Quant Mashup
Correlations Can Be Predictive [Larry Swedroe]
Academic researchers have presented theory, as well as empirical evidence, suggesting certain linkages between equity risk and the Treasury bond market, a relationship that clearly has important implications for investors’ understanding of markets and portfolio design. Studies, for example, have
- 9 years ago, 23 Oct 2015, 12:46pm -
Most Popular Books from the Bloggers at Quantocracy [Quantocracy]
Below is a list of all of the books written by all of the folks on our quantitative trading blogroll, sorted by Amazon sales rank from most to least popular. I did the legwork for a new page I’m putting together for the site (similar to what we used to have at The Whole Street), and thought it
- 9 years ago, 22 Oct 2015, 08:09pm -
Turn Off Your Chief Economist: GDP Growth Doesn't Predict Stock Returns [Alpha Architect]
In a sustained effort to try too hard, investors are constantly analyzing and assessing the growth rates of various markets around the world. The key assumption behind this analysis is that knowledge of these growth rates enhances their ability to predict the future and expected returns. This
- 9 years ago, 22 Oct 2015, 04:40pm -
Why do Small Stocks Outperform? [Factor Wave]
And let’s be completely straight here: they do. Occasionally we hear about “The disappearance of the X factor”. This is just people mistaking the transient nature of the factor outperformance for a permanent decline. People seem to have a very strong tendency to confuse short term performance
- 9 years ago, 22 Oct 2015, 04:38pm -
SPX Straddle - 66 DTE - Results Summary [DTR Trading]
Over the last five blog posts we looked at the automated backtest results for 4160 options straddles sold on the S&P 500 Index (SPX) at 66 days-to-expiration (DTE). Eight different loss approaches were tested on these straddles. On top of these eight loss approaches, tests were conducted with no
- 9 years ago, 22 Oct 2015, 04:38pm -
Utilizing the Value of Value to Make Value / Growth Tilts [EconomPic]
Back in August I outlined why I thought the plain-vanilla value premium had been compressed to the point growth had and was likely to continue to outperform in my post Death of (Plain Vanilla) Value - Long Live GARP. This post is meant as a follow up and suggests a few frameworks as to how an
- 9 years ago, 21 Oct 2015, 04:33pm -
Information Ratio Hypothesis Testing [John Orford]
Spurned by reading an account of a trader who swears by machine learning, few days ago I wrote about aesthetics in finance. Maths and tech without a narrative is pointless. My own attempts at providing a narrative foundered a few months back. Suspend Your Disbelief! I started using the Sharpe as a
- 9 years ago, 21 Oct 2015, 04:02pm -
Insider Trading During the 8-K Trading Gap [Alpha Architect]
SEC rules allow companies to delay the public disclosure of significant corporate events for up to 4 business days. This information is reported on an 8-K. This 4-day gap between an event and the disclosure creates an interesting situation. As an insider, if I know an 8-K is going to report news, I
- 9 years ago, 21 Oct 2015, 04:01pm -
How well can you scale your strategy? [QuantStrat TradeR]
This post will deal with a quick, finger in the air way of seeing how well a strategy scales–namely, how sensitive it is to latency between signal and execution, using a simple volatility trading strategy as an example. The signal will be the VIX/VXV ratio trading VXX and XIV, an idea I got from
- 9 years ago, 21 Oct 2015, 11:53am -
Biotech: My love-hate relationship [Alvarez Quant Trading]
The two charts above are from recent trades I have taken. Charts created in AmiBroker. On July 20, 2015 IBB, iShares Nasdaq Biotechnology ETF, made a closing high of 398. About three months later it closed at 289 for 27% loss. A very common thing I hear from traders is that they “don’t trade
- 9 years ago, 21 Oct 2015, 11:53am -
Sir Bayes: all but not naïve! [Quant Dare]
Is it possible to classify and predict (yes, predict!) if market trends will be bullish, bear or ranged by using a method called “naïve” and based on something as simple as Bayes’ theorem is? Let’s see! Predicting trends with naïve Bayesian classifier Our main objective is to explore
- 9 years ago, 21 Oct 2015, 06:01am -
Stock Volatility Moves Treasurys [Larry Swedroe]
Understanding the volatility of Treasury bond returns, as well as the volatility of both the level and slope of the Treasury term-structure, are fundamental issues in finance. What’s more, they have important implications for investors and portfolio design. Researchers have offered both theory and
- 9 years ago, 21 Oct 2015, 06:01am -
Multivariate volatility forecasting (4), factor models [Eran Raviv]
To be instructive, I always use very few tickers to describe how a method works (and this tutorial is no different). Most of the time is spent on methods that we can easily scale up. Even if exemplified using only say 3 tickers, a more realistic 100 or 500 is not an obstacle. But, is it really
- 9 years ago, 20 Oct 2015, 09:34pm -
First draft of 'JavaScript for Financial Analysts' Chapter 6 [John Orford]
First draft of 'JavaScript for Financial Analysts' Chapter 6. ~ Before I start - mulling over a change in function syntax for the book. So that for example, [0,1,2,3].map(function(i){return i+1;}) becomes [0,1,2,3].map( i => i+1 ) If you have an opinion, let me know! ~ So far we have
- 9 years ago, 20 Oct 2015, 09:34pm -
Tactical Alpha: Theory & Practice (Pt. I) - Fundamental Law of Active Management [GestaltU]
Introduction For the overwhelming majority of investors, portfolios are broadly organized into strategic silos of stocks and bonds, such as the ubiquitous 60/40 balanced portfolio. By design, the strategic proportions of stocks and bonds in the portfolio change very little over time. However, within
- 9 years ago, 20 Oct 2015, 01:08pm -
Back-test Reality Check [Systematic Investor]
To install Systematic Investor Toolbox (SIT) please visit About page. The purpose of a back-test is to show a realistic historical picture of strategy performance. One might use back-test results and corresponding statistics to judge whether a strategy is suitable one. Hence, it is best to structure
- 9 years ago, 20 Oct 2015, 01:58am -
Announcement: Speaking at QuantCon in April 2016 [Quant Start]
This is a short post to let you know that I'll be speaking at QuantCon on the April 9th 2016 in New York City. What is QuantCon? Over the past five years the software landscape for retail quant traders, and researchers at quant funds, has changed dramatically. The uptake of open source
- 9 years ago, 20 Oct 2015, 01:57am -
Changing Notions of Risk Management in Automated Trading [Quant Insti]
Algorithmic trading risks can be categorized into the following: Access Consistency Quality Algorithm Technology Scalability There are 2 places where Risk Management is handled – Within the application – We need to ensure that wrong parameters are not set by the trader. It should not allow a
- 9 years ago, 19 Oct 2015, 12:31pm -
Multi-Factor Investing [Dual Momentum]
Multi-factor investing that combines value, momentum, quality/profitability, or low volatility factors is today’s hot new investment approach. There has been an explosion of multi-factor ETFs recently with nine of the fourteen existing U.S. multi-factor funds coming to market this year, and five
- 9 years ago, 18 Oct 2015, 09:07pm -
Sovereign High Yield Bond Strategy [Meb Faber]
There is ample research that shows that sorting government bonds on yield works great. The outperformance has been very consistent over the years at about 2% a year. The Dimson, Marsh, Staunton crew examined this in their 2012 GIRY issue, and graphic is below. These are returns from going long high
- 9 years ago, 18 Oct 2015, 09:07pm -
Best Links of the Week [Quantocracy]
The best quant mashup links for the week ending Saturday, 10/17 as voted by our readers: Returns clustering with K-means algorithm [Quant Dare] Absolute Strength Momentum Investing Strategy [Alpha Architect] Guns, Bombs and eSports: Applying Data and Portfolio Analytics to Counter-Strike Gambling
- 9 years ago, 18 Oct 2015, 06:18pm -
Interview with Alan Clement [Better System Trader]
Alan Clement is a Certified Financial Technician, full time independent trader, quantitative trading systems designer and private investment consultant. He is also a councillor with the Australian Technical Analysts Association and contributes to the technical analysis articles for Fairfax press. In
- 9 years ago, 18 Oct 2015, 01:15pm -
First draft of 'JavaScript for Financial Analysts' Chapter 5 [John Orford]
First draft of 'JavaScript for Financial Analysts' Chapter 5. ~ The most difficult thing to do in computer science is naming things. It has made many a programmer go insane. Exhibit A - Android's code names. Cupcake Donut Eclair Froyo Gingerbread Honeycomb Ice Cream Sandwich Jelly
- 9 years ago, 17 Oct 2015, 01:14pm -
Backtesting Long Short Moving Average Crossover Strategy in Excel [Quant Insti]
Now for those of you who know me as a blogger might find this post a little unorthodox to my traditional style of writing, however in the spirit of evolution, inspired by a friend of mine Stuart Reid (TuringFinance.com), I will be following some of the tips suggested in the following blog post.
- 9 years ago, 16 Oct 2015, 12:18pm -
Surprise...Trading More is Profitable for Active Funds! [Alpha Architect]
Warren Buffett make it clear why frequent trading damages one’s wealth: “Wall Street makes its money on activity. You make your money on inactivity.” (source) But is activity always a bad thing? Implicit in Buffett’s quote is an assumption that frictional costs outweigh any benefits of
- 9 years ago, 16 Oct 2015, 12:18pm -
Site News [Quantocracy]
Three bits of site news for both readers and webmasters: For readers: Our new “filter mashup” feature For webmasters: Our policy on voting for your own link and vote padding For webmasters: Quantocracy badge For readers: Our new “filter mashup” feature Each site on our blogroll in the
- 9 years ago, 16 Oct 2015, 03:12am -
Seasonality debunked (partially) [RRSP Strategy]
I’ve previously written about a bi-annual seasonality pattern in US equity markets: https://rrspstrategy.wordpress.com/2014/05/16/bi-annual-seasonality/ The quarterly average market (Mkt-RF) returns from 1950 to present are shown below (data from Ken French’s library). Quarters 1-4 are even
- 9 years ago, 15 Oct 2015, 10:25pm -
I Hired a Contract Coder [Financial Hacker]
You’re a trader with serious ambitions to use algorithmic methods. You already have an idea to be converted to an algorithm. Only problem: You do not know to read or write code. So you hire a contract coder. A guy who’s paid for delivering a script that you can drop in your MT4, Ninja,
- 9 years ago, 15 Oct 2015, 12:36pm -
Ben Graham Would be Proud: Fundamental Analysis Works [Alpha Architect]
Here is an interesting working paper on the use of fundamental analysis in stock selection. The authors take a “machine learning” approach to building out statistical fair-value Ben Graham and David Dodd would be proud. Of course, this isn’t surprising if you’ve read our treatise on
- 9 years ago, 15 Oct 2015, 12:35pm -
SPX Straddle - 59 DTE - Results Summary [DTR Trading]
Over the last five blog posts we looked at the backtest results for 4120 options straddles sold on the S&P 500 Index (SPX) at 59 days-to-expiration (DTE). Eight different loss approaches were tested on these straddles. On top of these eight loss approaches, tests were conducted with no profit
- 9 years ago, 15 Oct 2015, 12:35pm -
Intraday Strategy Backtesting in R – Part 2 (Rule-based Strategies) [Portfolio Effect]
In this post we take intraday backtesting with PortfolioEffectHFT package one step further by adding a simple signal-based rebalancing rule. Using this rule we will create two trading portfolios – a high frequency strategy portfolio and a low frequency portfolio and compare them with each other in
- 9 years ago, 15 Oct 2015, 06:19am -
'Javascript for Financial Analysts' - Help Wanted [John Orford]
The still-in-progress 'Javascript for Financial Analysts' book is now up on Leanpub. The goal of the book is to help financial analysts automate their daily tasks by using Javascript in the browser. Not only that, but do it elegantly. Giving people a viable alternative to Excel is a lofty
- 9 years ago, 15 Oct 2015, 06:18am -
Guns, Bombs and eSports: Applying Data and Portfolio Analytics to Counter-Strike Gambling [Kevin Pei]
Since the publication of Bill James' seminal work, Baseball Abstract, and the rise to stardom for the Oakland A's, Sports Analytics - the application of statistics to competitive sports - has been (and still is) a prominent topic within the industry. Thus, it is only reasonable for
- 9 years ago, 15 Oct 2015, 01:09am -
Apples and Oranges: A Random Portfolio Case Study [GestaltU]
This article was motivated by a provocative discussion with a thoughtful RIA. Let’s call him Harry. Harry expressed some disappointment with the performance of Global Tactical Asset Allocation (GTAA) strategies over the past few years relative to some popular tactical U.S. sector rotation funds.
- 9 years ago, 14 Oct 2015, 11:59am -
How to make proper equity simulations on a budget – Part 1 Data [Following the Trend]
Simulating an equity strategy is difficult. Much more so than simulating a futures strategy. There’s a lot more moving parts to care about. Much more complexity. All too often, I see articles and books that just skipped the difficult parts. Either they didn’t understand it, or they hoped it
- 9 years ago, 14 Oct 2015, 11:58am -
Javascript for Financial Analysts Book - 'Fold' [John Orford]
First draft of 'JavaScript for Financial Analysts' Chapter 4. ~ Up until now we have introduced a handful of new concepts which needed just two words of vocabulary - map and filter. Fold however, is a new piece of vocabulary and one of the most powerful concepts in computer science rolled
- 9 years ago, 14 Oct 2015, 11:58am -
Keep Skewness In Perspective [Larry Swedroe]
Diego Amaya, Peter Christoffersen, Kris Jacobs and Aurelio Vasquez, authors of the new paper, “Does Realized Skewness Predict the Cross-Section of Equity Returns?”, examined higher moments of volatility, skewness and kurtosis to determine if they have provided incremental explanatory power in
- 9 years ago, 14 Oct 2015, 02:59am -
Absolute Strength Momentum Investing Strategy [Alpha Architect]
Here we highlight an interesting working paper titled “Absolute Strength: Exploring Momentum in Stock Returns” by Gulen and Petkova (2015). The abstract is the following: We document a new pattern in stock returns that we call absolute strength momentum. Stocks that have significantly increased
- 9 years ago, 13 Oct 2015, 12:15pm -
When process and performance disagree [Flirting with Models]
Summary Due diligence often focuses on the three Ps: people, philosophy, and process. There is an important 4th P: performance. When a portfolio has a consistent process, performance can ebb and flow as the strategy goes in or out of favor. For example, value stocks have been out of favor for 8
- 9 years ago, 13 Oct 2015, 03:40am -
Value Investing: The Pain Train has Arrived and it Sucks [Alpha Architect]
A few months ago we highlighted a surprising result: cheap high-quality stocks were getting crushed by expensive junk stocks. The spread at the end of June was around 18%. Here is the chart from the old post (details on construction are in the original post): cheap hiqh quality versus expensive low
- 9 years ago, 13 Oct 2015, 03:39am -
Multivariate volatility forecasting (3), Exponentially weighted model [Eran Raviv]
Broadly speaking, complex models can achieve great predictive accuracy. Nonetheless, a winner in a kaggle competition is required only to attach a code for the replication of the winning result. She is not required to teach anyone the built-in elements of his model which gives the specific edge over
- 9 years ago, 13 Oct 2015, 03:39am -
Giving up on Runge-Kutta Methods (for now?) [Dekalog Blog]
Over the last few weeks I have been looking at using Runge-Kutta methods for the creation of features, but I have decided to give up on this for now simply because I think I have found a better way to accomplish what I want. I was alerted to this possible approach by this post over at
- 9 years ago, 13 Oct 2015, 03:38am -
Daily Academic Alpha: Momentum Investing and Asset Allocation [Alpha Architect]
The results in this paper won’t surprise most who are regular readers, but the paper below does a nice job explaining things in a simple way. For more advanced asset allocation methods that use momentum one can check out past blogs on the subject here, here , and here. Momentum Investing &
- 9 years ago, 12 Oct 2015, 11:24am -
How to Get Started with R quantmod Package? [Quant Insti]
“The quantmod package for R is designed to assist the quantitative trader in the development, testing, and deployment of statistically based trading models.” It is a rapid prototyping environment where enthusiasts can explore various technical indicators with minimum effort. It offers charting
- 9 years ago, 12 Oct 2015, 11:24am -
More Factors Don’t Always Help [Larry Swedroe]
Professors Eugene Fama and Kenneth French have a new paper, “Incremental Variables and the Investment Opportunity Set,” that provides some important insights for investors considering funds designed to supply exposure to multiple factors, or styles, of investing. In their study, they note:
- 9 years ago, 12 Oct 2015, 11:23am -
Happy Columbus Day…Again? [Quantifiable Edges]
While the stock market is open on Monday, banks, schools, government offices, and the bond market are closed. In past years with the bond market closed, the stock market has done quite well on Columbus Day. Of course the most famous Columbus Day rally was in 2008 when the market gained over 11%
- 9 years ago, 12 Oct 2015, 11:23am -
PDF: Learning to Play Offense and Defense: Combining Value and Momentum [Meb Faber]
Abstract: Sorting stocks based on value and momentum factors historically has led to outperformance over the broad US stock market. However, any long-only strategy is subject to similar volatility and drawdowns as the S&P 500. Drawdowns of 50%, or even 60-90% make implementation of a stock
- 9 years ago, 11 Oct 2015, 09:55pm -
Momentum & Value in Quantopian [Relative Value]
This post looks at the results of adding additional value & quality factors to the previous momentum model mentioned here. Instead of purchasing stocks on momentum alone; I added a combined value score which aggregates stock rankings per valuation multiples such ROIC, EV/EBITDA, EV/FCF and so
- 9 years ago, 11 Oct 2015, 09:53pm -
Best Links of the Week [Quantocracy]
The best quant mashup links for the week ending Saturday, 10/10 as voted by our readers: ARIMA+GARCH Trading Strategy on the S&P500 Stock Market Index Using R [Quant Start] More On The Perils Of Statistical Hypothesis Testing – Part I [Price Action Lab] How to be a Quant [Turing Finance] Is
- 9 years ago, 11 Oct 2015, 09:51am -
Interview with David Aronson [Better System Trader]
David Aronson is a pioneer in machine learning and nonlinear trading system development and signal boosting/filtering. He is author of “Evidence Based Technical Analysis” and his most recent book “Statistically Sound Machine Learning for Algorithmic Trading of Financial Instruments” is an
- 9 years ago, 11 Oct 2015, 09:33am -