Quant Mashup A Risky (but Darned Exciting) Strategy for T-Bond Traders [Jay On The Markets]Before I detail any sort of “strategy” (and please note that the use of the word “strategy” and the lack of the words “mechanical trading system guaranteed to generate obscene profits ad infinitum into the future”) let me address a few questions that have come up since I wrote this(...) Musings on HFT in Bitcoin [Tr8dr]I have 4 Bitcoin L3 exchange feeds running smoothly out of a data center in California (which is slightly closer to Asian exchanges and Coinbase than the east coast). It took a bit of error handling and exponential back-off, to handle the unreliability of connectivity with these exchanges, where(...) FOMC Cycle Trading Strategy in Quantstrat [Return and Risk]Another hotly anticipated FOMC meeting kicks off next week, so I thought it would be timely to highlight a less well-known working paper, “Stock Returns over the FOMC Cycle”, by Cieslak, Morse and Vissing-Jorgensen (current draft June 2014). Its main result is: Over the last 20 years, the(...) Adopting R for experienced developers [Shifting Sands]More and more frequently I come across people who express an interest in R, and I thought I would share some advice to help people decide if R is something they should use, as well as some high level advice on getting started. Most of these people are developers with at least few years experience(...) Trading triple witching option expiration week &... [Almanac Trader]Next week is options expiration week. March is the first time of the year when stock options, index options, index futures, and single-stock/ETF futures all expire at the same time. This event is often referred to as Quadruple Witching or as we prefer to call it in the Stock Trader’s Almanac (page(...) Daily Academic Alpha: Factors Abroad [Alpha Architect]This study sought to disentangle the effects of size and whether there are size and momentum effects on Jordan firm returns. Initial findings showed that size effect has important role in explaining returns. For momentum effect, while in general there is no momentum effect in Jordan firm market, the(...) Years flat by the Ides of March $SPY [@NautilusCap]Years flat by the Ides of March $SPY Using a Self-Similarity Metric with Intraday Data to Define Market Regimes [CSS Analytics]The images above are the famous Sierpinski Triangle and the Koch Snowflake. These objects are “self-similar” and this means that examination at finer levels of resolution will reveal the same shape. Both are examples of “fractal” geometry, and are characteristic of many phenomena in the(...) Recent developments of option pricing models [Math Finance.cn]Journal of Econometrics accepts several papers on option pricing, some are quite interesting and represent the recent developments of this field. I list them here just in case you are also interested. Smile from the Past: A general option pricing framework with multiple volatility and leverage(...) We’re Launching Our 2nd Blog: SKEW [GestaltU]Today, we are happy to announce the launch of Skew, our second blog. Until we move it to its permanent home, you can find it at GestaltU.com/skew/. Bookmark it or add it to your feed reader right now. Go ahead, we’ll wait. Every day, we consume a formidable amount of information. Some of the(...) Does Value Still Work? [Millennial Invest]Everyone knows about value investing now, and everyone is tilting towards value, so its going to stop working. Everyone is saying this to me lately--sometimes as a question, sometimes as a statement of fact. Yogi Berra famously said, "no one goes to that restaurant anymore, its too(...) Daily Academic Alpha: Public Actors [Alpha Architect]The nation's recent financial crisis brought into sharp relief fundamental questions concerning the social function and purpose of the financial system, including its relation to the "real" economy. This Article argues that, to answer these questions, we must recapture a distinctively(...) Can the Piotroski F-Score also improve your investment strategy? [Quant Investing]You can use the Piotroski F-Score to improve most investment strategies, not just a low price to book strategy as Joseph Piotroski successfully proved in his 2000 research paper "Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers". How to(...) Measuring the Size Effect with Capitalization-based ETFs [CXO Advisory]Do popular capitalization-based exchange-traded funds (ETF) confirm the existence of a reliably exploitable size effect? To investigate, we compare the difference in equally weighted returns (small minus large) for the following matched pair of small-large ETFs: iShares Russell 2000 Index (Smallcap)(...) Daily Academic Alpha: Momentum Investing [Alpha Architect]Momentum in firm fundamentals, i.e., earnings momentum, explains the performance of strategies based on price momentum. Earnings surprise measures subsume past performance in cross sectional regressions of returns on firm characteristics, and the time-series performance of price momentum strategies(...) Conditional Percentile Channel “R” Code [CSS Analytics]The code in R for Conditional Percentile Channels is now available on Michael Kapler’s Systematic Investor blog. The original code was contributed by long-time reader Pierre Chretien and subsequently verified by Michael. Pierre has been generous enough to share code from the blog material several(...) Good Days for T-Bonds [Jay On The Markets]A short one this time around. Anyway, many traders are familiar with the effects of seasonality in the stock market. If you would like to know more may I recommend this link? But far fewer traders are aware that bonds have displayed several meaningful and useful seasonal trends. For example…. The(...) Dual Momentum ETF Portfolio [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(...) Iron Condor Structure Alternatives [DTR Trading]This post will be a quick review of Iron Condor option strategy starting structures. I will begin with the three starting structures that I have used for backtesting on this blog. We will then move on to a few other structures, with some discussion on how these structures can be modified and/or(...) New related paper to FX strategies #5, #8 and #9 - A New Look at Currency Investing [Quantpedia]Related research paper has been included into existing free strategy reviews. #5 - FX Carry Trade #8 - FX Momentum #9 - FX Value – PPP Strategy Authors: Pojarliev, Levich Title: A New Look at Currency Investing Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2571391 Abstract: The authors(...) March turning points (objective) $SPY [@NautilusCap]March turning points (objective) $SPY Import Japanese equity data into R with quantmod 0.4-4 [Foss Trading]I pushed quantmod 0.4-4 to CRAN this weekend. It adds a getSymbols.yahooj function to pull stock data from Yahoo Finance Japan, and fixes issues in getOptionChain.yahoo and getSymbols.oanda. Changes to the Yahoo Finance and Oanda websites broke the getOptionChain.yahoo and getSymbols.oanda(...) Dealing with a Byte Order Mark (BOM) [Exegetic Analytics]I have just been trying to import some data into R. The data were exported from a SQL Server client in tab-separated value (TSV) format. However, reading the data into R the "usual" way produced unexpected results: > data <- read.delim("sample-query.tsv", header = FALSE,(...) In Rising Rates, Should We "Stop, Drop, and Roll"? [Flirting with Models]In a prior blog post, I wrote about a simple formula that can be utilized to understand the impact that rising rates may have upon a constant maturity fixed-income index. Emanuel Derman wrote a similar post about constant duration indices. While most people are aware of duration and how to use it to(...) Daily Academic Alpha: Limits of Arbitrage [Alpha Architect]We examine the causal effect of limits-to-arbitrage on ten well-known asset pricing anomalies using Regulation SHO as a natural experiment. We find that asset pricing anomalies become weaker on portfolios constructed with pilot stocks during the pilot period. The effect is both statistically and(...) Evaluating Trading Strategies [Inovance]Creating a trading strategy is only the first step to trading successfully. You must then evaluate its performance and decide if you can trust it on a live account. While so much attention gets paid to coming up with a strategy, there is surprisingly little on how to tell if the strategy is any(...) Correlation filtering on the S&P 500 [MKTSTK]Yesterday we shared a link to a video showing how Python’s Networkx package could be combined with Gephi to produce some stunning network visualizations. Today we wanted to use these same tools to look at the correlation structure of the S&P 500. To do so, we took the correlation matrix of the(...) Predicting Gold using Currencies [Quant Dare]The price of gold is a unique and interesting financial series but not an easy one to predict. It is very volatile with large sharp unexpected movements. In this post we analyse its relationship with certain currencies and if they can provide an indication of the direction of the gold movements.(...) Introduction to my New IKReporting Package [QuantStrat TradeR]This post will introduce my up and coming IKReporting package, and functions that compute and plot rolling returns, which are useful to compare recent performance, since simply looking at two complete equity curves may induce sample bias (EG SPY in 2008), which may not reflect the state of the(...) Iron Condor Summary Pages - New [DTR Trading]I have added three new summary pages to this blog that can be accessed from the horizontal navigation/menu bar above. The topics covered are: Starting Structure Iron Condor Articles This page lists most of the iron condor (IC) starting structure backtesting posts from this blog. This page can be(...) Historical Returns Following Very Bad Fridays (updated) [Quantifiable Edges]The study below appeared in the Quantifinder on Friday. It is one I last showed on January 27, 2014 and it examines large drops on Fridays. Both the Crash of ’29 and the Crash of ’87 happened on Monday. The Crash of ’87 is still remembered by many traders that are active today. In 1987 there(...) New related paper to #83 - Pre-Holiday Effect - The Pan-European Holiday Effect [Quantpedia]#83 - Pre-Holiday Effect Authors: Carchano, Tornero Title: The Pan-European Holiday Effect Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2556949 Abstract: The construction of a single European block in the context of financial markets has caused the different national stock exchanges of(...) Stocks, Bonds and Gold Down [Logical Invest]This past Friday (3/6/2015) was a difficult day for most portfolios that are long any major asset excluding the dollar index and volatility. Stocks, bonds and gold declined. SPY was down 1.4%, TLT fell 2.2%, GLD also down 2.7%. We got some reactions from some of our subscribers asking if the models(...) Minimum Spanning Tree [Systematic Investor]To install Systematic Investor Toolbox (SIT) please visit About page. MKTSTK an another amazing graphics example to visualize correlation matrix at Stock market visualization: Minimum Spanning Trees Following their example, I will visualize below the stocks in NASDAQ 100 Index for the last year(...) Connor RSI4 triggered EOD 03/06/2015 [Gambulator]See this, but then VIX and everything else has not peaked yet… Connor RSI4 triggered EOD Quant Geek Weekend Finance Homework [Alpha Architect]Understanding Options-Based Sentiment in the Stock Market (Traderfeed) What Do Accruals Tell Us About Future Cash Flows? (Barth, Clinch and Israeli) Look for People, Not for Alpha: Mutual Funds Success and Managerial Intellectual Capital (Naidenova, Parshakov and etal) Financial Education, Literacy(...) Which Value Investing Metrics Should You Trust? [Alpha Architect]Barry has a nice piece in the Washington Post asking a simple question: What is the best valuation metric to assess if a stock is cheap or expensive? Jack and I were honored to see that Barry highlighted our 2013 Journal of Portfolio Management paper: Analyzing Valuation Measures: A Performance(...) Chapter 2 – The Benchmark Portfolio: 60/40 [Meb Faber]This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and I’ll send you a free copy. It is also available as a printable PDF on Gumroad. —— “No strategy is so good that it can’t have a bad year or more. You’ve(...) Chapter 3 – Asset Class Building Blocks [Meb Faber]This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and I’ll send you a free copy. It is also available as a printable PDF on Gumroad. —- “I think the single most important thing that you can do is diversify your(...) The MVCI Indicator Mystery is Solved [Jay On The Markets]In a recent article I wrote about an indicator that I read about somewhere that I had written down only as “MVCI”. Well, thanks to alert reader Gary, I have come to learn that I read about in the March 2013 issue of one of my favorite magazines, “Technical Analysis of Stocks and(...) Dimensionality reduction with graphs [MKTSTK]We wanted to celebrate our 100th post on MKTSTK by exploring a new type of financial visualization. New to us, at least. One of the best aspects to making of living off the markets is that you never stop learning. A few weeks ago we ran across an example in Python’s sklearn for visualizing stock(...) What happens when your stock is added to or booted [Almanac Trader]Congratulations to Apple (AAPL) for being added to the Dow Jones Industrial Index. Frankly, it is about time. AAPL is the largest company by market cap in the world and one of the most influential. What apparently made this possible is a 4 for 1 stock split by Visa (V). Since DJIA is a(...) Before and after performance of stocks recently added to the Dow Industrials $DIA $AAPL [@NautilusCap]Before and after performance of stocks recently added to the Dow Industrials $DIA $AAPL Factor Dual Momentum status and plea for data [RRSP Strategy]The recent series analyzed Factor Dual Momentum. US Value and Momentum factor portfolios were tested back to 1950, courtesy of Ken French’s data library. Portfolios are ranked on 12 month return. Using VBR and PDP for value and momentum, the current … Continue reading Update on The Pre-FOMC Announcement Drift [Return and Risk]In the February 2015 edition of The Journal of Finance, a well known academic paper, “The Pre-FOMC Announcement Drift”, was finally published, almost 4 years after the working paper was released in the public domain in 2011. Authored by researchers, Lucca and Moench, at the US Federal Reserve,(...) Marketing Timing with CAPE [Systematic Relative Strength]How worried should you be when you hear someone say that the market is overvalued? Wesley Gray at Alpha Architect takes a deep dive into the topic of timing the market using CAPE, Shiller’s Cyclically Adjusted PE ratio in a recent post. His results should give pause to even he most strident market(...) Why The Grandpa Portfolio Will Crush The Millennial Portfolio [Millennial Invest]Ever heard that joke about how if you are young and you aren't a democrat, you have no heart, but if you are old and you aren't a republican, you have no brain? Well, there seems to be something similar happening with the portfolios of young and old investors. Stocks with the youngest(...) Stats & Perspective On The Employment Report Hot Streak [Overnight Edges]I have shown the study below a several times in the past, but not since January, and the employment night hot streak remains strong. The overnight futures market has been loving the Employment Report since the summer of 2012. The Employment Report is released at 8:30 AM Eastern (normally the 1st(...) Why The Low-Volatility Anomaly Exists [Alpha Architect]Contrary to basic finance principles, high-beta and high-volatility stocks have long underperformed low-beta and low-volatility stocks. This anomaly may be partly explained by the fact that the typical institutional investor’s mandate to beat a fixed benchmark discourages arbitrage activity in(...) Timely Portfolio: Is Time Series Clustering Meaningless? [Timely Portfolio]A kind reader directed me in a comment on Experiments in Time Series Clustering to this paper. Clustering of Time Series Subsequences is Meaningless: Implications for Previous and Future Research Eamonn Keogh and Jessica Lin Computer Science & Engineering Department University of California –(...)