Dear visitors, We have launched a new subpage on Quantpedia.com which will contain master lists of tools for quantitative traders. We have started with a comprehensive lists of backtesting software and historical data sources: http://quantpedia.com/Links/Backtesters

[Part of a series on timing the S&P 500 by using the implied skew index, begin here] Over the previous days, the skew strategy has had improving, but alas, abominable Sharpe ratios. I have finally stumbled upon a recipe which beats the S&P 500 Sharpe over the last quarter of a century (and a

Friday was the 1st time SPY has closed at even a 5-day low since 3/26. The study below is one I have shown before. It examines other times when the SPY closed at a 5-day low for the 1st time in over 2 weeks. All stats are updated. Results here suggest a moderate upside edge. The lesson with this

This was my question before I started posting backtest results of the Iron Condor options strategy at the beginning of 2014: "does the iron condor options strategy really work". At that time, I had been trading a hedged, unbalanced, iron condor variation with specific adjustment rules. We

Check out the previous post in this blog for a blow by blow account of building strategy around skewness (part 1). Up until now the strategy knowed back and forth between buying and selling 100% as the skew became more or less favourable. Now, we add a little nuance. The implied skew index is a

Understanding Dual, Relative, and Absolute Momentum (Gary Antonacci) Long-short Strategy Simulation based on Front-Page Articles in the WSJ (Matthies and Liu) Am I My Peer’s Keeper? Social Responsibility in Financial Decision Making (Fulbrunn and Luhan) Employees Will Work Harder Under Loss

Given their relatively high yields, utility stocks have long been thought of as proxies, or at least competition, for bonds. And while that relationship is often overplayed (utility stocks are first and foremost, stocks), there is some credence to the notion. Since 1970, there is a 26% positive

There is a lot of talk about stocks being expensive, but also a lot of people not really doing anything about it. Many simply don’t know how to tackle the problem, and others don’t want to think about it at all. Below, for some perspective, are historical returns to stocks since 1970 and the 10

Logical Invest at the Silicon Valley chapter of the AAII & upcoming Webinars What an audience and what an experience! Thanks AAII Silicon Valley! As announced some weeks ago, on April 11 we hosted our first conference at the Silicon Valley chapter of the AAII (American Association of Individual

Investors based in different countries earn different returns on same strategies because the same risks covary differently with countries' stochastic discount factors (SDFs). We document that investors in low-interest-rate countries earn more than those in high-interest-rate countries on

Alright, so the S&P 500 declined 1.1% today. That is the worst daily decline since March 25, 2015 when it fell 1.46%. Within this context, today’s loss seems far less worrisome than you probably heard today. But, with the current bull market well above average duration and performance since

I've been busy working on the open-source QSForex system over the past week. I've made some useful improvements and I thought I'd share them with you in this forex trading diary update. In particular, I've made the following changes, which will be discussed at length in this

Previously, I checked whether historical skewness was a good indicator to buy and sell the S&P 500. My backtesting framework can now use the implied skew index as an indicator to buy or sell. Now, the strategy buys the S&P 500 if the implied skew index has dropped day over day and vice

The Self-Similarity metric has been a popular series. Recently the original post was shared on Jeff Swanson’s popular site System Trader Success which covers a wide variety of thought provoking articles on trading system development and is worth reading. Jeff has also posted some TradeStation code

In January 2012 I announced a new portfolio, a Benjamin Graham “inspired” value stock portfolio. The Graham portfolio is an attempt to add a value strategy to Scott’s Investments, which is otherwise focused on momentum, trend, income and market timing strategies. The portfolio tracks returns

Time for investors to go to the mattresses (again)? This, from CNBC: "Most investors have never heard of the three-month volatility index, which is known as the VXV. But the relationship between the CBOE three-month volatility index and the options exchange's more familiar 30-day

Over the last few weeks I have been working on optimising the conditional restricted boltzmann machine code, with a view to speeding it up via a C++ .oct file, and in the code box below is this .oct code for the gaussian_crbm.m code in my previous post. This gaussian_crbm.m function, plus the

One clear headwind that exists for the market is the first Fed funds rate increase since June 2006. That 0.25% rate hike nudged the target rate to 5.25% and marked the last move in a major tightening cycle that began in June 2004. Including this cycle, there have been five major Fed cycles (up and

Oil price volatility and oil-related events: An Internet concern study perspective [ResearchGate] This paper investigates the effects of four types of oil-related events on world oil prices, using an event study methodology and an AR-GARCH model. The Internet information concerning these events,

As I outlined in my previous post The Relationship Between Stocks and Bonds, the S&P 500 yields 3.7% at the current 27 CAPE (cyclically adjusted P/E), attractive from a relative basis to the sub 2% yield of the ten-year treasury. That said, a 3.7% yield is quite low by historical standards.

When VIX traders bet on a rise in volatility $SPY $VXX

While most people are not fond of tax day in the US, it has historically seen strong inflows into IRA’s and hence the stock market. This has set up the day after tax day as a strong day for the market. Below is a look at how SPX has done since 1981 on tax day. The numbers are all impressive. They

Knowing how different market conditions affect the performance of your strategy can have a huge impact on your returns. Certain strategies will perform well in highly volatile, choppy markets while others need a strong, smooth trend or they risk long periods of drawdown. Figuring out when you should

David Weilmuenster is today’s guest author. David and I worked together at Connors Research for eight years and is one great researcher and AmiBroker programmer. Brochures for professionally managed investments and academic white papers on long term investing almost always praise the benefits of

Before we discuss methods to exploit the tendency for the stock market to rise during month end, I wanted to share the performance of simply implementing the strategy in its raw form against its inverse. The results are rather impressive. EOM Strategy vs EOM Inverse Strategy Performance For the test

We came across an interesting article in the Wharton Magazine blog titled “The Dangerous Data Fetishes of Sports Analytics” by Ian Cooper. The main point of the article is that some sports statistics do not add value. The main example Ian cites is the “PDO” variable which is used in hockey.

EM Surge leading oil? $USO

Oil recovery reaches critical threshold $USO

Over the last eight posts we reviewed the backtest results for Iron Condors initiated at 52 days to expiration (DTE) on the Russell 2000 Index (RUT). To be consistent with all of the earlier backtests posted on this blog, we looked at 52 DTE Iron Condors initiated with short strikes at four

Although it has been very difficult to overcome our initial skepticism, we've finally accepted the notion that simple technical analysis may serve as an effective way to manage risk and to time markets. As John Adams said many years ago, "Facts are stubborn things." However, our

MATLAB Computational Finance Conference was a great event that I attended last year. There is a lot to learn for average Matlab user, and anyone working in finance. The agenda looks especially exciting this year. Ping me if you want to meet during the event.

Traders who understand the statistics and probabilities behind the movements of financial markets have to tools to find an enduring trading edge. This book is written to be accessible to the trader without a heavy mathematical background, and works toward a deep, intuitive understanding of

In the preface to the 2015 Third Edition of Irrational Exuberance, author Robert Shiller states: “…evidence of bubbles has accelerated since the [2007-2009 world financial] crisis. Valuations in the stock and bond markets have reached high levels in the United States and some other countries,

Developer: Joe Krutsinger: “One Night Stand” Trading System. Concept: Short-term trading strategy based on a weekday filter and price momentum. Source: Freeburg, N. F. (Sep. 1994). Formula Research, Quantitative Treatment of the Financial Markets. Memphis, TN: Formula Research, Inc. Research

A Wealth of Common Sense has a recent post 'Stock Market Losses with Low Interest Rates' that outlines: Just because interest rates are low doesn’t mean stocks can’t or won’t fall. Interest rates are a very important factor in the markets but they’re not everything. Stocks are

The aim of this paper is to investigate the impact of the financialization of commodity markets on the profitability of strategies based on momentum and term structure. The performance of an array of portfolios from double-sorts on non-commercial traders’ participation, historical returns and term

Investing in strategies that exploit the low volatility anomaly have grown in popularity in recent years. While low volatility based strategies may or may not beat the return of a market cap weighted index, by construction, they will likely deliver significantly reduced volatility. This reduction in

Global participation broadening

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 20 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs were

Years ago when I first started studying momentum, two things stood out in my mind. The first was most momentum research focused on cross-sectional stock studies looking at the future performance of stocks that had been strong versus stocks that had been weak. This was what interested academics most,

Most of the glowing analysis of so-called smart beta ETFs focuses on individual funds and how they offer advantages over their conventionally designed counterparts that weight securities by market capitalization—classic beta, as we’ll call them here. But what happens when we design portfolios

(This post is based on the talk of the same title I gave at Quantopian's NYC conference which commenced at 3.14.15 9:26:54. Do these numbers remind you of something?)A correct backtest of a trading strategy requires accurate historical data. This isn't controversial. Historical data that

Those who expect U.S. equities to deliver poor returns going forward can cite two compelling reasons in defense of their expectation: (1) Equity prices are significantly elevated relative to underlying earnings fundamentals. The S&P 500′s trailing price-to-earnings ratio, for example, is 20.5

For decades, analysts and investor have bought into the idea of a small cap premium, i.e., that stocks with low market capitalizations can be expected to earn higher returns than stocks with higher market capitalizations. For investors, this has led to the pursuit of small cap stocks and funds for

Scott’s Investments provides a free “Dual ETF Momentum” spreadsheet which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum. Antonacci has a new book out, Dual Momentum Investing: An Innovative Strategy for

In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), 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 stays within a range

This paper develops a theory that explains why financial crises follow profitable lending booms. When agents exhibit the "availability heuristic" and there is a long period of banking profitability, all agents — banks, their investors and regulators — end up in an “availability

US shift into High Beta ?

Global momentum continues... MSCI All World Index

You have the coding chops to automate your job; savvy to communicate a new easier solution to your client; or come up with that smart equation which neatly cuts through the bullshit. You're smart enough not to have to work needlessly hard. There's an idea in computer science call