In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 16 delta short strikes, with different profit and loss exits. This is a non-directional options trading strategy that seeks to profit from a market that stays within a range

Randomness. A magic that happens behind the scene. An incomprehensible little blackbox that does the job for us. Quants. Many use it every day without thinking, without considering how those beautifully uniformly distributed numbers are drawn?! Why so fast? Why so random? Is randomness a byproduct

Transports divergence major warning sign?

We investigate various methods to express a 10-Year Treasury Bond allocation. The primary issue with Treasury Bonds is their lack of tax-efficiency. T-bond income (and CPI adjustments in the case of TIPS) are taxed as ordinary income--ouch! A 2.5% yield is pretty bad, but a 1.25% after-tax yield

Long story short... yes, there appears to be a relationship between economic growth and stock market performance within the U.S. (and developed world), but that relationship holds only over longer periods of time and does not hold for all countries (less developed countries often "divert"

It seems that some people at Logical Invest have caught whiff of some of the work I did in replicating Harry Long’s ideas. First off, for the record, I’ve actually done some work with Harry Long in private, and the strategies we’ve worked on together are definitely better than the strategies

The employment report was released at 8:30am on Friday and the reaction in the futures was not good. ES sold down over 20 points in the next 45 minutes before closing for the day. As of Monday morning it has not bounced much. So it appears we are about to see a sizable gap lower.. Since inception of

My apologies for the delay in posting the end of month updates - travel plans made it difficult to post. However, this delay highlights the benefit of the spreadsheets provided on Scott’s Investments - the sheets auto update daily so you, the reader, is not dependent on my posts to deliver timely

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 12 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs were

A Value or Momentum portfolio is selected each month, based on the highest previous 12 month return (R). Data are from Ken French’s library from 1950 to 2015. I use the large momentum portfolio and small value portfolio (the HML anomaly … Continue reading

Recently Discovered Research You Might Have Missed: Back test a set of trading rules from 1870 to 2010 (Zakamulin) A comparison of investor sentiment indicators (The Behavioral Quant) The Nonlinear Price Dynamics of U.S. Equity ETFs (Caginalp, DeSantis and Sayrak)

When I was a kid 'Chinese Torture' was known to be extremely subtle. For example, a victim would be tied up and a drop of water would be allowed to slowly drip on someone's forehead for days until they went insane. Terrifying. Of course, actual torture in Imperial China was subtley

In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 12 delta short strikes, with different profit and loss exits. This is a non-directional options trading strategy that seeks to profit from a market that stays within in a range

I just wanted to briefly share some initial impressions of the 2nd edition of Stephen Marsland's very hands on text, "Machine Learning, An Algorithmic Perspective." Having been a big fan of the first, I requested a review copy from Dr. Marsland, and with his help, the publishers were

March 2015: Trend Following UP +2.34% — YTD: +10.63% Last month was positive and allowed our index to break the double-digit barrier to close the first quarter with a strong performance. In a similar fashion to a typical trend following trade, the composite equity curve had a relatively big run-up

A friend of the blog was inspired by our Robust Asset Allocation discussion, and conducted some backtests using our proposed risk management framework: 50% simple moving average rule (MA) 50% time series momentum rule (TSMOM) For naming convenience, we call our 50/50 approach ROBUST. Our friend

Just a short note here as we head into the holiday weekend. I want to share a few updates and tell you about about some exciting new things that are coming very soon.2015-04-01_14-18-42 I will be launching a series of short publications soon–whitepaper and mini-book formats. The idea will be to be

Slowing US growth... $SPY

Introduction Last week we explored the "best-day-of-the-week" theory and found no significant evidence to suggest that there is an optimal day of the week to trade. This week I'm going to test the theory that there is an optimal time of month to trade, and as you shall soon learn,

The index registered a new yearly high last month, with a nice uptrend until mid-month (nearing +10% YTD), before settling back to a lower level. The year-to-date performance is still well in the black. Please check below for more details. Detailed Results The figures for the month are: March

Javascript is the future of financial analysis. Here's a quick tutorial about how to download data from Quandl and show it in the browser. I am using Chrome. Your mileage may vary with other browsers, not by much though. All the code is here. This first item on the agenda is to craft a Quandl

In the introduction to his 2015 book entitled The 3% Signal: The Investing Technique that Will Change Your Life, author Jason Kelly states: “Ideas count for nothing; opinions are distractions. The only thing that matters is the price of an investment and whether it’s below a level indicating a

With an involvement in trading since his early twenties, and a background in mathematics and computer programming, it was a natural progression that this weeks guest would adapt a completely algorithmic trading approach. My friends, I would like you to meet Ilan Azbel. Ilan joins us to discuss

One thing to be aware is that while the market is closed on Friday for Good Friday, the BLS will be releasing the employment report. This is only the 11th time since 1980 that this has happened. Below is a list of all previous instances along with their performance on Monday when the market was open

I am sure you have already heard of momentum but have you ever heard of dual momentum? Neither have I until I read a very interesting book by Gary Antonacci called Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk. About Gary Antonacci Gary Antonacci is an

Some of you may remember the old saying on the Street, “Buy Rosh Hashanah, Sell Yom Kippur.” Though it had a good record at one time, it stopped working in the middle of the last century. It still gets tossed around every autumn when the “high holidays” are on the minds of traders as many of

Each year, Forbes calculates the performance of columnist recommendations assuming: (1) equal initial investments in each stock pick when published; (2) 1% trading friction for each purchase; and, (3) matching benchmark investments in the S&P 500 Index for each pick with no trading friction.

We’ve tested 23 simple strategies for trading VIX ETPs on this blog (separate and unrelated to our own strategy). And while I can’t speak for all traders, based on all of my readings both academic and in the blogosphere, the strategies we’ve tested are broadly representative of how the vast

Over the past 10+ years I've cultivated a laundry list of websites associated with financial economics. My primary focus has been identifying sources for new ideas that are creative, unique, and have application in the real-world. Interestingly enough, none of the sources I've identified

Recent articles that I found interesting and made me think. 99 Problems But A Backtest Ain’t One- “The first time one can actually realize how good (bad) his chosen backtesting solution is when the strategy is traded live. However I am always amazed how little some traders pay attention to how

Using a new daily dataset for all stocks traded on the New York Stock Exchange, we study the impact of information asymmetry during the liquidity freeze and market run of October 1907 - one of the most severe financial crises of the 20th century. We estimate that the run on the market increased

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 8 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs were

Q2 strong in Pre-Election Years $SPY

The cost of fuel in South Africa (and I imagine pretty much everywhere else) is a contentious topic. It varies from month to month and, although it is clearly related to the price of crude oil and the exchange rate, various other forces play an influential role. According to the Department of Energy

April is one of the most interesting months for investors. Why? Let’s start with the fact that for the past decades the two stand-out strong months for the market have been April and December – the two have been switching back and forth as the single strongest month. For the last few years it

Does Warren Buffett consistently keep Berkshire Hathaway in market-beating form? If so, how does he do it? In his annual letters to stockholders, he includes company performance and benchmark data and describes in general terms how he goes about investing. He sometimes shares his thoughts on the

Forecasting. No quant likes to do it. It's what stock analysts do, clever people are above that sort of thing. In spite of (or perhaps due to a lower IQ) here's my forecast of the S&P 500 for the next quarter. The graph shows that there's about a 10% chance of the S&P 500

#5 - FX Carry Trade #8 - FX Momentum Authors: Olszweski, Zhou Title: Strategy diversification: Combining momentum and carry strategies within a foreign exchange portfolio Link: http://apps.olin.wustl.edu/faculty/zhou/O_Z_JHDF_2014.pdf Abstract: Hedge funds, such as managed futures, typically use two

There is sometimes confusion associated with so-called "momentum" strategies--we want to clear the muddy waters. We break momentum into two categories to differentiate between the different approaches to momentum: (1) Absolute, or time-series momentum: an asset classes' own past

Eugene Fama and Kenneth French released their seminal white paper 'The Cross-Section of Expected Stock Returns' in June 1992 which added value (as well as size) as explanatory factors that drove market (out)performance. Per Investopedia: Fama and French attempted to better measure market

Dong Lou splashed on the academic scene in 2009 and boy has he been busy! Prof Lou has some great papers out there that have inspired a lot of research and investing ideas at Alpha Architect. A few of our favorites: 'Consistent' Earnings Surprises We hypothesize that analysts with a

A perennial favorite with investors, presumably because they are easy to understand and implement, are trades based on a regularly occurring pattern, preferably one that is seasonal in nature. A well-known example is the Christmas effect, wherein equities generally make their highest risk-adjusted

To All my Readers and Followers of QuantAtRisk.com I have a very special offer today: subscribe now to the book’s mailing list and pay 15% more per book before its Official Premiere in April. Just click and explore. This is a 1-day Special Offer!

Wednesday will be the 1st day of a new month. A couple of months ago I shared a chart that showed that the first day of the month has weakened substantially in recent years. Today I will use a couple of other charts to show just how drastic the change in market character has been. These charts

98% of the last 65 year's daily stock returns are explained by one simple formula: tinv ( dof ) * Stdev.s * [ ( dof - 2 ) / dof ] ^ 0.5 The t distribution is a wonderful thing. Plus the original paper from 'Student' himself is an easy read! Why is the t-distribution so good? My hunch

I have recently been looking at using a Conditional Restricted Boltzmann Machine, and in particular Graham Taylor's thesis paper, Composable Distributed-State Models for High-Dimensional Time Series and the associated code available from here. My adaptation of this is very much a work in

Moving Average Convergence Divergence (MACD) is one of the most popular technical indicators used by traders. It is a flexible indicator that can be used for determining the strength and direction of a trend. It has three distinct features and in this first post we are going to do a high-level

Does the seasonal change marked by the Easter holiday, with the U.S. stock market closed on the preceding Good Friday, tend to produce anomalous returns? To investigate, we analyze the historical behavior of the S&P 500 Index before and after the holiday. Using daily closing levels of the

In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 8 delta short strikes, with different profit and loss exits. This is a non-directional options trading strategy that seeks to profit from a market that stays within in a range

Ireland is at the center of most maps of the world. In China however, you'll find the 'middle land' exactly where every Chinese person would expect. If only Australia could shake off its colonial status once and for all and produce an 'upside down' map. The mercator