Quant Mashup Interview with Rob Hanna [Better System Trader]Rob Hanna has been a full-time market professional since 2001. He first began publishing his market views and research in 2003. From 2003 to 2007 his column “Rob Hanna’s Putting It All Together” could be found twice a week on TradingMarkets.com. In 2008 Rob began Quantifiable Edges and in 2012(...) Shorting extremes in a bear market [Better System Trader]In Episode 7 of the podcast Rob Hanna provides an idea for shorting extremes in a bear market: I got one in bear markets that shows all right, what happens if… you sold short every 20 day high below the 200 day moving average or something like that and exited when it got back below the 20 day(...) Quant Geek Weekend Homework: Academic Finance Research [Alpha Architect]Post-discovery Performance: Will Anomalies Fade Away After Discovery? (Qu, Lu, Sun and Yan) The Search for Crisis Alpha: Weathering the Storm Using Relative Momentum (Newfound Research) Are Your Backtest Results fooling you? Try Monte Carlo Analysis (Better System trader) Buffett’s Alpha(...) Quasi-Maximum Likelihood [Eran Raviv]Beauty.. really? well, beauty is in the eye of the beholder. One of the most striking features of using Maximum Likelihood (ML) method is that by merely applying the method, conveniently provides you with the asymptotic distribution of the estimators. It can’t get more general than that. The(...) Singular Value Diversification Strategy [John Orford]Being a loser is an art. I am not interested in being a good loser, but in knowing when to quit. The art of quitting can be acquired after a little numerical analysis. (Not necessarily due to all the confusing linear algebra!) In the world of numerical solutions there is no correct answer. Knowing(...) New related paper to #5 - FX Carry Trade [Quantpedia]The paper gives evidence of a novel pricing factor for the cross-section of carry trade returns based on trade relations between countries. In particular, we apply network theory on countries' bilateral trade to construct a measure for countries' exposure to a global trade risk. A higher(...) Another commodity hits bull market threshold $UNG [@NautilusCap]Another commodity hits bull market threshold $UNG Live Trading with Interactive Brokers [Quant Connect]We're very proud to announce our public release of live trading with Interactive Brokers! Now you can seamlessly design and trade your algorithm within QuantConnect. Automated live trading is one of the most challenging engineering problems in financial technology. It involves controlling large(...) Getting Started with Open Source for Quantitative Finance [Quants Portal]Connect with Jacques on LinkedIn During my senior year, at a university that promised to teach me things, I found myself staring at financial statements wondering to myself "what is it the Quants see that I don't?" and so began my journey into quantitative finance. Throughout my(...) Lazy Backtest IDE Update [John Orford]Another week another Lazy Backtest IDE update. Now you can incorporate yield data into your strategies, oh, and also use it in your Sharpe ratio calculations. Also - no one likes little black boxes, right? No one! So, I included a link to download a CSV file of results. Meaning you can understand(...) Why tactical fixed-income is different [Flirting with Models]As a tactical asset management firm, we seek to offer a full range of downside risk managed investment strategies, covering all parts of an investor's portfolio. We believe that controlling drawdown and smoothing volatility is a critical objective, as periods of capital loss often coincide with(...) With Banks At New Highs, Are Stocks Out Of The Woods? [Dana Lyons]With the major indexes again pushing up near new highs, it is a good reminder that despite all of the ancillary concerns about the market (many of them voiced by us), the trump card ultimately is price. And while there have been some potential cracks recently on that front, by and large, the trend(...) Building an algorithmic trading strategy [Inovance]Building a fully automated, algorithmic trading strategy can seem like a daunting task but can actually be broken down into a series of simple steps. In this post, we'll go through the three steps to building an algorithmic strategy: Idea, Test, and Trade, and break down what you need to know(...) Off the Rails. Transports diverge from SPX $IYT $SPY [@NautilusCap]Off the Rails. Transports diverge from SPX $IYT $SPY An Update/Clarification to a ‘Simple Pattern’ for Trading [Jay On The Markets]It’s been (alas, correctly) brought to my attention that my description of the “Simple Pattern” I wrote about was, um, not so simple. To wit, the author writes: “Not every Day 1 signal generates an entry signal. If the 2nd trading day after the “close below previous low” (Day 3) does not(...) A Backtesting Framework [QuantLab.co.za]In the May edition of "Technically Speaking" released by the Market Technicians association there was an interesting reprint of a blog post written by Tucker Balch entitled "9 Mistakes Quants Make the Cause Backtests to Lie". The post is clear and concise and provides an(...) O’Doul’s Part 2 [Investor's Field Guide]I posted the other day about fundamental indexation being the O’Doul’s of value investing, because it is just the first step away from a market cap weighted index and towards a more differentiated value portfolio. I received lots of emails about the post, so figured I would spend more than 20(...) Currency Investing Research: Good Carry, Bad Carry [Alpha Architect]Abstract: We distinguish between “good” and “bad” carry trades constructed from G-10 currencies. The good trades exhibit higher Sharpe ratios and slightly negative or even positive skewness, in contrast to the bad trades that have both substantially lower Sharpe ratios and skewness.(...) Which Iron Condor Options Strategy Is Best? [DTR Trading]Over the last four months of blog posts we've looked at 7 different approaches for exiting iron condors. These exits included: Exit at 8 DTE ML40% - exit when the loss is equivalent to 40% of the margin for the position OR 8 DTE BSP - exit when the market is below the strike of the short put(...) Advertising a Few Systematic ETFs (Strictly Of My Own Volition) [QuantStrat TradeR]This post will introduce several ETFs from Alpha Architect and Cambria Funds (run by Meb Faber) that I think readers should be aware of (if not so already) in order to capitalize on systematic investing without needing to lose a good portion of the return due to taxes and transaction costs. So, as(...) A ‘Simple Pattern’ for Trading [Jay On The Markets]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(...) Skew & Inverse Vol Strategies Combined [John Orford]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(...) Anomalies Can Mean Alpha [Larry Swedroe]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(...) The Top 5 UK Universities For Becoming A Quant [Quant Start]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(...) Stock Indicator Suggests Big Move (Lower?) Coming [Dana Lyons]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 [@NautilusCap]Material improvement $XLB One of My Favorite Websites for Trading Systems and Ideas [Jay On The Markets]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(...) Be Careful How You Play Rising Rates [Flirting with Models]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(...) The Case Against High Yield [EconomPic]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(...) Q&A with Wes Gray on value and momentum – part two [Abnormal Returns]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(...) New Backtesting Platform: QuantlerQuantler 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(...) [PDF] Illegitimate Science: Why Most Empirical Discoveries in Finance Are Likely Wrong (h/t Salil Mehta)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(...) Equity Ranking Backtest with Python/Pandas [Shifting Sands]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.(...) Quantifying Technical Analysis [John Orford]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(...) Dual Momentum May Update [Scott's Investments]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(...) Q&A with Wes Gray on value and momentum – part one [Abnormal Returns]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(...) Momentum Investing: Skewness-enhanced Momentum Yields Double Alpha [Alpha Architect]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(...) Weekly Commentary - Sectors vs. Factors or Factors in Your Sectors [Flirting with Models]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(...) A Curious Spike In Inverse ETF Volume [Dana Lyons]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(...) New related paper to #3 - Sector Momentum - Rotational System [Quantpedia]#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 [@NautilusCap]After China cuts rates $FXI $SPY $EEM When NYSE advance/decline ratio is > 4... $SPY [@NautilusCap]When NYSE advance/decline ratio is > 4... $SPY What Friday’s Big VXO Drop Could Mean For Monday [Quantifiable Edges]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(...) When Do Complex Portfolios Win Out? (h/t @AbnormalReturns) [Bason Asset]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(...) Comparison Between Low and Steady Vol Strategies [John Orford]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(...) RUT Iron Condor - Dynamic Exit - 80 DTE Results Summary [DTR Trading]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(...) Interview with Dr Howard Bandy [Better System Trader]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(...) Cornish Fisher Strategy Discussion [John Orford]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(...) Quant Geek Weekend Homework: Academic Finance Research [Alpha Architect]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(...) Real Momentum: A Longer-Term Backtest [CSS Analytics]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(...)