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A Unique Insider Trading Signal that Generates Alpha [Alpha Architect]
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
- 10 years ago, 4 May 2015, 02:45pm -
Dispersion by Market Capitalization: A Stock Picker’s Market [Greenbackd]
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
- 10 years ago, 4 May 2015, 02:44pm -
‘Sell in May’ Article #2,106 [Jay On The Markets]
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
- 10 years ago, 4 May 2015, 02:44pm -
Blogger Sentiment Analysis [CXO Advisory]
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,
- 10 years ago, 4 May 2015, 12:00pm -
When May Starts With A Rise [Quantifiable Edges]
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
- 10 years ago, 4 May 2015, 01:49am -
Interview with Kevin Davey [Better System Trader]
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
- 10 years ago, 3 May 2015, 04:31pm -
Recently Discovered Academic Finance Research You Might Have Missed [Alpha Architect]
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
- 10 years ago, 3 May 2015, 01:51am -
Market-Making Portfolio & Hedging [Tr8dr]
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
- 10 years ago, 3 May 2015, 01:51am -
Could Stocks AND Bonds Be Topping? [Dana Lyons]
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
- 10 years ago, 1 May 2015, 08:05pm -
A Simple Test of the Predictability of Large Daily Changes in SPY [Psych Signal]
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
- 10 years ago, 1 May 2015, 06:41pm -
Flattish years in SP by end of April $SPY [@NautilusCap]
Flattish years in SP by end of April $SPY
- 10 years ago, 1 May 2015, 06:40pm -
WTI Crude up 25% in a month $USO [@NautilusCap]
WTI Crude up 25% in a month $USO
- 10 years ago, 1 May 2015, 06:39pm -
Ivy Portfolio May Update [Scott's Investments]
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
- 10 years ago, 1 May 2015, 02:42pm -
ETFReplay.com Portfolio May Update [Scott's Investments]
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
- 10 years ago, 1 May 2015, 02:42pm -
RUT Iron Condor - Dynamic Exit - 66 DTE - 20 Delta Continued [DTR Trading]
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
- 10 years ago, 1 May 2015, 02:42pm -
Implications from the Rise of Passive Investing [EconomPic]
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
- 10 years ago, 30 Apr 2015, 10:50pm -
"Lies, Damned Lies, and Statistics" ... and Incorrect Statistics [Flirting with Models]
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
- 10 years ago, 30 Apr 2015, 03:10pm -
Is Being Different Better? Dispersion and Active Management [Investor's Field Guide]
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
- 10 years ago, 30 Apr 2015, 03:00pm -
Market Data Patterns, Order Anticipation, and An Example Trading Strategy [Mechanical Markets]
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
- 10 years ago, 30 Apr 2015, 03:00pm -
Is Passive Perfect? High Active Share Long-Term Investing Works Better [Alpha Architect]
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
- 10 years ago, 30 Apr 2015, 02:59pm -
May Has Become The (short-term) “Toppiest” Month [Dana Lyons]
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
- 10 years ago, 30 Apr 2015, 02:58pm -
New related paper to #20 - Volatility Risk Premium Effect [Quantpedia]
#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
- 10 years ago, 30 Apr 2015, 02:27pm -
RUT Iron Condor - Dynamic Exit - 66 DTE - 20 Delta [DTR Trading]
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
- 10 years ago, 30 Apr 2015, 02:25pm -
Skew Strategy Update [John Orford]
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
- 10 years ago, 30 Apr 2015, 06:11am -
A Few Twists To The “Sell In May” Phenomenon [Dana Lyons]
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
- 10 years ago, 30 Apr 2015, 02:16am -
Bollinger Band Feature Analaysis Using a Random Forest Algorithm [Inovance]
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
- 10 years ago, 29 Apr 2015, 04:05pm -
Traders, Guns, and Money [Alpha Architect]
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
- 10 years ago, 29 Apr 2015, 04:05pm -
Interviewed on Better System Trader [Alvarez Quant Trading]
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
- 10 years ago, 29 Apr 2015, 04:05pm -
RUT Iron Condor - Dynamic Exit - 66 DTE - 16 Delta Continued [DTR Trading]
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
- 10 years ago, 29 Apr 2015, 04:04pm -
One-Way Market Due For A U-Turn? [Dana Lyons]
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
- 10 years ago, 29 Apr 2015, 03:03am -
How Smart are "Smart Beta" ETFs? [Alpha Architect]
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,
- 10 years ago, 28 Apr 2015, 08:15pm -
Can you avoid rising rates with high carry assets? [Flirting with Models]
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
- 10 years ago, 28 Apr 2015, 08:14pm -
Is That Back-Test Result Good or Just Lucky? [Adaptrade]
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
- 10 years ago, 28 Apr 2015, 08:14pm -
System building - Data capture [Investment Idiocy]
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
- 10 years ago, 28 Apr 2015, 08:13pm -
RUT Iron Condor - Dynamic Exit - 66 DTE - 16 Delta [DTR Trading]
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
- 10 years ago, 28 Apr 2015, 08:13pm -
Weekly Commentary – A Curated Charcuterie of Links [Flirting with Models]
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
- 10 years ago, 27 Apr 2015, 02:46pm -
Alternatives To Matlab [Only VIX]
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
- 10 years ago, 27 Apr 2015, 02:46pm -
9 Mistakes Quants Make that Cause Backtests to Lie [Augmented Trader]
“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
- 10 years ago, 27 Apr 2015, 01:59pm -
International Value Investing: Looks Like a Reasonable Bet [Alpha Architect]
A rich body of literature has shown that value investing, or buying stocks that are “cheap” based on a variety of valuation metrics, is robust across different markets. For example, Fama and French (1998) highlighted the value premium across world equity markets. The authors find that value
- 10 years ago, 27 Apr 2015, 01:58pm -
New related paper to #21 - Momentum Effect in Commodities and #22 - Term Structure Effect in Commodities [Quantpedia]
#21 - Momentum Effect in Commodities #22 - Term Structure Effect in Commodities Authors: Bakshi, Bakshi, Rossi Title: Understanding the Sources of Risk Underlying the Cross-Section of Commodity Returns Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2589057 Abstract: We show that a model
- 10 years ago, 27 Apr 2015, 01:58pm -
Upcoming Courses for 2015 [Augmented Trader]
New 3-part course Fall 2015 I will be offering a 3 part course, CS 7646: Machine Learning for Trading, online. It is equivalent to the on campus graduate course that I teach at Georgia Tech. The three parts are: • Part 1: Manipulating Financial Data in Python (about 4 weeks) • Part 2:
- 10 years ago, 27 Apr 2015, 01:58pm -
How to Avoid Losing 95% in Ford [Jay On The Markets]
No, we’re not talking resale value here (in which case losing 95% of your original investment is a distinct possibility). We are talking about stock ownership. In a nutshell, the answer is fairly simple: *It is OK to drive a Ford in late summer into fall. But it is NOT OK (apparently) to own Ford
- 10 years ago, 27 Apr 2015, 01:56pm -
When SOX Falls As NDX Has A Strong Day [Quantifiable Edges]
One interesting aspect of Friday’s action was the discrepancy between the NDX and the SOX. While the NDX rose 1.3%, the SOX declined 1.7% – which is very unusual action. Below is an updated study that looks at times the NDX rose by a least 1% while the SOX declined. Six days later 76% of the
- 10 years ago, 27 Apr 2015, 09:00am -
Blast Buy & Hold with this simple Bollinger Band strategy [Better System Trader]
In Episode 4 of the Better System Trader podcast, Nick Radge discusses some trading ideas he’s used to create profitable systems. He mentions a Bollinger Band idea which is also published in his book Unholy Grails. Nick says: the strategy that we did test and showed very promising results was an
- 10 years ago, 27 Apr 2015, 03:16am -
Parsimony [CSS Analytics]
Note: James Picerno of The Capital Spectator recently did an interesting piece evaluating the Self-Similarity Metric and provides some R code which is valuable for many of our readers. The principle of parsimony relates to being frugal with resources such as money or the use of computing time. It is
- 10 years ago, 27 Apr 2015, 03:16am -
Lessons from the “Flash Crash” regulatory fiasco [Mathematical Investor]
On April 21, 2015, the U.S. Department of Justice announced that it would press criminal charges against Mr. Navinder Singh Sarao, a 36-year-old small-time British day-trader. He is being blamed for nothing less than causing the “Flash Crash” of May 6, 2010, the second largest point swing
- 10 years ago, 27 Apr 2015, 03:15am -
Academic Finance Research [Alpha Architect]
Asset Allocation: Is it better to allocate portfolios to factors rather than to assets? (Cocoma, Czasonis, and etal) Tactical Asset Allocation with Market Valuations: Can’t even beat the simple 60/40 rule?? (Estrada) More on ‘Smart Beta” ETFs: How Smart are ‘Smart Beta’ ETFs? Analysis of
- 10 years ago, 26 Apr 2015, 03:56pm -
Do Iron Butterflies Need to be Adjusted? [DTR Trading]
This post will be a quick diversion from the iron condor posts. You may have noticed on my Twitter feed that I have been running backtests on iron butterflies, straddles, and strangles, using a range of entry and exit criteria. Today we will take a look at some statistics of a medium term, 43 days
- 10 years ago, 26 Apr 2015, 03:55pm -
“What Works Best?” Update [CXO Advisory]
We’ve updated “What Works Best?” to incorporate some recent research summaries and adjust interpretation of the body of research.
- 10 years ago, 26 Apr 2015, 09:32am -
70 days of suffering in WalMart [Dynamic Hedge]
Everyone says they’d like to buy blue chips on a pull back. The problem is that it take a lot to disrupt the returns of these glacial behemoths. So when they do pull back, they don’t look so nice from a fundamental or chart perspective. $WMT has some stink on it right now. It’s useless to get
- 10 years ago, 24 Apr 2015, 11:04pm -
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