. This doesn't happen with white space on a page. Look at a well designed website; your eyes will happily swim around it;
- 8 years ago, 20 Aug 2015, 10:30am -
Crisis Alpha: Surprising Ways to Hedge Stock Portfolio Risk [Alpha Architect]
Investing in the current environment is difficult. Most, if not all, asset classes have high nominal prices, suggesting low nominal expected returns. Not exactly exciting. And for many investors who are retired and/or have near-term liquidity needs, investing in equity exposures–while necessary to
- 8 years ago, 19 Aug 2015, 09:22pm -
Correlation and correlation structure [Eran Raviv]
Given a constant speed, time and distance are fully correlated. Provide me with the one, and I’ll give you the other. When two variables have nothing to do with each other, we say that they are not correlated. You wish that would be the end of it. But it is not so. As it is, things are perilously
- 8 years ago, 19 Aug 2015, 09:21pm -
[Academic Paper] Passive Hedge Funds (via @carlfischer101) [@Quantivity]
Passive Hedge Funds (via @carlfischer101)
- 8 years ago, 19 Aug 2015, 01:41pm -
The Health of Stock Mean Reversion: Dead, Dying or Doing Just Fine [Alvarez Quant Trading]
My second post on this blog was a look at mean reversion, Is mean reversion dead? Given I am using a new data provider(Premium Data), it has been almost two years since that post and there have been other articles on this recently, I figured it was time to check again. The research will focus on
- 8 years ago, 19 Aug 2015, 11:57am -
Technical Analysis or Quantitative Analysis? [Factor Wave]
Yesterday I had a coffee with a person I have known for 20 years. He has worked as a quantitative analyst, a trader and a finance professor for at least as that long. He is one of the most knowledgeable people I know. When he says something it is worth listening. What he said was (roughly), "
- 8 years ago, 19 Aug 2015, 10:17am -
New academic paper related to #12 - Pairs Trading with Stocks [Quantpedia]
We assume that the drift in the returns of asset prices consists of an idiosyncratic component and a common component given by a co-integration factor. We analyze the optimal investment strategy for an agent who maximizes expected utility of wealth by dynamically trading in these assets. The optimal
- 8 years ago, 19 Aug 2015, 10:17am -
[Academic Paper] Dynamic Mode Decomposition for Financial Trading Strategies [@Quantivity]
Dynamic Mode Decomposition for Financial Trading Strategies
- 8 years ago, 19 Aug 2015, 04:22am -
[Academic Paper] Forecasting Stock Market Returns over Multiple Time Horizons [@Quantivity]
Forecasting Stock Market Returns over Multiple Time Horizons
- 8 years ago, 19 Aug 2015, 04:19am -
[Academic Paper] Volatility Forecast in Crises and Expansions [@Quantivity]
Volatility Forecast in Crises and Expansions
- 8 years ago, 19 Aug 2015, 01:55am -
The Kalman Filter and Pairs Trading [MKTSTK]
Imagine this scenario: you are a statistical arbitrage trader at a prop desk or HF. As such, you routinely hold an inventory of ETF exposure that you must hedge. The previous night, you instructed your overnight traders to calculate the hedge ratios for a matrix of ETF’s. The next morning before
- 8 years ago, 18 Aug 2015, 12:27pm -
The Effect of the Board of Directors [Factor Wave]
The Quality factor is a composite measure designed to identify companies with the characteristics that typically lead to success. It is particularly useful to identify "value traps": companies which are cheap by current metrics but are losing money. I wrote a little about quality here.
- 8 years ago, 18 Aug 2015, 12:27pm -
State of Trend Following in July: UP [Au Tra Sy]
July saw a bounce back up in the index after several months of downwards action. The YTD performance is still negative though. Please check below for more details. Detailed Results The figures for the month are: July return: 3.86% YTD return: -1.47% Below is the chart displaying individual system
- 8 years ago, 18 Aug 2015, 12:26pm -
Intertemporal PCA Analysis [John Orford]
Taking a leaf out of Mike Harris' recent Momersion theme, here's a PCA point of view of the balance between momentum and mean reversion over the previous 10 years from the Lazy PCA tool. August 2015 - 2014 PCA fits momentum and mean reversion components to the daily returns, they balance
- 8 years ago, 18 Aug 2015, 12:24pm -
Autoregressive Moving Average ARMA(p, q) Models for Time Series Analysis - Part 1 [Quant Start]
In the last article we looked at random walks and white noise as basic time series models for certain financial instruments, such as daily equity and equity index prices. We found that in some cases a random walk model was insufficient to capture the full autocorrelation behaviour of the instrument,
- 8 years ago, 17 Aug 2015, 08:37pm -
Can managed futures manage rising rates? [Flirting with Models]
Summary Rising interest rates are on the horizon … somewhere Yield curve dynamics – including the absolute level of rates, their direction of change, and the slope of the yield curve – all play an important role in the returns for managed futures The cost of carry in shorting fixed-income
- 8 years ago, 17 Aug 2015, 08:37pm -
The Sustainable Active Investing Framework: Simple, But Not Easy [Alpha Architect]
The debate over passive versus active investing is akin to Eagles vs. Cowboys or Coke vs. Pepsi. In short, once our preference for one style over the other is established, it becomes a proven fact or incontrovertible reality in our minds. This post is not meant to convert a passive investor into an
- 8 years ago, 17 Aug 2015, 12:26pm -
Introduction to Monte Carlo Analysis Part 1 [Quants Portal]
The Monte Carlo, filled with a lot of mystery is defined by Anderson et al (1999) as the art of approximating an expectation by the sample mean of a function of simulated variables. Used as a code word between Stan Ulam and John von Neumann for the stochastic simulations they applied to building
- 8 years ago, 17 Aug 2015, 12:26pm -
Strategy Gamma Overview [John Orford]
Economics 101 tells us that people have 'convex' utility curves. Which means there are diminishing returns to having more, but losing what you currently have diminishes your well being precipitously. Convexity is such a human property, it shows up again and again in unexpected places.
- 8 years ago, 17 Aug 2015, 12:25pm -
Weather and the Markets [Factor Wave]
It should be fairly obvious to anyone who has been involved with investing for any time, that traders decisions are heavily influenced by their mood. Actually, some interesting recent research has shown that people generally make decisions intuitively before using their conscious thought processes
- 8 years ago, 17 Aug 2015, 12:25pm -
RUT Strangle - High Loss Threshold - 59 DTE [DTR Trading]
This post reviews the backtest results of selling one-lot options strangles on the Russell 2000 Index (RUT), initiated at 59 days-to-expiration (DTE). The results in this post were derived from 2312 individual trades entered by the backtester. The results are grouped by the delta of the short
- 8 years ago, 17 Aug 2015, 12:24pm -
Interview with Larry Williams [Better System Trader]
On the show this week we have Larry Williams who has been trading futures and stocks for over 50 years. In 1987 he won the world cup trading championship, turning $10,000 in to over $1.1 million in 12 months, that's a cool 11,000% return and the highest return to ever be achieved in that
- 8 years ago, 17 Aug 2015, 01:27am -
Downloading Stock Market News for Specific Symbols [Godel's Market]
Grabbing the data. How do you grab the latest news on your favorite ticker symbol? It all starts with the following URL. https://www.google.com/finance/company_news?q=SPY&output=rss You'll want to change "q=SPY" to whatever symbol you're interested in. You can add something
- 8 years ago, 17 Aug 2015, 01:27am -
Best Links of the Week [Quantocracy]
The best quant mashup links for the week ending Saturday, 08/15 as voted by our readers: Bring Data [Dual Momentum] Absolute Strength Momentum: Guley And Petkova (2015) [Flirting with Models] Adjusted Vs. Unadjusted Data [Price Action Lab] Vectorised Backtest in R [Quants Portal] Mojito 3.0 Strategy
- 8 years ago, 16 Aug 2015, 02:30am -
Some More on Stock Splits [Factor Wave]
About a month ago I started to answer a reader's question about stock splits. I was initially diverted by the "low price effect" and then forgot to revisit the topic. In addition to the fact that a split reduces the price, it is also a distinct event and we can study the dynamics of
- 8 years ago, 14 Aug 2015, 07:27pm -
Fractal Strategy Applied to Indonesian Index [John Orford]
When I lived in New York, every other night I'd have a drink with our head of financial engineering. Beer in the winter, G&Ts in the summer. In any case once he was telling me how in Japan even ordering coffee was tricky, because the Japanese didn't want to cause offence by not knowing
- 8 years ago, 14 Aug 2015, 07:27pm -
Avoiding the Big Drawdown: Is Downside Protection Helpful or Heresy? [Alpha Architect]
Having your cake and eating it too is a great way to go. It’s great to have the cake, and it’s also great to eat the cake. But you can’t have it both ways. This trend continues when we speak with fellow investors: “Give me high, after-tax, net of fee returns, but with limited risk and
- 8 years ago, 13 Aug 2015, 10:39pm -
Anomalies and Earnings [Factor Wave]
Professional investors seem to make a different set of errors than amateurs. In particular, i think they can sometimes take too little risk. For example, many traders try not to hold positions overnight, even though that is when most stock returns accrue. Similarly, a lot of professional option
- 8 years ago, 13 Aug 2015, 10:39pm -
RUT Strangle - High Loss Threshold - 52 DTE [DTR Trading]
This post reviews the backtest results of selling one-lot options strangles on the Russell 2000 Index (RUT), initiated at 52 days-to-expiration (DTE). The results in this post were derived from 2336 individual trades entered by the backtester. The results are grouped by the delta of the short
- 8 years ago, 13 Aug 2015, 10:38pm -
Research Review | 13 Aug 2015 | Portfolio Management [Capital Spectator]
Research Review | 13 Aug 2015 | Portfolio Management Momentum and Markowitz: A Golden Combination Wouter J. Keller, Adam Butler, and Ilya Kipnis May 16, 2015 Mean-Variance Optimization (MVO) as introduced by Markowitz (1952) is often presented as an elegant but impractical theory. MVO is “an
- 8 years ago, 13 Aug 2015, 10:02am -
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 -
3-Bar Momentum Pattern | Trading Strategy (Entry) [Oxford Capital]
I. Trading Strategy Concept: Short-term momentum pattern with trend filter. Source: Hill, J. R. (1977). Stock & Commodity Market Trend Trading by Advanced Technical Analysis. Hendersonville, N.C.: Commodity Research Institute, Ltd. Research Goal: Performance verification of 3-Bar Momentum
- 8 years ago, 13 Aug 2015, 03:57am -
Python Backtesting Libraries For Quant Trading Strategies [Robust Tech House]
Frequently Mentioned Python Backtesting Libraries It is essential to backtest quant trading strategies before trading them with real money. Here, we review frequently used Python backtesting libraries. We examine them in terms of flexibility (can be used for backtesting, paper-trading as well as
- 8 years ago, 13 Aug 2015, 03:57am -
Low Vol, Steady Vol & Positive Skew [John Orford]
Steady Vol inversely weights holdings in an asset with respect to current volatility. Initially there was a little confusion about how Steady Vol was different from Low Vol strategies. Low Vol strategies weight individual constituent stocks by their volatility whereas steady vol weights periods
- 8 years ago, 13 Aug 2015, 03:57am -
T-Bonds and the End of August [Jay On The Markets]
As I have written about in the past (here, here and here) the last five trading days of the month tend to be “the best of times” for t-bonds. T-bonds have showed a particularly strong historical tendency to perform well during the last five days of August. First the chart, then the numbers.
- 8 years ago, 13 Aug 2015, 03:57am -
Absolute Strength Momentum: Guley And Petkova (2015) [Flirting with Models]
In May 2015, Huseyin Gulen and Ralitsa Petkova published "Absolute Strength: Exploring Momentum in Stock Returns" (SSRN). In the paper they outline their new concept of absolute strength momentum. Momentum, in its traditional form, was a relative strength concept. Momentum took the
- 8 years ago, 12 Aug 2015, 12:20pm -
Volatility Breakout Model | Trading Strategy (Benchmark) [Oxford Capital]
I. Trading Strategy Concept: Volatility breakout strategy based on price deviations defined by Minkowski Distance where: Upper_Band = Mean + (Multiple × Deviation); Lower_Band = Mean − (Multiple × Deviation); Deviation((Close)k=1,…,K, Mean) = (∑|Close − Mean|λ ÷ K)1/λ. Minkowski
- 8 years ago, 12 Aug 2015, 12:20pm -
Equal Weighting Investigation [John Orford]
I landed in a town in Western Sumatra called Padang a few days after an earthquake hit. 7 or 8 on the Moment Magnitude scale. Just as in finance there are various ways of measuring quakes. The Richter scale measures ground motion whereas the more modern Moment Magnitude scale measures energy
- 8 years ago, 12 Aug 2015, 12:20pm -
Vectorised Backtest in R [Quants Portal]
In the previous 3 articles I discussed backtesting a trading strategy in Excel using the vectorised methodology. This article will cover the same strategy but in R. This article is more of a supplement to the already published article by Joshua Ulrich on FOSS Trading and is for readers looking for
- 8 years ago, 11 Aug 2015, 11:33am -
Update on the MOOC “Machine Learning for Trading” [Augmented Trader]
If you want to be sure to be notified about enrollment opportunities, please sign up to “follow” my blog. I will post that information on this blog. The “old” course We’ve had four very successful sessions of my MOOC “Computational Investing, Part I” at Coursera. The Coursera run
- 8 years ago, 11 Aug 2015, 11:33am -
When do equity anomalies have the highest return? During earnings announcements... [Quantpedia]
Authors: Engelberg, McLean, Pontiff Title: Anomalies and News Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2631228 Abstract: Using a sample of 97 stock return anomalies documented in published studies, we find that anomaly returns are 7 times higher on earnings announcement days and 2
- 8 years ago, 11 Aug 2015, 11:33am -
War and the Markets [Factor Wave]
This post is based on an article I wrote for Active Trader Magazine. "Buy to the sound of cannons, sell to the sound of trumpets." -Lord Nathan Rothschild, 1810 The Rothschilds were one of the world’s richest families and formed a modern financial dynasty. In 1815 they were rumored to
- 8 years ago, 11 Aug 2015, 11:32am -
Dual Momentum August Update [Scott's Investments]
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’s book, Dual Momentum Investing: An Innovative Strategy for Higher
- 8 years ago, 11 Aug 2015, 11:32am -
What is the difference between Relative Strength and Trend Following? [Flirting with Models]
After publishing our Two Centuries of Momentum article last week, we received a number of requests for our thoughts on the recent underperformance of multi-asset, relative strength portfolios. Now, we tend to fall more on the trend following side of momentum. So we wanted to spend some time talking
- 8 years ago, 10 Aug 2015, 08:23pm -