Quant Mashup
A 20% 1-Day Decline In VXO [Quantifiable Edges]
Monday’s market rally was accompanied by a big drop in some implied volatility measures. The VXO, which is the old calculation for the VIX, saw a decline of over 22% on Monday. The study below is one I have shown before. It looks at SPX performance the day following VXO declines of 20% or more.
- 8 years ago, 14 Jul 2015, 08:59am -
Weekly Commentary – Lessons from a Crystal Ball [Flirting with Models]
A PDF of this commentary can be downloaded here. Summary Dalbar studies tell us that investors often sell after losses and wait for markets to reclaim high water marks before re-entering – behavior that is guaranteed to lead to underperformance Other, more dynamic, approaches may help investors
- 8 years ago, 13 Jul 2015, 10:02pm -
Investing with Not-So-Perfect Economic Foresight [EconomPic]
Following up on my previous post Is there a Relationship Between the Economy and Stock Market?, which outlined the relative performance of the U.S. stock market and underlying U.S. economy over time and market performance during economic expansions / contractions, the below provides further detail
- 8 years ago, 13 Jul 2015, 10:01pm -
Tail-Risk Analysis In R: Part I [Capital Spectator]
It’s hard to overestimate the importance of modeling tail risk when it comes to the care and feeding of investment portfolios. But where to begin? The topic of studying, estimating and otherwise dissecting rare but extreme market events can be a black hole of analytical possibilities and
- 8 years ago, 13 Jul 2015, 01:48pm -
Our Free Tools Are Updated: Do-It-Yourself Investors Unite [Alpha Architect]
We’ve updated the technology behind our free tools for financial professionals. Unfortunately, this took a long time, but now that we’ve developed the framework, we’ll be able to launch new and better tools in the future. tools alpha The current core modules are the following: Allocation
- 8 years ago, 13 Jul 2015, 01:47pm -
New Nassim Taleb: Error, Dimensionality, and Predictability [Flirting with Models]
Nassim Taleb, author of the Inconcerto series and, most famously, The Black Swan, is out with a new paper called Error, Dimensionality, and Predictability. You can get a copy here. To quote some of the scary bits ... From the abstract: We show how adding random variables from any distribution makes
- 8 years ago, 13 Jul 2015, 12:55pm -
Optimal Stock Quantity, Selection and Weights for Momentum Investing [Quants Portal]
To try and maximise return the correct recipe of ingredients must be brought together. Not only do we have to look at the quality of stock selection, but the weights and quantity of stocks required for maximising returns and minimising risk. Momentum investing looks to invest in top performing
- 8 years ago, 13 Jul 2015, 12:55pm -
Momentum: Absolute or Relative? [Factor Wave]
There are two completely different ways to think about momentum: absolute and relative. At FactorWave we are largely concerned with relative (or cross-sectional) momentum. We know that stocks with positive momentum tend to outperform thse with negative momentum. So if we have a choice of two stocks:
- 8 years ago, 13 Jul 2015, 12:54pm -
Market Timing Models For A Momentum Strategy [Quants Portal]
Everyone has an opinion about what the state of the market will be in the short term or long term, never mind that stock prices follow a random walk or the possible clash between that comes between the invisible hand of the market and the regulatory rules made by policy makers. Returns in the market
- 8 years ago, 13 Jul 2015, 12:54pm -
Daily Academic Alpha: International 5-Factor Evidence from Fama and French [Alpha Architect]
About a month ago we posted on the robustness of the Novy-Marx profitability factor, which is embedded in the Fama-French 5-factor. We also highlighted potential weaknesses in the 5-factor model across international markets. Fama and French have responded with their own analysis on the 5-factor
- 8 years ago, 13 Jul 2015, 12:54pm -
SPX Strangle - High Loss Threshold - 45 DTE [DTR Trading]
This is the first article in a series where we will look at the performance of selling options strangles. For background on the setup for the backtests, as well as the nomenclature used in the charts and tables below, please see the introductory article for this series: Option Strangle Series -
- 8 years ago, 13 Jul 2015, 12:42pm -
Beating the Market with Two Simple Cycles (Part 1) [Jay On The Markets]
If I were to say to you the following: “The only thing that matters in the stock market is whether the 40-week cycle and/or the 212-week cycle is bullish”, chances are you would say either: a) “Wow Jay, that’s very interesting analysis. Have you considered taking some time off?” OR, if you
- 8 years ago, 13 Jul 2015, 12:41pm -
[Academic Paper] Bifurcation Patterns of Market Regime Transition [@Quantivity]
Bifurcation Patterns of Market Regime Transition
- 8 years ago, 13 Jul 2015, 11:17am -
SPX Performance After 2-Days Bounces From Lows Similar To Thurs-Fri [Quantifiable Edges]
Friday was the 2nd day in a row that SPY put in an unfilled gap up (though Thursday ended with very small gains.) And while the move up on Friday was strong, it still was not strong enough to erase all of Wednesday’s losses. Wednesday was a big down day that left SPX at an intermediate-term low.
- 8 years ago, 13 Jul 2015, 09:17am -
[Academic Paper] Enhancing Multi-Asset Portfolio Construction Under Modern Portfolio Theory with Robust Co-Movement Measure [@Quantivity]
Enhancing Multi-Asset Portfolio Construction Under Modern Portfolio Theory with Robust Co-Movement Measure
- 8 years ago, 13 Jul 2015, 04:13am -
Multivariate volatility forecasting [Eran Raviv]
Introduction When hopping from univariate volatility forecasts to multivariate volatility forecast, we need to understand that now we have to forecast not only the univariate volatility element, which we already know how to do, but also the covariance elements, which we do not know how to do, yet.
- 8 years ago, 13 Jul 2015, 02:43am -
Introducing Sharpe Trajectories [John Orford]
It's my final week in Singapore. Contrary to hearsay the 'Red Dot' is not zero dimensional; it's as multi-layered as the time you take to investigate it. A bunch of 'lasts' in Singapore will soon be followed by many 'firsts-in-a-long-time' back in Germany.
- 8 years ago, 13 Jul 2015, 02:42am -
Best Links of the Week [Quantocracy]
The best links of the week ending Saturday, 07/11 as voted by our readers: Video: James Simons – Numberphile [YouTube] Value and Momentum are Highly Correlated [Dual Momentum] All Strategies Blow Up [GestaltU] Backtesting in Excel: Adding position sizing [Quants Portal] The Origins of Momentum
- 8 years ago, 12 Jul 2015, 10:59am -
Top 5 MKTSTK posts thus far… [MKTSTK]
As this year flies by and this blog nears one year from conception (the concept was hatched at the end of this month, launched a bit later), we thought it would be cool to take a look at what articles you all thought were the most interesting over this blog’s short existence [as measured by total
- 8 years ago, 12 Jul 2015, 08:47am -
Quick observations on the 200-day moving average [Dynamic Hedge]
The market briefly closed below the 200-day moving average this week so let’s look at some recent history market behavior around the 200-day moving average. If you took every trade (on the next open) after the $SPY closed below the 200-day moving average and held for a month, you would have a
- 8 years ago, 12 Jul 2015, 08:47am -
S&P500 Hour Development [Stockdotnu]
Hour development for S&P500 since 2013 to 2015. Divided into years 2013, 2014, 2015 and All, also divided into weekdays. TIME CET, interval 1 hour. Top left ALL weekdays, top right Monday and down to Friday. (TIME CET)
- 8 years ago, 12 Jul 2015, 08:46am -
The Whole Story: Factors + Asset Classes [Jason Hsu]
Every year we invite some of the investment industry’s most creative thinkers to speak about their work at the Research Affiliates’ Advisory Panel conference. Along with Nobel laureates Vernon Smith and Harry Markowitz, the speakers at our 14th annual meeting included Campbell Harvey, Richard
- 8 years ago, 10 Jul 2015, 10:55am -
Options Hedging Hitting Extreme Levels [Dana Lyons]
We have been seeing signs in the past few days of elevated levels of fear on the part of traders and investors. Yesterday’s post on the 2nd 90% Down Volume Day in the past 2 weeks gave an indication of the excessive levels of selling taking place in the market. What are presumably being gobbled up
- 8 years ago, 10 Jul 2015, 10:54am -
The Mojito Vix ETN Strategy [John Orford]
I like girls like my asset classes. Bubbly. ... What do you mean you don't know whether whether we should take the business or not? All money is green. ... I like my cocktails like my money. Green! ... ~~ That was the CEO sitting behind a younger me. He didn't have an off
- 8 years ago, 9 Jul 2015, 10:56pm -
Light At The End Of The Tunnel For Stocks...Or A Train? [Dana Lyons]
So much for summer trading. Global markets are getting more interesting by the day. Last week, we wrote a post examining the phenomenon of 90% Down Days. Again, these are days in which at least 90% of volume on the NYSE occurred in declining stocks. Such days have often been signs of selling
- 8 years ago, 9 Jul 2015, 10:56pm -
The Origins of Momentum [Quants Portal]
Momentum is a market anomaly which many people have tried to explain but have not succeeded to a satisfactory extent. As to the source of momentum profits, others have tried to rationalize their origins whereas an opposing school of thought has searched for their origins in behavioural finance. In
- 8 years ago, 9 Jul 2015, 11:52am -
Research Links: Correlation Networks [MKTSTK]
Evolution of worldwide stock markets, correlation structure and correlation based graphs [arXiv] We investigate the daily correlation present among market indices of stock exchanges located all over the world in the time period Jan 1996 - Jul 2009. We discover that the correlation among market
- 8 years ago, 9 Jul 2015, 11:52am -
A Mid-Summer's Night(mare for) Beans [Jay On The Markets]
Grain prices have a long record of exhibiting seasonal price trends. This is due primarily to the fact that the planting, growing and harvesting cycle in the Midwest remains the same year in and year out. In a nutshell: *Planting begins in early spring *Growing takes place during the summer
- 8 years ago, 9 Jul 2015, 11:52am -
Option Strangle Series - Higher Loss Thresholds [DTR Trading]
During the next several weeks, I will show the backtest results for selling Strangles on the RUT and SPX. The prior post, Introduction To Options Strangles, introduced Strangles and compared them with Iron Condors. For this new series, we will look the following setup: RUT and SPX short strangle
- 8 years ago, 9 Jul 2015, 11:52am -
New academic paper related to #12 - Pairs Trading with Stocks [Quantpedia]
We analyse statistical arbitrage with pairs trading assuming that the spread of two assets follows a mean-reverting Ornstein-Uhlenbeck process around a long-term equilibrium level. Within this framework, we prove the existence of statistical arbitrage and derive optimality conditions for trading the
- 8 years ago, 9 Jul 2015, 11:52am -
XIV a heart attack waiting to happen [Alvarez Quant Trading]
A research friend recently sent me a link to The #1 Stock In The World. Besides being a blatant title to get one’s attention (and it worked on me), I found the idea interesting along with my research friends. I have been trying to add either XIV or VXX to my trading in some small way. The article
- 8 years ago, 8 Jul 2015, 11:51am -
All Strategies Blow Up [GestaltU]
We are a quantitative finance shop, right down to the ground. All of our portfolios are driven by supervised quantitative models with no discretionary intervention. As such, I was inspired to respond to a recent article on the risk of quant strategies, as I think the way our team approaches
- 8 years ago, 8 Jul 2015, 11:47am -
Quantitative Financial Risk Management [Reading the Markets]
Quantitative Financial Risk Management: Theory and Practice, edited by Constantin Zopounidis and Emilios Galariotis (Wiley, 2015) is a collection of 15 papers, written primarily by academics. The papers deal with five main topics: supervisory risk management, risk models and measures, portfolio
- 8 years ago, 8 Jul 2015, 11:47am -
The Comfort of Following the Index by Saarthak Gupta [Factor Wave]
FactorWave is built on the premise that factors are important investing. And if these factors are so important, then we should be asking ourselves why everyone doesn't seem to use them. If I may briefly invoke the specter of Rational Economic Theory, in an efficient market, these factors
- 8 years ago, 8 Jul 2015, 11:47am -
R financial time series tips everyone should know about [R Trader]
There are many R time series tutorials floating around on the web this post is not designed to be one of them. Instead I want to introduce a list of the most useful tricks I came across when dealing with financial time series in R. Some of the functions presented here are incredibly powerful but
- 8 years ago, 7 Jul 2015, 09:58pm -
Variance Factors on VIX Futures I – Synthetic Futures [Quanttech]
In her paper on ETNs on VIX futures, Carol Alexander demonstrates how principal component analysis can be used to identify the main variance factors in the term structure of the VIX. Over the next couple of posts I am going to demonstrate how you can implement this. Principal component analysis
- 8 years ago, 7 Jul 2015, 09:57pm -
Value and Momentum are Highly Correlated [Dual Momentum]
One of the most popular research papers on momentum is “Value and Momentum Everywhere” by Asness, Moskowitz, and Pedersen. In June 2013, this was published in the prestigious Journal of Finance. I have an earlier blog post which discussed that paper. However, one important item slipped by me
- 8 years ago, 7 Jul 2015, 11:12am -
Value Investing Research: O-Score and Distress Risk [Alpha Architect]
Book-to-Market Equity, Distress Risk, and Stock Returns, by Griffin and Lemmon (2002 Journal of Finance) investigate the relationship between value premiums and distress risk. There are two schools of thought on the value premium, or the large spread in realized returns between cheap stocks and
- 8 years ago, 7 Jul 2015, 11:11am -
Momentum Premium Explanation [John Orford]
Often skewness is elbowed aside while Sharpe ratios are proffered to the Gods. Reminds me of jumping on the subway in Beijing. The S&P 1500 Momentum index has negative skew - more than you see with the S&P 500 - which accounts for higher returns, exactly the reason why value often beats
- 8 years ago, 7 Jul 2015, 09:05am -
Backtesting in Excel: Adding position sizing [Quants Portal]
In my previous article I started with an example of a vectorised backtest. In this one I will build on homework exercise 2 by adding position sizing. Please download this Excel document to follow the example, Click Here. Now there are many different ways in which to add position sizing and this
- 8 years ago, 6 Jul 2015, 09:01pm -
Adding a VIX Signal to Momentum [EconomPic]
Michael Batnick, Director of Research at Ritholtz Wealth Management, and blogger of the always interesting Irrelevant Investor, recently shared the historical performance of U.S. stocks when they fall below their 200-day moving average, something that occurred early last week (bold mine, quotes
- 8 years ago, 6 Jul 2015, 09:01pm -
Efficient Frontier Portfolios – Impractical But Still Useful [Capital Spectator]
The concept of building “optimal” portfolios—maximizing return and minimizing risk–is a foundational concept in quantitative finance. Unfortunately, it’s not terribly practical. The problem, as many researchers have demonstrated over the years, is the elusive aspect of developing reliable
- 8 years ago, 6 Jul 2015, 12:28pm -
Prices Convolution, A Practical Approach [Quant Dare]
othing could be further from my intention than to give an extensive mathematical approach to this post but an slightly idea is desirable. In this post we will approach to the problem of convolution from a matricial point of view. Well, what we mean by convolution is about composing 2 different
- 8 years ago, 6 Jul 2015, 06:31am -
Practical academic paper related to #100 - Trading WTI/BRENT Spread [Quantpedia]
#100 - Trading WTI/BRENT Spread Authors: Donninger Title: The Poverty of Academic Finance Research: Spread Trading Strategies in the Crude Oil Futures Market Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2617585 Abstract: Harvey, Liu and Zhu argue that probably most of the Cross-Section
- 8 years ago, 6 Jul 2015, 06:31am -
China Market Analysis [John Orford]
The core of capitalism is its extremely democratic nature. The masses crush wily contrarians on a daily basis, The market can stay irrational longer than you can stay solvent Being correct in science however, is never democratic. One contrarian can commit mass killings amongst cherished beliefs.
- 8 years ago, 6 Jul 2015, 06:30am -
Video: James Simons - Numberphile [YouTube]
James Harris Simons has been described as "the world's smartest billionaire", amassing a fortune through the clever use of mathematics and computers. He is now a renowned philanthropist.
- 8 years ago, 6 Jul 2015, 03:07am -
Best Links of the Week [Quantocracy]
The best links of the week ending Saturday, 07/04 as voted by our readers: Fitness Landscape Analysis for Computational Finance [Turing Finance] VIX Trading Strategies in June [Volatility Made Simple] Switching From Stocks to Bonds Based on a 200-day Moving Average Crossover [Price Action Lab]
- 8 years ago, 5 Jul 2015, 09:24am -
[Academic Paper] Can Anomalies Survive Insider Disagreements? [@Quantivity]
Can Anomalies Survive Insider Disagreements?
- 8 years ago, 4 Jul 2015, 12:02pm -
[Academic Paper] Mispricing Factors [@Quantivity]
Mispricing Factors
- 8 years ago, 4 Jul 2015, 12:01pm -
State of Trend Following in June [Au Tra Sy]
Another down month for the State of Trend Following index. After a fairly good start to the year – until mid-March where the index registered its high for the year – the trend has been fairly clearly down. Possibly a drawdown phase following the very strong performance from 2014 and beginning
- 8 years ago, 3 Jul 2015, 08:31pm -