Earlier this week, we began discussing some of the more pervasive and enduring facts and fictions surrounding the value premium. But it's important to understand that the value premium-a phenomenon in which securities that sell at low prices relative to fundamental metrics outperform on average

Peter Urbani sent me a timing strategy based on the Cornish Fisher expansion. The world of cumulants is new and fascinating. I took the liberty to code up the strategy using the Backtesting IDE. The contrast between using spreadsheets and code for this type of strategy is stark. Download the code

In 2008 when the market crashed I was 16-years old and visiting London for the very first time. At that age I was already obsessed with the markets. Feeling confident that I could understand the crash after having read books like Security Analysis, The Intelligent Investor, and Common Stocks and

This paper tests the Pairs Trading strategy as proposed by Gatev, Goetzmann and Rouwenhorts (2006). It investigates if the profitability of pairs opening after an above average volume day in one of the assets are distinct in returns characteristics and if the introduction of a limit on the days the

Data science is becoming more and more accessible to more and more people. Amazon launched Amazon Machine Learning last month, Microsoft Azure has been available for some time now and IBM is pushing to commercialize Watson more than ever before. While there is a lot of hype surrounding some of the

The Value Proposition. Downtrend signal in growth/value. $IWD

In this article, we identify how we can improve the performance of the F-Score and enhance a generic value investing approach. In a 2000 study, "Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers" (Journal of Accounting Research, 2000),

April 2015: Trend Following DOWN -2.58% — YTD: +7.77% Consolidation for the State of Trend Following index in April. Most systems in the index closed underwater, with most of the downwards action happening in the last two days of the month, before which the index was still above the “break-even

The Term Structure of Credit Spreads and the Cross-Section of Stock Returns We explore the link between credit and equity markets by considering the informational content of the term structure of credit spreads. A shallower credit term structure predicts decreases in default risk, increases in

Rising Yield Trend $TLT

The following chart has been floating around for more than a year, supposedly showing investors have not only performed poorly, but even worse than almost any asset class. As Richard Bernstein stated: The average investor underperformed nearly every asset class. They could have improved performance

For the second Friday in a row, the Nasdaq put in a rally that, under the surface, was not as impressive as its headline gain would suggest. A week ago, we noted that the April 24 rally of more than 1.5% in the Nasdaq 100 (NDX) to a 52-week high was accompanied by A) both negative breadth and volume

We analyze the information content of corporate insiders’ trades after accounting for certain trading patterns. Insiders spread their trades over longer periods of time when they have a longer-lived informational advantage and when outside investors are less attentive. In contrast, they make

I’ve just finished the rough draft of a new book about concentrated value investing and the investors who practice it. One of the side-effects of extreme concentration is idiosyncratic portfolio performance–concentrated portfolios behave differently from the market. This makes sense. To beat the

Yes it’s May and that is an exciting time for us financial writer types as we stumble over one another in our haste to post our obligatory “Sell in May and Go Away” related articles. As you can see, at #2,106 (for the record just sort of a ballpark guess – but probably pretty close to

Are prominent stock market bloggers in aggregate able to predict the market’s direction? The Ticker Sense Blogger Sentiment Poll “is a survey of the web’s most prominent investment bloggers, asking ‘What is your outlook on the U.S. stock market for the next 30 days?'” (bullish,

May has seen a rise on the 1st trading day of the month a high percentage of the time. But that start of May strength has not typically seen follow-through in the next few days. This can be seen in the results table below. Of the 18 instances that rose on the first day in May since 1987, 14 of them

Kevin Davey has been developing, analyzing, testing and creating trading strategies for over 25 years, in every futures market from the e-mini S&P to crude oil to corn to cocoa. He placed in the Top 2 of the World Cup Trading Championships from 2005 – 2007 with the results: 2005 – 2nd place

Deactivating Active Shares (Frazzini, Friedman and Pomorski) Is Being Different Better? Dispersion and Active Management (The Investor’s Field Guide) 9 Mistakes Quants Make that Cause Backtests to Lie (The Augmented Trader) Sell in May and Go Away: Still Good Advice for Investor? (Dichtl and

With market making we can try to be neutral by skewing prices in such a way as to maintain a neutral position. To the extent that the market can become 1-sided (in momentum) or may have large sized requests (if offering at different sizes), one’s portfolio may require explicit hedging. In a live

There is always a small but vocal contingent of market pundits calling for a stock market top. In the past few years, there has been a very large but now sheepishly quiet contingent of analysts calling for a top in bonds (i.e., rise in rates). One thing you don’t hear too often, however, is a call

We know market sentiment metrics – used as a stand-alone signal - can predict market changes over minutes and sometimes longer. But what about the vital issue of really big day-to-day changes? And what if we add the simplest of daily price dynamics to the daily sentiment metric-based predictive

Flattish years in SP by end of April $SPY

WTI Crude up 25% in a month $USO

Scott’s Investments provides a daily Ivy Portfolio spreadsheet to track the 10 month moving average signals for two portfolios listed in Mebane Faber’s book The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets. Faber discusses 5, 10, and 20 security portfolios that

The ETFReplay.com Portfolio holdings have been updated for April 2015. I previously detailed here and here how an investor can use ETFReplay.com to screen for best performing ETFs based on momentum and volatility. The portfolio begins with a static basket of 14 ETFs. These 14 ETFs are ranked by 6

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of the 66 days-to-expiration (DTE) Iron Condor (IC), with 20 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs

ThinkAdvisor shares Jeff Gundlach's (Doubleline) thoughts from the Milken Institute Global Conference, outlining the potential impact of the shift towards passive investing within Robo Advisors. The financial planner industry has very wide range of delivery. A lot of … asset gathers do

In keeping up with my research reading, I came across a white paper from J.P. Morgan titled Defining Absolute Return Investing in Fixed Income. A graph on one of the last pages caught my eye: JPMorgan - Defining Absolute Return Investing in Fixed Income The stunning non-normality of the

Beating the market very obviously requires performance that is different than the market, which in turn requires portfolio holdings that are themselves different from the market. "Active Share"-or the percent of your portfolio which does not overlap with your relevant market benchmark

I recently discussed the inseparability between predicting an instrument’s price and anticipating its order flow. But, sometimes it’s possible to directly predict order flow from the signatures of execution algorithms or even certain exchange order types. In this post, we’ll see examples of

Cremers and Pareek A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our Academic Research Recap Category. Abstract: This paper documents that among high Active Share portfolios - whose holdings differ substantially from the holdings of their benchmark

Yesterday, we looked at the “Sell In May & Go Away” phenomenon, with a couple new twists. With many seasonality-type indicators or trends, it is common to see their effectiveness begin to wane over time. Traders begin to anticipate the seasonal trends and attempt to front-run them in order

#20 - Volatility Risk Premium Effect Authors: Israelov, Nielsen Title: Still Not Cheap: Portfolio Protection in Calm Markets Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2579232 Abstract: Recent equity volatility is near all-time lows. Option prices are also low. Many analysts suggest

In this post we will look at the backtest results for dynamic exits of the 66 days-to-expiration (DTE) Iron Condor (IC) options strategy, with 20 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

The Sentimental Skew Strategy is my test bench for the Backtesting IDE. I have documented the building of the strategy (while building the IDE). The strategy uses the CBOE implied skew index as an indicator to long or short the S&P 500. It was also instructive to understand the temptations

If you follow the stock market closely, you are no doubt aware of the “Sell in May and Go Away” adage. If not, you will likely be inundated with the theme over the next few days. This is our contribution. So what is the idea behind the “Sell In May…” phenomenon? It simply refers to the

Bollinger Bands are one of the more popular technical indicators with many traders using them to both trade the range as well as look for breakouts. However, what features and values should you really be looking at when you are using Bollinger Bands to trade? In this article we will use a random

Gopal and Greenwood A version of the paper can be found here. Want a summary of academic papers with alpha? Check out our Academic Research Recap Category. Abstract: In this work, we investigate how mass shootings influence the stock price of firearms manufacturers. While significant anecdotal

I was recently interviewed on Better System Trader. Go here to listen to it. He also has some other good interviews with Jake Bernstein and Brent Penfold which I listened to. I need to get around to the Nick Radge interview because I am meeting him next month at the 2015 Australian Technical

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of the 66 days-to-expiration (DTE) Iron Condor (IC), with 16 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs

We’ve mentioned before (alright, in nearly every post) that we have several major longer-term concerns with respect to the stock market. One such concern has to do simply with prices themselves – in both space and time. In a post last November, we highlighted the fact that relative to the

Many consider smart beta to be a revolution in the asset management industry. For example, Bloomberg ran an article, “Funds Run by Robots Now Accounts for $400 Billion,” which caught our attention. According to this article, “Smart beta,” is one of the fastest growing segments of ETFs,

First: the takeaways Expected return for an asset class is a combination of carry and price appreciation If carry is high enough, it can potentially dwarf price depreciation due to rising rates Higher carry assets (e.g. high yield bonds, MLPs, REITs, bank loans, EM debt, et cetera) have historically

When developing trading strategies, most systematic traders understand that if you search long enough, you're bound to find something that looks great in back-testing. The question is whether those great results are from a great trading strategy or because the best looking strategy was the one

A while ago I ran a series of posts on how you would write some python code to systematically trade using the interactive brokers C++ API. Whilst I hope this was helpful it was just a starting point. There are at least two major projects to undertake before one could actually trade. The first is the

In this post we will look at the backtest results for dynamic exits of the 66 days-to-expiration (DTE) Iron Condor (IC) options strategy, 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

Newfound will be hosting its next monthly strategy review session on Thursday, May 14th from 2:00- 2:30PM EST. We’re fortunate enough to have a guest panelist joining us: Brett Hammond from MSCI. He will be discussing factor-based investing and MSCI’s portfolio construction methodologies that

Reader Eli asked in the comments "I used to program in Matlab a lot in the past. Now I feel that Python is a better way to go. Any thoughts? Yes, quite a few - however I also hope to hear some ideas from other readers. Matlab is an excellent tool for analytics, and I have been using it for over

“I’ve never seen a bad backtest” — Dimitris Melas, head of research at MSCI. About backtests A backtest is a simulation of a trading strategy used to evaluate how effective the strategy might have been if it were traded historically. Backtestesting is used by hedge funds and other