Quant Mashup

Rebalancing ruminations [OSM]

Back in the rebalancing saddle! In our last post on rebalancing, we analyzed whether rebalancing over different periods would have any effect on mean or risk-adjusted returns for our three (equal, naive, and risky) portfolios. We found little evidence that returns were much different whether we

- 3 weeks ago, 14 Mar 2020, 01:29pm -

Low Volatility-Momentum Versus Value-Momentum Factor Portfolios [Alpha Architect]

If an investor would state today that in ten or twenty years most portfolios would include an allocation to cryptocurrencies, they would likely be laughed at. However, a similar response would have been encountered in the Internet Bubble and someone proposed to invest in low-risk stocks. During that

- 3 weeks ago, 14 Mar 2020, 01:29pm -

Where Tactical Asset Allocation Stands Now (Thursday 03/12) [Allocate Smartly]

Broadly speaking, Tactical Asset Allocation has weathered this storm reasonably well, but the last two days have been tough and we are by no means out of the woods. We track 50+ published TAA strategies, allowing us to draw some broad conclusions about TAA as a style. In the table below we show the

- 3 weeks ago, 13 Mar 2020, 01:51am -

A Vector Autoregression Trading Model [Robot Wealth]

The vector autoregression (VAR) framework is common in econometrics for modelling correlated variables with bi-directional relationships and feedback loops. If you google “vector autoregression” you’ll find all sorts of academic papers related to modelling the effects of monetary and fiscal

- 3 weeks ago, 12 Mar 2020, 10:00am -

Do Insider Trades Provide Insights into Future Returns? [Alpha Architect]

The volume of work that has been done on insider transactions is not inconsequential, we’ve covered a variety of research on the topic in several blog posts just a few of which are here and here. This is the first time we observe corporate insider’s ability to overcome biases as an indicator of

- 3 weeks ago, 11 Mar 2020, 01:05pm -

Trading Multiple Strategies [Alvarez Quant Trading]

Using strategy diversification is one of the easiest ways to improve the performance and reduce risk of your overall portfolio. Trading one strategy is risky because you never know when it may stop working or simply go into a period of under-performance. Given two strategies to trade, the questions

- 3 weeks ago, 11 Mar 2020, 01:05pm -

What to Do When Alpha Becomes Beta [Alpha Architect]

In this article, the author argues that alternative risk premia (ARP) strategies undergo an evolution that begins with their inception as a pure alpha -based strategy, continuing its metamorphosis into a pure beta strategy. The inevitable transformation is brought on by a number of factors and also

- 3 weeks ago, 11 Mar 2020, 01:05pm -

Build a Trading System using Statistical Methods [Milton FMR]

Most trading systems utilize indicators as a method of trading strategy design. But before building a trading system using indicators one should ask what do they indicate? The answer to that is that most of the time they are not indicating any information that can be advantageous in building a

- 3 weeks ago, 9 Mar 2020, 08:19pm -

Where Tactical Asset Allocation Stands Now (Monday 03/09) [Allocate Smartly]

We’ve fielded a lot of questions this morning about how Tactical Asset Allocation is faring this month. We track 50+ published strategies, so we’re able to draw some broad conclusions about the current state of TAA. Generally speaking, all is well. Individual strategies vary, but as a whole, TAA

- 4 weeks ago, 9 Mar 2020, 01:43pm -

Building and Regularizing Linear Regression Models in Scikit-learn [Quant Insti]

In the last blog, we examined the steps to train and optimize a classification model in scikit learn. In this blog, we bring our focus to linear regression models. We will discuss the concept of regularization, its examples(Ridge, Lasso and Elastic Net regularizations) and how they can be

- 4 weeks ago, 9 Mar 2020, 10:51am -

Why Trend Models Diverge [Flirting with Models]

During the week of February 23rd, the S&P 500 fell more than 10%. After a prolonged bullish period in equities, this tumultuous decline caused many trend-following signals to turn negative. As we would expect, short-term signals across a variety of models turned negative. However, we also saw

- 4 weeks ago, 9 Mar 2020, 10:50am -

Big Gaps Down In Already Bad Markets [Quantifiable Edges]

SPX futures are locked limit down 5% as I write this Sunday night. The small study below looks at all other times 1) SPY was already short-term oversold (closed at a 5-day low), and 2) gapped down at least 3%, and 3) opened below the lowest close of the previous 50 days. Below is the full list of

- 4 weeks ago, 9 Mar 2020, 04:05am -

The Secret to Shorting Stocks [Black Arbs]

Misinformation is everywhere. Many people believe the key to successful short selling is simply the inversion of a successful long strategy. I also used to believe this, among other short selling myths before I took the Short Selling Course by Laurent Bernut ( This article will demonstrate the

- 4 weeks ago, 7 Mar 2020, 10:50am -

Lagged correlation between asset prices [SR SV]

Efficient market theory assumes that all market prices incorporate all information at the same time. Realistically, different market segments focus on different news flows, depending on the nature of the traded security and their research capacity. Such specialization makes it plausible that lagged

- 4 weeks ago, 7 Mar 2020, 10:48am -

The Stay Rich Portfolio [Meb Faber]

Welcome to the second installment of our new series on generating wealth, preserving it, and then looking at a real-world illustration of strategically implementing these concepts. In our first essay, we discussed generating riches through a high-paying career, investing in public and private

- 1 month ago, 6 Mar 2020, 11:09am -

The Gap Between Large and Small Companies is Growing. Why? [Alpha Architect]

In my role as chief research officer for the Buckingham Family of Financial Services, I receive many questions from investors and advisors alike, asking me to address concerns they have that originate from articles they have read or statements they hear on the financial media. I thought it worth

- 1 month ago, 6 Mar 2020, 11:09am -

How much risk should we take? [Investment Idiocy]

This is the second of three posts aimed at answering three fundamental questions in trading: How should we control risk (previous post) How much risk should we take? (this post) How fast should we trade? (TBC) These questions are extremely important, IMHO much more important than the question of

- 1 month ago, 5 Mar 2020, 09:27am -

Should You React To The Surge In Stock Market Volatility? [Capital Spectator]

The coronavirus that’s roiling world markets and raising questions about the economic outlook has triggered a familiar shock to stocks: higher volatility. Is this a reason to change your asset allocation, rebalance the portfolio or modify risk management decisions? Maybe, but maybe not. There is

- 1 month ago, 5 Mar 2020, 09:27am -

The Graphical Lasso and its Financial Applications [Robot Wealth]

Way back in November 2007, literally weeks after SPX put in its pre-GFC all-time high, Friedman, Hastie and Tibshirani published their Graphical Lasso algorithm for estimation of the sparse inverse covariance matrix. Are you suggesting that Friedman and his titans of statistical learning somehow

- 1 month ago, 4 Mar 2020, 09:19pm -

Algo Trading in the Cloud [Ran Aroussi]

The last few months got me busy like a bee... It all started in 2016 with the release of QTPyLib. I was trying to shorten the time it takes to go from an idea to live trading by abstracting all the techie stuff as much as possible (while still allowing flexibility for developers). Last year I shared

- 1 month ago, 3 Mar 2020, 10:15am -

Drawdowns by the data [OSM]

We’re taking a break from our series on portfolio construction for two reasons: life and the recent market sell-off. Life got in the way of focusing on the next couple of posts on rebalancing. And given the market sell-off we were too busy gamma hedging our convexity exposure, looking for cheap

- 1 month ago, 3 Mar 2020, 10:14am -

Last Week (Painfully) Illustrated the Importance of Non-Binary Portfolios [Allocate Smartly]

This is one of my favorite takes of the last week. It was tweeted on Friday, which held two distinctions: (1) It capped off a helluva scary week, and (2) It just so happened to be month-end, when many TAA strategies trade by default. I couldn’t agree more. Imagine making a single risk on/risk off

- 1 month ago, 2 Mar 2020, 12:32pm -

How do Institutional Investors approach Climate Risks? [Alpha Architect]

Private and public companies face direct costs related to three types of climate risks: physical (i.e. extreme weather), regulatory (i.e. policies and regulations implemented to combat climate change), and technological (i.e. electric or fuel-cell-powered vehicles could disrupt traditional car

- 1 month ago, 2 Mar 2020, 12:32pm -

Volatility vs Risk - Revised [Two Centuries Investments]

Given the increasing drawdown in the market, it seems prudent to revisit the notion of volatility vs risk. See original post here. 1) To recap, in case you just got back from a 10 day silent mediation retreat, S&P500 peaked on Feb 19th 2020, and has been in pretty much a free-fall since then,

- 1 month ago, 2 Mar 2020, 09:47am -

Domestic Fixed Income Factor Implementations [Flirting with Models]

Prior academic and practitioner research suggests that factor-based fixed income investing can create attractive return profiles and be useful when building fixed income portfolios. Using an investment universe of eight domestic fixed income asset classes, we build dollar-neutral long-short

- 1 month ago, 2 Mar 2020, 09:47am -

ESG vs Low Carbon Investing [Factor Research]

ESG and Low Carbon portfolios feature significant, but different sector & country biases Investors should expect large tracking errors in some ETFs Some products contain stocks that are likely unexpected and undesired INTRODUCTION Investors seeking exposure to global equities with a low carbon

- 1 month ago, 2 Mar 2020, 09:46am -

Smart Money Indicator Rebuttal [Alpha Architect]

In February 2019, Wes asked that I share my research on what I call the “Smart Money Indicator.” I did a guest post on the subject that summarized the results of a paper introducing my research on the topic. The indicator measures the relative sentiment in equities between institutional

- 1 month ago, 28 Feb 2020, 01:21pm -

pandas for Quants: New Video Course from QaR [Quant at Risk]

Hi Guys! I’m happy to kick off a new series of free video lectures devoted to Python’s library of pandas. Every week, I will be uploading something between 2 to 4 new videos especially crafted around practicalities of pandas library applied to financial data and their analysis and processing.

- 1 month ago, 28 Feb 2020, 05:26am -

Global Low Volatility and Momentum Factor Investing Portfolios [Alpha Architect]

A Springbok antelope can reach a top speed of 55 miles per hour in the African savanna, whereas the fastest human manages barely half that speed and only for a few meters. In a short race, we are left in the dust. However, we are built for endurance and can run for hours at an almost constant speed,

- 1 month ago, 28 Feb 2020, 05:25am -

Market will be up 9.7% in 3 months! [Alvarez Quant Trading]

When this sell-off indicator triggers, it is correct 100% of the time! On average the market is up only 2.6% in 3 months. OR NOT! After big moves in the market, we often see “research” saying that “when the market has done X it will move Y%.” I had a reader send me such research asking for

- 1 month ago, 26 Feb 2020, 07:20pm -

15% Off Tickets to The Quant Conference | April 3rd, 2020 in NYC | Promo Code: QUANTOCRACY15

Get 15% off tickets to the next Quant Conference with the promo code QUANTOCRACY15. The Quant Conference is a forum that engages the brightest young minds and foremost thought leaders from the industry and academia to dive into the latest innovations in quant finance, foster collaboration and

- 1 month ago, 26 Feb 2020, 10:53am -

Create your own Deep Learning framework using Numpy [Quant Dare]

I have always been curious about how deep learning frameworks are created. I use Keras, TensorFlow, and PyTorch and they all are really good, but sometimes I feel like I am playing with a black box (in some frameworks I feel it more than in others) that hides its secrets. If you feel the same way,

- 1 month ago, 26 Feb 2020, 10:53am -

Assessing The Damage After Monday’s Sharp Decline In Stocks [Capital Spectator]

Well, that was painful. The increasingly hazy risk outlook linked to the coronavirus outbreak inspired a 3.35% haircut in the US stock market (S&P 500). The tumble was certainly a bracing counterpoint to the idea that sunny optimism is the only game in town. But before we let recency bias flip

- 1 month ago, 25 Feb 2020, 09:25am -

Macroeconomic Risks in Equity Factor Investing: Part 2/2 [Alpha Architect]

What are the research questions? Although not a new topic, the first half of the article explored and documented the dependent relationship between factor returns and time-varying macroeconomic environments. In the second half of this paper, the authors provide insightful commentary and a renewed

- 1 month ago, 25 Feb 2020, 09:25am -

Essential Books on Algorithmic Trading [Quant Insti]

When you are completely immersed in wanting to learn something new, you start looking for everything that surrounds the learning process. And with the aspiration to learn Algorithmic Trading, there must be certain questions crowding your mind, like: How do I learn Algorithmic Trading? What are the

- 1 month ago, 24 Feb 2020, 09:50am -

Ensembles and Rebalancing [Flirting with Models]

While rebalancing studies typically focus on the combination of different asset classes, we evaluate a combination of two naïve trend-following strategies. As expected, we find that a rebalanced fixed-mix of the two strategies generates a concave payoff profile. More interestingly, deriving the

- 1 month ago, 24 Feb 2020, 09:50am -

When The Market Gaps Down Huge During A Long-Term Uptrend [Quantifiable Edges]

With corona virus news scaring the market pre-open today, I decided to look back at other time SPY has gapped down more than 2% when it had been in a long-term uptrend. As you might suspect, instances have been fairly rare. Looking ack to SPY inception, there were only 16 other instances. And upping

- 1 month ago, 24 Feb 2020, 09:49am -

Model Interpretability: The Model Fingerprint Algorithm [Hudson and Thames]

“The complexity of machine learning models presents a substantial barrier to their adoption for many investors. The algorithms that generate machine learning predictions are sometimes regarded as a black box and demand interpretation. Yimou Li, David Turkington, and Alireza Yazdani present a

- 1 month ago, 23 Feb 2020, 10:04am -

All About Time Series: Analysis and Forecasting [Quant Insti]

Since predicting the future stock prices in the stock market is crucial for the investors, Time Series and its related concepts help in organizing the data for accurate prediction. In this article, we are focusing on Time Series, its analysis and forecasting. In this article, we aim to cover the

- 1 month ago, 23 Feb 2020, 10:04am -

Rebalancing! Really? [OSM]

In our last post, we introduced benchmarking as a way to analyze our hero’s investment results apart from comparing it to alternate weightings or Sharpe ratios. In this case, the benchmark was meant to capture the returns available to a global aggregate of investable risk assets. If you could own

- 1 month ago, 23 Feb 2020, 10:04am -

Detecting market price distortions with neural networks [SR SV]

Detecting price deviations from fundamental value is challenging because the fundamental value itself is uncertain. A shortcut for doing so is to look at return time series alone and to detect “strict local martingales”, i.e. episodes when the risk-neutral return temporarily follows a random

- 1 month ago, 23 Feb 2020, 10:04am -

The Massive Performance Divergence Between Large Growth and Small Value Stocks [Alpha Architect]

From 2017 through 2019, the Russell 1000 Growth Index returned 20.5 percent per annum, outperforming the Russell 1000 Value Index, which returned 9.7 percent, by 10.8 percentage points a year; and the Russell 2000 Growth Index returned 12.5 percent per year, outperforming the Russell 2000 Value

- 1 month ago, 21 Feb 2020, 12:52pm -

Factor Investing Update: An Analysis of 2019 International Factor Returns [Alpha Architect]

Last week I summarized the 2019 factor performance for U.S. stocks. A natural follow-up question was the following–“what about International stocks?” A great question. So below I dig into the 2019 performance for International Factor Portfolios. 1 Let’s dig into the results. Factor Investing

- 1 month ago, 19 Feb 2020, 12:08pm -

Factor Exposure: The Turn of The Screw [Quant Dare]

You may have seen in different papers or websites, analysis of how a specific active portfolio is exposed to different financial factors (Value, Growth, Size, Quality, etc). This insight is very interesting in order to know what to expect from a strategy and to explain and understand its behaviour,

- 1 month ago, 19 Feb 2020, 12:07pm -

Diversification with Portable Beta [Flirting with Models]

A long/flat tactical equity strategy with a portable beta bond overlay – a tactical 90/60 portfolio – has many moving parts that can make attribution and analysis difficult. By decomposing the strategy into its passive holdings (a 50/50 stock/bond portfolio and U.S. Treasury futures) and active

- 1 month ago, 18 Feb 2020, 11:10am -

Venture Capital: Worth Venturing Into? [Factor Research]

Venture capital returns are likely to be overstated Top-performing VC funds generated attractive returns, but are difficult to access Average venture capital returns can be replicated efficiently with public equities WINNERS & LOSERS The further the global financial crisis retreats into history,

- 1 month ago, 18 Feb 2020, 11:09am -

Benchmarking the portfolio [OSM]

In our last post, we looked at one measure of risk-adjusted returns, the Sharpe ratio, to help our hero decide whether he wanted to alter his portfolio allocations. Then, as opposed to finding the maximum return for our hero’s initial level of risk, we broadened the risk parameters and searched

- 1 month ago, 14 Feb 2020, 08:26pm -

Research Review | 14 February 2020 | Business Cycle Risk [Capital Spectator]

A New Index of the Business Cycle William B. Kinlaw (State Street Global Markets), et al. January 2020 The authors introduce a new index of the business cycle that uses the Mahalanobis distance to measure the statistical similarity of current economic conditions to past episodes of recession and

- 1 month ago, 14 Feb 2020, 08:25pm -

Have you tried to calculate derivatives using TensorFlow 2? [Quant Dare]

We will learn how to implement a simple function using TensorFlow 2 and how to obtain the derivatives from it. We will implement a Black-Scholes model for pricing a call option and then we are going to obtain the greeks. Matthias Groncki wrote a very interesting post about how to obtain the greeks

- 1 month ago, 13 Feb 2020, 10:00am -

Introduction to XGBoost in Python [Quant Insti]

Ah! XGBoost! The supposed miracle worker which is the weapon of choice for machine learning enthusiasts and competition winners alike. It is said that XGBoost was developed to increase computational speed and optimize model performance. As we were tinkering with the features and parameters of

- 1 month ago, 13 Feb 2020, 09:59am -

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