Quant Mashup
Ilya Kipnis' Defensive Adaptive Asset Allocation [Allocate Smartly]
This is a test of Ilya Kipnis’ “Defensive Adaptive Asset Allocation” (KDA). KDA is a “Meta” model of sorts, combining successful elements of multiple other tactical asset allocation strategies that we track. Results from 1989 to the present, net of transaction costs, follow. Read more
- 3 weeks ago, 26 Feb 2019, 09:46am -
The Extreme Persistence Of The Current SPX Rally [Quantifiable Edges]
The last time the SPX closed below its 10-day moving average was January 3rd. That means it has now been 35 straight trading days that SPX has closed above the 10ma. That is a very long streak. Below is a list of all streaks since 1928 of 35 days or longer. (Note: prior to 1957 S&P 90 Index data
- 3 weeks ago, 26 Feb 2019, 09:45am -
Developing a Trading Strategy using Volume Data [Quant News]
Traders and market analysts use volume data, which is the amount of buying and selling of an instrument over a given time period, to gauge the strength of an existing trend or identify a reversal. The back-and-forth movement between buyers and sellers for the best available price allows us to
- 1 month ago, 25 Feb 2019, 05:41pm -
Low Volatility Can Be Low Turnover [Alpha Architect]
Low volatility strategies have garnered a fair amount of popularity and a growing body of supporting research. Studies have shown risk reduction levels of 25%, while turnover has varied from 20% to 120%. However, higher turnover produces higher costs of trading, such that the excess return obtained
- 1 month ago, 25 Feb 2019, 05:41pm -
Three Applications of Trend Equity [Flirting with Models]
Trend equity strategies seek to meaningfully participate with equity market growth while side-stepping significant and prolonged drawdowns. These strategies aim to achieve this goal by dynamically adjusting market exposure based upon trend-following signals. A naïve example of such a strategy would
- 1 month ago, 25 Feb 2019, 10:58am -
Minimum Variance Versus Low Volatility [Factor Research]
The largest smart beta Low Volatility ETF is technically a Minimum Variance strategy Low Volatility and Minimum Variance have comparable and attractive characteristics However, both currently feature a high sensitivity to interest rates INTRODUCTION The Low Volatility factor was the best performing
- 1 month ago, 25 Feb 2019, 10:58am -
Pairs Trading - Part 2: Practical Considerations [Jonathan Kinlay]
One of the first things you quickly come to understand in equity pairs trading is how important it is to spread your risk. The reason is obvious: stocks are subject to a multitude of risk factors – amongst them earning shocks and corporate actions -that can blow up an otherwise profitable pairs
- 1 month ago, 21 Feb 2019, 09:59pm -
Factor Decay [Talton Capital]
Recently John Cotter and Niall McGeever posted an interesting paper to ssrn.com. They studied the persistence of nine anomalies in the U.K. equity market: · Accruals · Asset growth · Book to market ratio · Profitability · Stock issuance · Return reversal · Momentum · Equity turnover · Size
- 1 month ago, 21 Feb 2019, 09:59pm -
Trend-Following: A Decade of Underperformance [Alpha Architect]
Everyone in finance remembers 2008–the Global Financial Crisis. Yes, I know, the final downward movement in the stock market was in early 2009. However, many remember 2008 as the year of the crisis. So now we are 10 years removed from the crisis. Why do I mention this? After the crisis, some began
- 1 month ago, 20 Feb 2019, 05:47pm -
ETF Bond Rotation [Alvarez Quant Trading]
In my last post I discussed SPY/TLT rotation strategies. Today, I will be using the same ideas from the post but on a basket of bond ETFs. The Basket The first difficult decision one must make is what ETFs will be in the basket. What we choose here, can have a big impact on the results. I wanted to
- 1 month ago, 20 Feb 2019, 05:46pm -
Build a BitCoin(tegration) Backtester [Patrick David]
This tutorial is in 2 parts — (you can run the backtester as a separate standalone module) : Learn the Statistical technique of Cointegration. Build a Bitcoin Backtesting engine using Python to analyze the performance of a Cointegration based trading strategy. Just want the code? click here.
- 1 month ago, 19 Feb 2019, 09:31am -
G̷̖̱̓́̀litch [Flirting with Models]
Trend following’s simple, systematic, and transparent approach does not make it any less frustrating to allocate to during periods of rapid market reversals. With most trend equity strategies exhibiting whipsaws in 2010, 2011, 2015-2016, and early 2018, it is tempting to ask, “is this something
- 1 month ago, 19 Feb 2019, 09:31am -
Quant Minds International - May, 2019 - Vienna, Austria
QuantMinds International heads to Vienna on 13-17 May! Now in it’s 26th year, QuantMinds International brings together 400+ global quant finance experts from banks, buy-side, academia and beyond, to cover every hot topic in quant finance over the course of 5 days. Quote VIP code FKN2595QCYMU for a
- 1 month ago, 18 Feb 2019, 05:54pm -
Exploiting Business Day Patterns in Forex Markets [Quant Rocket]
Do businesses exchange currencies in predictable ways that forex traders can exploit? This post explores an intraday EUR.USD strategy based on the hypothesis that businesses cause currencies to depreciate during local business hours and appreciate during foreign business hours. Business patterns in
- 1 month ago, 18 Feb 2019, 05:21pm -
What is Worse: Data-Mining or Not Innovating? [Two Centuries Investments]
In most decisions including investing, there are two ways to be wrong: Doing something that doesn’t work (false positive, type 1 error) Not doing something that would have worked (false negative, type 2 error) Investors and quants in particular worry more about the type 1 error - accepting a fake
- 1 month ago, 18 Feb 2019, 11:35am -
Factor Investing in Financials, Real Estate & MLPs [Factor Research]
Beating benchmarks is challenging for fund managers, even in unique sectors Factor performance in financials, REITs, and MLPs is comparable to the cross-sector factor returns Classic factor investing strategies are likely more attractive than industry expertise INTRODUCTION Stating that active
- 1 month ago, 18 Feb 2019, 11:35am -
New Aggregator for Academic Quant Research: Academic-Quant-News.com
Academic Quant News is, at heart, an aggregator of academic research articles and journals related to quantitative finance. A question? A suggestion? Drop me an email! Interested in quantitative portfolio allocation? You can find on my GitHub account an open source JavaScript library with algorithms
- 1 month ago, 17 Feb 2019, 08:13pm -
Algorithmic strategies: managing the overfitting bias [SR SV]
The business of algorithmic trading strategies creates incentives for model overfitting and backtest embellishment: researchers must pass Sharpe ratio thresholds for their strategies to be considered, while managers lack interest in realistic simulations of ideas. Overfitting leads to bad investment
- 1 month ago, 17 Feb 2019, 07:58pm -
Asset Allocation Roundup [Allocate Smartly]
Six recent asset allocation articles (tactical or otherwise) that you might have missed: 1. Right Now It’s KDA…Asset Allocation (QuantStrat TradeR) Here Ilya shares a TAA strategy that combines elements of two popular strategies that we track: Keller & Keuning’s Defensive Asset Allocation
- 1 month ago, 15 Feb 2019, 01:04pm -
Stock Prediction with ML: Ensemble Modeling [Alpha Scientist]
Markets are, in my view, mostly random. However, they're not completely random. Many small inefficiencies and patterns exist in markets which can be identified and used to gain slight edge on the market. These edges are rarely large enough to trade in isolation - transaction costs and overhead
- 1 month ago, 14 Feb 2019, 06:00pm -
Is There a Size Effect in the Stock Market? [Alpha Architect]
One of the oldest and most persuasive arguments in the stock market is that small stocks outperform large stocks.(1) Warren Buffett, speaking at the 2013 Berkshire Hathaway Annual Meeting, summarized the sentiment when discussing the disadvantages of managing a huge amount of capital: There’s no
- 1 month ago, 14 Feb 2019, 12:37pm -
MACD: Moving Average Convergence Divergence (Part 2) [Oxford Capital]
Developer: Gerald Appel. Source: Appel, G. (2005). Technical Analysis. NJ: Pearson Education, Inc. Concept: Trend following trading strategy based on the MACD (Moving Average Convergence Divergence) signal line. Research Goal: Performance verification of momentum signals. Specification: Table 1.
- 1 month ago, 14 Feb 2019, 12:36pm -
Top 10 Machine Learning Algorithms For Beginners [Quant Insti]
Alan Turing, an English mathematician, computer scientist, logician, and cryptanalyst, surmised about machines that, “It would be like a pupil who had learnt much from his master but had added much more by his own work. When this happens I feel that one is obliged to regard the machine as showing
- 1 month ago, 14 Feb 2019, 12:36pm -
Fractional Differencing Derivation Walkthrough (FD Part 2) [Kid Quant]
Just a quick warning before I start, this post is going to be math heavy. Those who are not brave enough to traverse these waters, be forewarned! Let's get right to it: To recap, last time I talked about a few basic statistical concepts regarding time series. Stationarity, Memory and
- 1 month ago, 12 Feb 2019, 11:02am -
Research Symposition - May 23rd, London - Big Data is the New Currency [Raven Pack]
Cryptocurrencies have been a huge distraction when in fact we should be focusing on the currency of the future - “Big Data” Join Industry Leaders For almost a decade, RavenPack Symposiums have consistently provided data-driven finance professionals with riveting forward-looking content, new
- 1 month ago, 11 Feb 2019, 06:03pm -
Trend: Convexity & Premium [Flirting with Models]
Trend following is unique among style premia in that it has historically exhibited a convex payoff profile with positive skew. While the historical premium is anomalous, the convexity makes sense when we use options to replicate trend following strategies. We explore reasons why frequent rebalancing
- 1 month ago, 11 Feb 2019, 03:58pm -
Smart Beta: Broken By Design? [Factor Research]
SUMMARY Smart beta excess returns are different from factor returns The Low Volatility factor shows the highest discrepancy between theoretical and realized returns Investors might be better served by embracing long-short factor products REALITY DYSFUNCTION Steve Jobs’s “reality distortion
- 1 month ago, 11 Feb 2019, 03:58pm -
Fed Days - How to profit from FOMC Meetings [We Love Algos]
The US Federal Reserve’s monetary-policy decisions invariably are closely followed by market participants worldwide since they are of great importance to the development of the capital markets. David O Lucca and Emanuel Moench have examined which patterns occur in the stock market and what these
- 1 month ago, 11 Feb 2019, 03:58pm -
How Risky are the Value and Size Premiums? Part 2/2 of Volatility Lessons [Alpha Architect]
What are the research questions? The main purpose of this study was to examine the changes in the distribution of the US equity risk premium as the return horizon varies over the short term, medium and long term (see here for a piece that covers those topics). In this recap, we look at ancillary
- 1 month ago, 11 Feb 2019, 03:57pm -
Welcome and Introduction to Fractional Differencing (FD Part 1) [Kid Quant]
So somehow you've wandered into this hazy corner of the internet and found my blog. Not sure how...or why you're exactly here but I hope you'll stay. Let me introduce myself, I'm just your run of the mill budding algorithmic trader. I studied Mathematical Economics and Computer
- 1 month ago, 10 Feb 2019, 10:28pm -
Most popular machine learning R packages [Eran Raviv]
In a previous post: Most popular machine learning R packages, trying to hash out what are the most frequently used machine learning packages, I simply chose few names from my own memory. However, there is a CRAN task views web page which “aims to provide some guidance which packages on CRAN are
- 1 month ago, 10 Feb 2019, 08:55pm -
Towards Better Keras Modeling [Alpha Scientist]
The field of deep learning is frequently described as a mix of art and science. One of the most "art-sy" parts of the field, in my experience, is the subject of network topology design - i.e., choosing the right geometry, size, depth, and type of the network. Machine learning practitioners
- 1 month ago, 9 Feb 2019, 02:06pm -
Portfolio construction through handcrafting: Empirical tests [Investment Idiocy]
This post is all about handcrafting; a method for doing portfolio construction which human beings can do without computing power, or at least with a spreadsheet. The method aims to achieve the following goals: Humans can trust it: intuitive and transparent method which produces robust weights Can be
- 1 month ago, 9 Feb 2019, 02:05pm -
Understanding dollar cross-currency basis [SR SV]
Covered interest parity is an arbitrage condition that equalizes costs of direct USD funding and of synthetic USD funding through FX swaps. Deviations are called dollar cross-currency basis and have become a common occurrence since the great financial crisis. A negative dollar basis means direct
- 1 month ago, 9 Feb 2019, 02:05pm -
The Smart Money Indicator: A New Risk Management Tool [Alpha Architect]
We have all heard the mantra, “You can’t time the market!” But in reality, investors attempt to do just that every day as part of their tactical asset allocation strategies, which are less extreme variants of the classic trend-following “risk-on/risk-off” approach, which many associate
- 1 month ago, 8 Feb 2019, 10:33am -
Portfolio weightlifting (II) [Quant Dare]
In a previous post, we took a look at the computation of a portfolio’s exposure to its allocations. Then, to show the effects of active management, we compared the return made by two portfolios. But there is so much more to look inside the financial time series. Since we left a couple of
- 1 month ago, 8 Feb 2019, 10:32am -
Two Risks That Ruin Long-Run Investing [Two Centuries Investments]
The first risk of investing is the Drawdown Risk - the loss from the peak. The second risk of investing is the Low Return Risk - the under-performance vs. expectations over a stretched period of time. First, a few words about drawdown. Quants measure risk in many ways like Volatility, Skew,
- 1 month ago, 4 Feb 2019, 11:27pm -
What Caused the Volatility Tsunami on 5-Feb-2018? [Six Figure Investing]
In the afternoon of February 5th, 2018, what looked like a bad day for a group of high flying volatility-based products turned into a devastating decline. Four factors combined to ruin their day: A Flawed Architecture Relying on the Past to Predict the Future Billions Under Management A
- 1 month ago, 4 Feb 2019, 11:26pm -
Manager Sentiment and Stock Returns [Alpha Architect]
What are the Research Questions? The authors investigate the asset pricing implications of corporate manager sentiment, focusing on its predictability for future U.S. stock market returns. Specifically, they ask the following research questions: Does high corporate manager sentiment lead to
- 1 month ago, 4 Feb 2019, 11:25pm -
No Pain, No Premium [Flirting with Models]
In this commentary, we discuss what we mean by the phrase, “no pain, no premium.” We re-frame the discussion of portfolio construction from one about returns to one about risk and argue that without risk, there should be no expectation of return. With a risk-based framework, we argue that
- 1 month ago, 4 Feb 2019, 10:40am -
Over Two Centuries of Global Factor Premiums [Invest ReSolve]
Hot off the press, a new paper by Guido Baltussen, Laurens Swinkels and Pim van Vliet at Dutch quant powerhouse, Robeco, covers global multi-asset factor premiums over an unprecedented sample of 217 years. We thought the topics and findings were important and timely enough to warrant a summary. The
- 1 month ago, 4 Feb 2019, 01:30am -
Storing time series data [Cuemacro]
As regular readers of my posts may have realised, I kind of like burgers. It’s a simple meal, but somehow very satisfying. There’s obviously vast differences between the burgers on sale, in terms of quality. It isn’t necessarily the case that the most expensive burger will be best. In
- 1 month ago, 4 Feb 2019, 01:29am -
The Basic Recipe For Rationalizing Errors In Belief [Alex Chinco]
Behavioral-finance models are often written down so that, although each individual trader holds incorrect beliefs, market events nevertheless unfold in such a way that traders can rationalize their own errors. e.g., consider the model in Scheinkman and Xiong (2003). In this model, each individual
- 1 month ago, 4 Feb 2019, 01:29am -
Tactical Asset Allocation in January [Allocate Smartly]
This is a summary of the recent performance of a wide range of excellent Tactical Asset Allocation (TAA) strategies, net of transaction costs. These strategies are sourced from books, academic papers, and other publications. While we don’t (yet) include every published TAA model, these strategies
- 1 month ago, 2 Feb 2019, 09:28am -
Why herding is the death of momentum [SR SV]
Momentum trading, buying winning assets and selling losing assets, is a most popular trading strategy. It relies on sluggish market adjustment, allowing the trader to follow best-informed investors before the more inert part of the market does. Herding simply means that market participants imitate
- 1 month ago, 2 Feb 2019, 09:26am -
Size and Value in China [Alpha Architect]
What are the research questions? China represents the world’s second largest stock market and a growing component of the world’s GDP. China also operates under peculiar political and economic environments relative to the market economies of the Western world. Because China is so unique, a
- 1 month ago, 1 Feb 2019, 08:12pm -
Classic Cars as an Alternative Investment [CXO Advisory]
Are some types of cars attractive alternative investments? In their September 2018 paper entitled “My Kingdom for a Horse (or a Classic Car)”, Dries Laurs and Luc Renneboog investigate price determinants and investment performance of classic cars from veteran cars (built 1888-1907) through
- 1 month ago, 1 Feb 2019, 08:12pm -
SPY TLT Rotation [Alvarez Quant Trading]
For my retirement accounts, I like to trade ETF strategies that require little work. One strategy we have all seen is the SPY/TLT strategy. There are many flavors of this concept. Some pick the best one over the last N months. Then there are different ways of allocating a portion of the portfolio to
- 1 month ago, 30 Jan 2019, 03:07pm -
Can a Machine Learning Model Predict the SP500 by Looking at Candlesticks? [Mario Filho]
Candlestick chart patterns are one of the most widely known techniques that claim to “predict” the market direction inside technical analysis circles. The development of this technique goes back to 18th century Japan, and it’s attributed to a Japanese rice trader. It consists of finding
- 1 month ago, 30 Jan 2019, 03:22am -
Marcos Lopez de Prado named “2019 Quant of the Year” by Journal of Portfolio Management [Mathematical Investor]
Marcos Lopez de Prado, a member of Mathematicians Against Fraudulent Financial and Investment Advice (MAFFIA), has been named “2019 Quant of the Year” by Journal of Portfolio Management. Here are some excerpts from their press release: The Journal of Portfolio Management (JPM) has named Marcos
- 1 month ago, 30 Jan 2019, 03:15am -