As I admitted in my last post, I am a something of a trading “systemaholic”. And yes, on many occasions I have started out with a simple idea and by the time I was done I had 600 lines of code and only a vague recollection of what that original simple idea was. So take it from me: While

I never plan long term. As I grow older my horizon has become shorter and shorter. This vexes my girlfriend. Naturally, I retort, my days on the planet reduce with every day lived. Our holidays are spent jumping from one town to another in Indonesia or China, nothing's booked more than a day or

Since the development of the capital asset pricing model (CAPM) about 50 years ago, academic researchers have documented several hundred “anomalies” that generate a significant positive alpha. There are now so many that professor John Cochrane referred to them as the “factor zoo.” There are

In a previous article I outlined the best degree courses to take in order to help you get a job as a quant. I also mentioned that to discuss the best UK universities was an article in itself. This is that article! Coincidentally, the QS World University Rankings for 2014/15 have just been released

We don’t talk too often (because we don’t use them) about traditional technical analysis indicators. We have nothing against them; it’s just that we have our own methodologies and processes that work for us. One indicator we do like to keep an eye on is the ADX, or Average Directional Index.

Material improvement $XLB

A while back I got over my addiction to Elliott Wave analysis. I finally realized I needed help and joined a five wave, er, step program. But some obsessions still linger. As an admitted "systemaholic" ("Hi, my name is Jay") I am always on the lookout for new ways to make money

Many recent articles discuss rising rates with a focus on how to weather them along with some predictions of when they will occur and how much they will rise. Duration is a common theme among the articles since it quantifies how much a particular bond is likely to lose when rates rise. We've

Following up on my post The Relationship Between Stocks and Bonds, which outlined why it is probable that stocks will outperform Treasury Bonds over the next 10 years, let's take a look at what appears to be another expensive area of the bond universe... high yield U.S. corporate bonds. High

A recent paper by Cam Harvey and his co-authors on the statistical validity of many so-called finance anomalies has attracted a great deal of attention in quantitative finance crowd. It seemed worthwhile to discuss the implications of the paper with one of our favorite quants, Wes Gray of Alpha

Quantler is an online trading system development and analysis platform, that uses templates to (co-)create new algorithms. You can develop your own templates or reuse existing ones. With Quantler, you can test your ideas quick and easy. Entry Entry templates tell us when, where and how we enter the

The proliferation of false discoveries is a pressing issue in Financial research. For a large enough number of trials on a given dataset, it is guaranteed that a model specification will be found to deliver sufficiently low p-values, even if the dataset is random. Most academic papers and investment

I have been look at equities a bit of late, I am particularly interested in ranking a universe of equities for “low frequency” manual trading on a weekly or monthly basis. Every period I would rank each name on a bunch of different factors, then invest in the highest ranked ones for that month.

I have disavowed myself from technical analysis. Life's too short. Similar to Saruman however, the lure of more power is drawing me perilously close to an ancient and dark evil. To paraphrase Nietzsche, When you take a long gaze into the financial blogosphere, the blogosphere also gazes back

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

A recent paper by Cam Harvey and his co-authors on the statistical validity of many so-called finance anomalies has attracted a great deal of attention in quantitative finance crowd. It seemed worthwhile to discuss the implications of the paper with one of our favorite quants, Wes Gray of Alpha

Jacobs, Regele and Weber 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: Motivated by the time-series insights of Daniel and Moskowitz (2014), we investigate the link between expected skewness and

Warren Buffet famously said to "never invest in a business you can't understand." The same advice should undoubtedly be applied to pooled investment vehicles. The advent and rapid growth of the ETF has made it easier than ever for investors to know what they own. Take the Financial

One of our favorite new short-term sentiment gauges in recent years has been relative inverse ETF volume. This indicator measures the amount of volume traded in “inverse ETF’s” (those that are designed to move in the opposite direction from the market) relative to the total stock volume traded

#3 - Sector Momentum - Rotational System Authors: Du Plessis, Hallerbach Title: Volatility Weighting Applied to Momentum Strategies Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2599635 Abstract: We consider two forms of volatility weighting (own volatility and underlying volatility)

After China cuts rates $FXI $SPY $EEM

When NYSE advance/decline ratio is > 4... $SPY

The VIX, which is a measure of options pricing and is often referred to as a “fear index” saw a 15% drop on Friday. Meanwhile, the VXO, which is the old measure of the VIX, declined nearly 22%. Such big declines often suggest short-term over-optimism on the part of traders and are followed by a

I’m a big believer in well-diversified portfolios. Just how you define a well-diversified portfolio is a matter of opinion. You could own practically every stock in the global public markets and a pretty robust portfolio of bonds with three funds and investment expenses of about 0.15%. If you’re

Dan Davies likened the Steady Vol strategy to a minimum volatility strategy, which came as a surprise, as perhaps even more surprising - it never occurred to me beforehand! For those not in the know, Steady Vol tries to keep volatility stable by inversely weighting the index over time by implied

Over the last several posts we reviewed the backtest results for Iron Condors initiated at 80 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 80 DTE Iron Condors initiated with short strikes at four

Dr Howard Bandy has university degrees in mathematics, physics, engineering and computer science, completing graduate studies and research in modelling and simulation, statistics and some of the early work in artificial intelligence. He has over 50 years experience in research and applications of

A reader got in touch with me asking for more details on Peter Urbani's Cornish Fisher strategy. It's a pull-all-your-money-of-the-table strategy designed to avoid catastrophic losses and keep returns compounding smoothly over time. How do we think about potential catastrophic returns? By

The Five-Factor Fama-French Model: International Evidence (Nusret Cakici) Doubt on Five-Factor Fama-French Model: Is it Just in Essence a Noise? (Hou, Xue and Zhang) Stocks with Negative Analyst Forecast Skewness tend to be undervalued? (Cai Zhu) Covering-Up When the Tide Goes Out? Momentum

In the last post I introduced the concept of “real momentum” which is a trend following signal based on real returns. In the post I used both expected inflation and risk-free returns to net out from the S&P500 to create a real excess return. This was done to make the hurdle for buy positions

The art and skulduggery of finance is infused with uncertainty. So, how about we try to smooth volatility a little and see the consequences? The VIX predicts the volatility of the S&P 500 for the next thirty days. Our Steady Vol strategy takes the inverse of the current VIX and weighs our

One of the Wall Street platitudes often repeated is that the bond space is the “smart” market, particularly when in conflict with equities. That is, when bonds and stocks seem to be telling opposite stories, it is the bond market that typically ends up being correct. At least that is what the

Given the rapidity of today’s gap higher in the S&P 500, it would seem to be an appropriate time to repost some research related to the boom and bust cycle. Certainly it would seem we are near a phase transition of sorts in the stock market. For most of 2015 the market has been range-bound,

Seeking Alpha? It’s a Bad Guideline for Portfolio Optimization Alpha is the most popular measure for evaluating the performance of both individual assets and funds. The alpha of an asset with respect to a given benchmark portfolio measures the change in the portfolio’s Sharpe ratio driven by a

Every time someone comes up with a “new and improved” way to invest or predict which active managers will shine, it seems that subsequent research finds that it’s really just about focusing on different betas. The latest example is a new study (“Deactivating Active Share”) from AQR, a

Let’s begin with a simple question, Can we use the movement of the main stocks in the S&P500 to predict the index movement?. But… Who are the main stocks ? That’s a good question, maybe the bigger ones, maybe the more bullish of them… so how should we decide who are the most

We're just a few short posts from completing the dynamic exit series. Thanks for hanging in there through this four month process chronicled here: Dynamic Exit Iron Condor Articles! In this post we will look at the backtest results for dynamic exits of the 80 days-to-expiration (DTE) Iron

One factor that will likely have a substantial impact on market movement on Friday is the reaction to the Employment Report. Employment days have done fairly well over the last few years but most of the gains are thanks to the overnight session. This can be seen in the 2 profit curves below. As you

I once dated a poet. A published poet. She knew the nuances of language like few others. Then and since I wondered whether I could experience things, that I could never verbalise, as well as her. If you can dictate your inner life onto a page; into black and white; does it become a little clearer?

From 1926 through 2014, the default premium (the annual return on long-term, investment-grade corporate bonds minus the annual return on long-term Treasurys) has been just 0.22 percent. Such a small premium has led many observers, including me, to conclude that investors willing to accept higher

@SusanCTShore’s 3 Days before employment report with 2 down days and above 200 days triggered 5/5/2015

Watering the flowers and pulling the weeds. Letting your winners run and cutting your losers short. There are different expressions for sector rotation, but it is among the most profitable investment strategies we have found, when done in a disciplined way. Sector rotation is based on the idea that

As a follow-up to A Guide to Creating Your Own Smart Beta Fund, let's dive into the high flying paying world of hedge fund management.. Per Investopedia: Hedge funds are alternative investments using pooled funds that may use a number of different strategies in order to earn active return, or

A few weeks ago I wrote an article talking about ways to combine value investing and momentum investing. The high level takeaway from that article was to keep value and momentum as separate exposures. This conclusion was based on ranking firms on their combined value and momentum rankings, which can

Should Europe decline extend to 10%...

Summary Leveraged ETFs suffer from decay, or “beta slippage.” Researchers have attempted to exploit this effect by shorting pairs of long and inverse leveraged ETFs. The results of these strategies look good if you assume continuous compounding, but are often poor when less frequent compounding

“Time-Series Momentum” was introduced by Moskowitz and Pedersen of AQR circa 2011 and was popularized by Antonacci in 2013 as “Absolute Momentum.” Both measure the return of an asset in excess of the risk-free rate over some lookback window in order to determine whether to hold a long

It has been over a year since I posted Hacking Google Finance in Real-Time for Algorithmic Traders article. Surprisingly, it became the number one URL of QaR that Google has been displaying as a result to various queries and the number two most frequently read post. Thank You! It’s my pleasure to

On April 24, we posted what we thought (and hoped) would be our final post concerning the stock market’s lengthy trading range. In the post we noted that for only the 8th time in 100 years, the Dow Jones Industrial Average (DJIA) had made it to 30 days without hitting either a 1-month high or low.

The High Yield Dividend Champion Portfolio is a publicly tracked stock portfolio on Scott’s Investments. Its goal is to capture quality high yield stocks with a history of raising dividends. The screening process for this portfolio starts with the “Dividend Champions” as compiled by DRIP