I love reading and listening to people who make finance sound like playing with Lego. Everything clicks together and is so self explanatory. Meanwhile, I am wracked by anxieties, because nothing I 'know' about finance really works consistently. Imagine buying a croissant at your local

On Thursday I had an article published in ProActive Advisor Magazine. It talked about evolving markets and used a seasonality example to show how change occurs. You may find a link to it below: http://www.dppublishinginc.com/publication/?i=261185&p=12

The only rational way to value capital is by estimating your required risk premium against a safer benchmark expected return. This is why the correlation between investment grade bonds, Treasury yields and the S&P 500 earnings yield follow such similar shapes. Screen Shot 2015-06-06 at 7.48.31

The returns in the previous quarter (x axis) are plotted against those in the next quarter (y axis) and I fit an ellipse to the data. Every ellipse has two radii or 'semi-axes' which represent the two principal components of the data. PCs are 'idealised' axes which better fit or

Profitability of Pairs Trading Strategies: Distance, Cointegration, and Copula Methods

215 Years of Global Multi-Asset Momentum: 1800-2014 (Equities, Sectors, Currencies, Bonds, Commodities and Stocks) (Geczy and Samonov) The Effect of Past Performance Framing on Investors’ Belief Updating (Gerhard, Hoffmann and Post) Mutual Fund Investors Seem to Be Chasing Overpriced Funds?

June officially marks the arrival of the dreaded “summertime trading.” This time period (June, July, and August of each year) is abhorred by most traders because trading ranges and volumes shrink, momentum becomes scarce, and it is more difficult to make money. The social media universe is

Just in case you somehow missed the 12,356 obligatory “Sell in May” related articles (alas, including this one), let me just say either: You didn’t financial articles very often do you? or Congratulations on recovering from your coma and Welcome Back! Either way, the gist of conventional

This post looks at a standard (STD) one-lot iron condor on the Russell 2000 Index (RUT), initiated at 45 days-to-expiration (DTE). The results in this post were derived from approximately 3200 individual trades entered by the backtester. For background on the setup for the backtests, as well as the

This post will feature the differences in the implementation of my constrained critical line algorithm with that of Dr. Clarence Kwan's. The constrained critical line algorithm is a form of gradient descent that incorporates elements of momentum. My implementation includes a

A June 2012 study authored by University of Rochester professor Robert Novy-Marx, “The Other Side of Value: The Gross Profitability Premium,” not only provided investors with new insights into the cross section of stocks returns, but also led to the development of new factor models that

#20 - Volatility Risk Premium Effect Authors: Li, Wang Title: Option-Implied Downside Risk Premiums Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2603857 Abstract: This article examines downside risk premiums using S&P 500 index (SPX) options. Portfolios are constructed using the

Europe correction nearing 10% $DAX

The Social Science Research Network’s Econometrics: Mathematical Methods and Programming eJournal distributes working and accepted paper abstracts in the area of mathematical methods applied to econometrics. The journal maintains a list of the All Time Top Ten Papers of the journal, based on total

If it feels like stocks have been hanging near their highs for a long time without being able to break out, you aren’t imagining things. By one measure, stocks have never traded so close to their highs for this long without breaking out, at least based on the Nasdaq Composite. Specifically, the

Over the past weeks I have been weighing up trading strategies. I have identified two major issues which people always overlook. Firstly, performance consistency. Averaged results over long periods of time often paper over long periods of poor performance. Researchers report max drawdown, but I feel

Facts and Fantasies About Commodity Futures Ten Years Later Gorton and Rouwenhorst (2006) examined commodity futures returns over the period July 1959 to December 2004 based on an equally-weighted index. They found that fully collateralized commodity futures had historically offered the same return

The R/Finance 2015 Conference wrapped up last Saturday at UIC. It has been seven years already, but R/Finance still has the magic! - mostly very high quality presentations and the opportunity to interact and talk shop with some of the most accomplished R developers, financial modelers and even a few

An Actual (Theoretical) Approach to Trading KO So let’s assume two traders took the following approaches to trading KO starting on 12/31/1981, each with $1,000: *Trader A bought $1,000 worth of KO stock and held it through 6/2/2015. *Trader B bought and held KO stock twice a year, during the two

Global breadth weakening $SPY

Superstatistical Fluctuations in Time Series of Leverage Returns

Generalized Statistical Mechanics for Superstatistical Systems

From Time Series to Superstatistics

Transition from Lognormal to Chi-square Superstatistics for Financial Time Series

To install Systematic Investor Toolbox (SIT) please visit About page. The Momentum and Markowitz: A Golden Combination (2015) by Keller, Butler, Kipnis paper is a review of practitioner’s tools to make mean variance optimization portfolio a viable solution. In particular, authors suggest and test:

Now, I had a very interesting discussion this week… I was fortunate enough to speak with David Bush, an extraordinary, seasoned trader with 20 years experience in financial markets. David comes from a non-traditional background, and what I mean by this; he has no formal education in the field of

The Steady Vol strategy tries to keep your portfolio's returns stable while slowly accruing returns over the long term. To that end I used the Vix to predict vol over the next month in order to adjust exposure up or down and stabilise short term returns. Turns out realised vol based on the

It's been a while since my latest Forex Trading Diary update. I've been busy working on the new QuantStart Jobs Board and so I've not had as much time as usual to work on QSForex, although I have made some progress! In particular I have been able to add some new features including:

I really don't like the high yield asset class. Not just in the current environment with near-low historical yields and the potential for material liquidity issues, but in general. As an asset class, I think the high yield asset class: Often caters to unsophisticated investors that only look at

Long-term uptrend in yields? $TLT

This post looks at a standard (STD) one-lot iron condor on the Russell 2000 Index (RUT), initiated at 38 days-to-expiration (DTE). The results in this post were derived from approximately 3200 individual trades entered by the backtester. For background on the setup for the backtests, as well as the

After the big down day last Tuesday the market has not done a lot. In fact, it has closed within the true range of that 1 bar every day for the last week. The bears failed to follow through on that selloff, but the bulls have not managed to move the SPX back out of the range either. This triggered

With last month’s failed (so far) breakout in the U.S. equity market, stocks are relegated once again to range-bound status. Essentially the market has gone nowhere since the beginning of the year and, by some measures, 2015 has been the quietest start to a year in over a century. One

Level, Slope and Curve Factor Model for Stocks

Gogi Grewal is an engineer and astute financial analyst who has been following my work for a number of years. He has an excellent grasp of dual momentum. Since Gogi lives in Canada, he decided to research the best way for non-US investors to utilize dual momentum. Gogi has generously offered to

Forbes outlines one of Ben Graham’s basic value investment strategies and analyzes how it has performed from 1949 through 2012. Even with all of the fiscal cliff and European debt drama in 2012, the Graham-based portfolio has had a particularly good year. While the S&P 500 has notched a solid

I. Trading Strategy Concept: Trend-following trading strategy based on a simple price momentum. Source: Kaufman, P. J. (2013). Trading Systems and Methods. New Jersey: John Wiley & Sons, Inc. Research Goal: Performance verification of the price momentum model. Specification: Table 1. Results:

Another successive down month for the index. Enough to take it into negative territory for the year. Please check below for more details. Detailed Results The figures for the month are: May return: -2.38% YTD return: -2.62% Below is the chart displaying individual system results throughout May:

We recently published an article on S&P's Indexology blog that looks at some of the more practical aspects of harvesting the size premium - a premium earned by owning smaller stocks. In our U.S. Factor Defensive Equity strategy, we hold ETFs that aim to capture premiums from value, size,

May 2015: Trend Following DOWN -2.67% — YTD: +4.99% The downward consolidation continues in May with a negative month. The index still stays positive Year-To-Date. Below is the full State of Trend Following report as of last month. Performance is hypothetical. Chart for May: Wisdom State of Trend

Metals stocks poised to bounce back $XME

In Episode 7 of the BetterSystemTrader podcast Rob Hanna from Quantifiable Edges discusses a market behaviour where the strength of the NASDAQ often leads strength in other markets. Here is what Rob had to say: Well one indicator I like to use that I have shown on the blog years ago and it is part

We would venture that there is a strong correlation between the amount of ink spilled about an asset class or sector and its volatility. So given that the energy sector fell nearly 5.5% in the last month without much interest is somewhat curious. Or, is it? First, let's establish whether our

#8 - FX Momentum #14 - Momentum Effect in Stocks #21 - Momentum Effect in Commodities #118 - Time Series Momentum Effect Authors: Goyal, Jagadeesh Title: Cross-Sectional and Time-Series Tests of Return Predictability: What Is the Difference? Link:

I only started drinking coffee when I started working crazy hours. Not to keep awake but as an excuse to pop out of the office for a few minutes and suck in some fresh air. Either coffee or cigarettes, thank goodness not the latter. In any case, I recently read about a guy who is reverse engineering

he graph shows the all-time high on the S&P500, since year 1957 to 2015, and the line is moving and in close-up one can see how long each ATH has been going on. However, this is a smaller picture of the graph and the real is very big and I will not put it out due to the size. Longest ATH in a

Over the last four blog posts we looked at eight different exit approaches for a standard SPX iron condor with 25 point wings. These exits included: STD - NA%:NA% - exit at 8 DTE. STD - NA%:50% - exit if the trade has a profit of 50% of its initial credit OR 8 DTE. STD - 100%:50% - exit if the trade

Ignore the Margin Debt Alarm The margin debt alarm has seemingly been sounded every few months when investors realize absolute levels of margin debt has reached new all-time highs (inferring that risk taking has too reached all-time high levels and stocks are at risk). This brief post highlights why

The first formal asset pricing model—the capital asset pricing model—was built on certain assumptions, including that investors are risk-averse; will maximize the expected utility of absolute wealth; and care only about the mean and variance of return. However, academic research has found that

Gary Antonacci has over 35 years experience as an investment professional focusing on underexploited investment opportunities. His award-winning research on momentum investing combines relative strength price momentum with trend following absolute momentum. He is recognized as a foremost authority