Quant Mashup
Last Day Of The Year History (And Why Traders Need An Open Mind & Adaptability) [Quantifiable Edges]
The last day of the year used to be consistently bullish for the market. But that has changed since the turn of the century. This is true across a number of indices. The most dramatic example is the NASDAQ, which I highlighted here on the blog a few years ago. I have updated the chart below.
- 3 weeks ago, 29 Dec 2018, 09:47am -
Is Active Alpha Enough to Cover Taxes? [Alpha Architect]
Each time S&P Dow Jones Indices publishes its latest Active Versus Passive Scorecard, the persistent failure of the vast majority of actively managed funds to outperform is highlighted. The evidence on this failure led Charles Ellis to call active management the loser’s game — while it’s
- 3 weeks ago, 29 Dec 2018, 09:46am -
Equity values and credit spreads: the inflation effect [SR SV]
A theoretical paper shows that a downward shift in expected inflation increases equity valuations and credit default risk at the same time. The reason for this is “nominal stickiness”. A slowdown in consumer prices reduces short-term interest rates but does not immediately reduce earnings growth
- 3 weeks ago, 29 Dec 2018, 09:46am -
Managing Expectations During Steep Stock Market Drawdowns [Capital Spectator]
A bull market can be a fragile thing. To paraphrase Hemingway, there are two ways that investing profits can turn into losses: gradually, then suddenly. The latter profile applies to the latest adjustment in the S&P 500’s current drawdown. As recently as early October, the US stock market’s
- 3 weeks ago, 26 Dec 2018, 12:27pm -
Toys for Young (and Old) Investors? [CXO Advisory]
Are premium toys attractive alternative investments? In their April 2018 paper entitled “LEGO – The Toy of Smart Investors”, Victoria Dobrynskaya and Julia Kishilova study LEGO sets as an alternative investment. A secondary market for these sets with 10,000+ daily transactions, affordable to
- 3 weeks ago, 26 Dec 2018, 12:27pm -
Asset Allocation Roundup [Allocate Smartly]
Six recent asset allocation articles (tactical or otherwise) that you might have missed: 1. Trend Following on Steroids (Wouter Keller via Alpha Architect) Wouter Keller details his latest tactical model: “Defensive Asset Allocation”. We track a number of strategies from Dr. Keller and his
- 4 weeks ago, 24 Dec 2018, 09:49am -
Dart-Throwing Monkeys and Process Diversification [Flirting with Models]
This week’s commentary is a short addendum to last week’s piece, attempting to serve as a (very) brief and simplified summary of process diversification. Volatility is only one way of measuring risk; dispersion in terminal wealth is another. Using simulations of dart-throwing monkeys, we plot
- 4 weeks ago, 24 Dec 2018, 09:49am -
Research Compendium 2018 [Factor Research]
In 2018 we published more than 50 research notes and 4 white papers on mainly factor investing, but also on other topics like zombie stocks, replicating private equity returns, statistical arbitrage, and mutual fund performance chasing. We would like to thank you for reading and always appreciate
- 4 weeks ago, 24 Dec 2018, 09:48am -
Hundreds of quant papers/libraries from #QuantLinkADay in 2018 [Cuemacro]
I tweet quite a bit! It can involve random subjects such as burgers. However, the main objective of my Twitter account is to tweet about all thinks quant related, whether it’s trading strategies or the market or coding (in particular Python). To make sure I actually did this, several years ago, I
- 4 weeks ago, 23 Dec 2018, 01:27pm -
The little girl study and the horrid Crash of 87 [Quantifiable Edges]
Every once in a while I come across a study that reminds me an awful lot of Longfellow’s “The little girl”. 2018-12-23-2 After the strong and persistent selling over the last few days I decided to examine other times like now where the SPX dropped at least 1.5% for 3 days in a row. The study
- 4 weeks ago, 23 Dec 2018, 01:26pm -
The Bear is Here [Quintuitive]
October and December have been devastating for stocks. It wasn’t until Friday though that we officially reached the depths of a bear market. There are different theories, the most common is 20% pullback in an index. As readers of this blog are aware, I follow a slightly different definition, based
- 4 weeks ago, 22 Dec 2018, 10:45pm -
The macro information inefficiency of financial markets [SR SV]
There are reason and evidence for financial markets failing to be efficient with respect to macro trends. The main reason is cost: “tradable” economic research is expensive and investment firms will only invest in such research if their fees on expected incremental portfolio returns exceed their
- 4 weeks ago, 22 Dec 2018, 10:44pm -
ReSolve 12 Days of Christmas [Invest ReSolve]
This holiday season, ReSolve is offering a gift in podcast-form: a 12-episode mini-series, where we will explore, from first principles, timeless investment wisdom that will help you maximize your long-term success. From universe selection to portfolio construction, our aim is to offer you a
- 1 month ago, 21 Dec 2018, 09:31pm -
Machine Learning Classification Methods and Factor Investing [Alpha Architect]
In the last post in our machine learning series, we showed how nonlinear regression algos might improve regression forecasting relative to plain vanilla linear regression (i.e., when underlying reality is nonlinear with complex interactions). In this piece, we’ll first review machine learning for
- 1 month ago, 21 Dec 2018, 10:49am -
Position Sizing for Practitioners Part 3: A Portfolio Approach [Quant Fiction]
“Diversification is the Only Free Lunch” I’m sure everyone has heard this old adage at some point in their trading career. Most people probably shrug it off and go back to watching The Big Short and dreaming of putting on that one career-making trade. Or maybe they’re still trying to figure
- 1 month ago, 20 Dec 2018, 06:50pm -
What to do when you find the Holy Grail [Alvarez Quant Trading]
As I have mentioned in several interviews, I am always looking for new strategies. One area that fascinates me is stock options. Because it is difficult to get good data and to do backtests, I believe that there are good edges here to be found. A few weeks ago, I found myself with lots of time and
- 1 month ago, 20 Dec 2018, 06:49pm -
Cash or Bonds at Low Yields and a Flat Yield Curve? [EconomPic]
While there have been a few cyclical periods of rising rates over the past 40 years, we've largely been in one large downtrend... meaning that it has consistently paid to own bonds vs cash / take duration risk for nearly my / many investment lives. Now that we've moved away from a zero
- 1 month ago, 19 Dec 2018, 11:30am -
Algorithmic Trading Regulations - European Union [Quant Insti]
A game of cat and mouse. Technological development more often than not stays ahead of regulators. Each new technological advance or disruption carries risks for the stability of things and advantages for those who are at the forefront. Regulators try to set rules and good practices that limit
- 1 month ago, 19 Dec 2018, 11:29am -
Data Science is Revolutionizing Investment Practice [Alpha Architect]
What are the Research Questions? This editorial introduces data science to the wider investment community and highlights some of the advantages (and potential pitfalls as discussed yesterday) it can bring to everyday investment practice. The paper answers two apparently simple questions: What is
- 1 month ago, 19 Dec 2018, 11:29am -
The Overlooked Half of the Global Stock Market [Quant Rocket]
The US stock market is the largest and most liquid stock market in the world and tends to get all the attention. Many brokers and trading platforms are US-only, and many traders focus exclusively on the US market. This post compares the number of stock listings in each of 17 countries to quantify
- 1 month ago, 18 Dec 2018, 09:26am -
What do portfolios and teacups have in common? [Flirting with Models]
Portfolio risk is often measured as the variance of returns over time. Another form of risk is the variance of terminal wealth that can arise from small variations in strategy inputs or asset returns. Strategies or portfolios that are more sensitive to small changes in inputs are inherently
- 1 month ago, 17 Dec 2018, 01:20pm -
Factor Investing Made In China [Factor Research]
This research note was originally published by the CAIA Association’s AllAboutAlpha blog. Here is the link. SUMMARY Common equity factors generated attractive risk-adjusted returns in the Chinese stock market Factor performance in China often mirrors global factor performance Indicates common
- 1 month ago, 17 Dec 2018, 01:20pm -
A Protocol to Prevent "Quants Gone Wild" [Alpha Architect]
What are the Research Questions? Data mining in finance has long been a concern for academic researchers. Campbell Harvey, one of the authors on this paper, is leading the effort to ensure the integrity of empirical finance research. For example, see here for a post on his address to the AFA. The
- 1 month ago, 17 Dec 2018, 01:19pm -
Weekly Recap: Value Performance & ETFs' impact on correlations & liquidity [Alpha Architect]
This week Ryan and I discuss two posts. First, we examine a guest post by Matthew Bartolini of State Street Global Advisors, discussing the underperformance of Value and its outlook for 2019. Second, we examine a guest post by Elisabetta on a recent JPM paper examining the effects that ETFs have had
- 1 month ago, 17 Dec 2018, 01:19pm -
Modern backtesting with integrity [SR SV]
Machine learning offers powerful tools for backtesting trading strategies. However, its computational power and convenience can also be corrosive for financial investment due to its tendency to find temporary patterns while data samples for cross validation are limited. Machine learning produces
- 1 month ago, 15 Dec 2018, 10:09am -
Portfolio construction through handcrafting: implementation [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, 14 Dec 2018, 08:12pm -
The Most Wonderful Week of the Year…2018 edition [Quantifiable Edges]
Over several time horizons op-ex week in December has been the most bullish week of the year for the SPX. The positive seasonality actually has persisted for up to 3 weeks. I’ve shown the study below in the blog many times since 2008. It looks back to 1984, which was the first year that SPX
- 1 month ago, 14 Dec 2018, 08:12pm -
Estimating the Bid-Ask Spread [Dekalog Blog]
Below I provide a vectorised Octave function to estimate the bid-ask spread from high, low and close prices according to "A Simple Way to Estimate Bid-Ask Spreads from Daily High and Low Prices," (Corwin and Schultz, 2012). The paper can be downloaded from one of the author's homepage
- 1 month ago, 14 Dec 2018, 10:44am -
Random Walk Simulation Of Stock Prices Using Geometric Brownian Motion [Quant Insti]
In this blog on random walk simulation, we will learn how to simulate stock prices. Future stock prices are very hard to predict and are dependent on the past trend and volatility. While simulating the stock prices one has to give reasonable weightage to these two parameters. The random walk model
- 1 month ago, 14 Dec 2018, 10:44am -
Does the Sunspot Cycle Predict Grain Prices? [CXO Advisory]
As a follow-up to “Sunspot Cycle and Stock Market Returns” a reader asked: “Sunspot activity does have a direct relationship to weather. Could one speculate on the agriculture market using the sunspot cycle?” To investigate, we relate sunspot activity to the fairly long U.S. Producer Price
- 1 month ago, 14 Dec 2018, 10:43am -
Sunspot Cycle and Stock Market Returns [CXO Advisory]
A reader asked whether Charles Nenner, self-described as “the talk of Wall Street since accurately predicting some of the biggest moves in the Markets over the past few years,” accurately forecasts equity and commodity markets. We consider the following: In his July 2007 discussion of the
- 1 month ago, 14 Dec 2018, 10:43am -
Placing your first Forex trade with Python [Jon.IO]
Update: I updated the code so it works with Oanda's new API. Get it here Time to talk about brokers, how to place a trade programmatically and most importantly how not to get scammed. This is the third part of the series: How to build your own algotrading platform. A broker is nothing more than
- 1 month ago, 12 Dec 2018, 09:45pm -
More examples in Financial Visualisation [Quant Dare]
In line with the previous post Group Funds with the Sun we continue exploring new ways to visualise and analyse financial data. We will take annual data from the current components of Dow Jones Industrial with data going back to 2000 to play around. Animated Risk – Return scatter Risk-Return
- 1 month ago, 12 Dec 2018, 09:44pm -
The Mechanical Turk [Financial Hacker]
We can see thinking machines taking over more and more human tasks, such as car driving, Go playing, or financial trading. But sometimes it’s the other way around: humans take over jobs supposedly assigned to thinking machines. Such a job is commonly referred to as a Mechanical Turk in
- 1 month ago, 11 Dec 2018, 11:57am -
After a Lost Decade, Will Value Get its Groove back in 2019? [Alpha Architect]
Borne in academia and raised by fund managers seeking to outperform, value style mutual funds and ETFs today hold close to $2 trillion(1). But with poor returns over the past decade, the question of whether “value is dead” has become a popular topic of conversation.(2) The search term “is
- 1 month ago, 11 Dec 2018, 11:57am -
ETFs Have NOT Screwed Up Correlations, Liquidity, and Alpha Opportunities [Alpha Architect]
What are the Research Questions? The paper investigates the following research question: Have ETFs flows affected the correlation structure of returns? Have ETFs flows affected the liquidity of underlying securities? Have ETFs flows affected the ability of managers to generate alpha? What are the
- 1 month ago, 11 Dec 2018, 11:57am -
Using Metals to Trade Bonds [System Trader Success]
Sometimes things in the financial markets are pretty obvious if one is willing to see them. Despite all of the angst that has been exhausted since July of 2016 – when the S&P 500 Index broke out to a new all-time high – regarding the 2016 election, the economy, interest rates and the
- 1 month ago, 11 Dec 2018, 11:56am -
The Risk in the Risk-Free Rate [Flirting with Models]
The risk-free rate is an important concept in financial theory, but the risk-free rate accessible to most investors can vary significantly in level. The variation in risk-free rate not only has an important impact on the theoretically optimal portfolio, but it can have a very real impact upon
- 1 month ago, 10 Dec 2018, 09:45am -
Factor Optimisation [Factor Research]
Equity factors exhibit sector biases and exposures to other common factors A factor optimisation process allows investors to create pure factors Risk-adjusted returns do not increase, but pure factors are attractive from analytical, risk and allocation perspectives INTRODUCTION When large quantities
- 1 month ago, 10 Dec 2018, 09:44am -
Commodity carry [SR SV]
Across assets, carry is defined as return for unchanged prices and is calculated based on the difference between spot and futures prices (view post here). Unlike other markets, commodity futures curves are segmented by obstacles to intertemporal arbitrage. The costlier the storage, the greater is
- 1 month ago, 10 Dec 2018, 09:44am -
Is there a signal in the noise? Yield Curves, Economic Growth and Stock Prices [Musings on Markets]
The title of this post is not original and draws from Nate Silver's book on why so many predictions in politics, sports and economics fail. It reflects the skepticism with which I view many 'can't fail" predictors of economic growth or stock markets, since they tend to have
- 1 month ago, 7 Dec 2018, 08:36pm -
Portfolio construction through handcrafting: The method [Investment Idiocy]
This post is all about handcrafting; a method for doing portfolio construction which human beings can do without computing power (although realistically you'd probably need a spreadsheet unless you're some kind of weird masochist). The method aims to achieve the following goals: Humans can
- 1 month ago, 7 Dec 2018, 12:42pm -
Trend Following on Steroids [Alpha Architect]
Trend following is well-known and the simplest version is as follows: you buy an asset when it has positive momentum (the price goes up) and you sell it and go to cash (or any other safe haven) when the momentum turns negative.(1) The best-known example of trend following is on the monthly ETF SPY
- 1 month ago, 7 Dec 2018, 12:41pm -
90 Years Of Death Crosses [Quantifiable Edges]
The SPX could complete a “Death Cross” formation today or tomorrow, in which the 50-day moving average crosses below the 200-day moving average. In the past I have looked back to 1960 when examining Death Crosses. This time I decided to use Amibroker with my Norgate database, which goes back to
- 1 month ago, 7 Dec 2018, 12:41pm -
Weekly Recap: Trend-Following, Portfolios, and Risk Factors [Alpha Architect]
You can watch the video via the link below: This week Ryan and I discuss three posts. First, we examine a guest post titled, “Trend Following on Steroids,” which examines ways to enhance a simple trend-following strategy. Second, we examine a post I wrote regarding how to use trend-following
- 1 month ago, 7 Dec 2018, 12:41pm -
RNN, LSTM, GRU For Trading [Quant Insti]
In my previous article, we have developed a simple artificial neural network and predicted the stock price. However, in this article, we will use the power of RNN (Recurrent Neural Networks), LSTM (Short Term Memory networks) & GRU (Gated Recurrent Unit Network) and predict the stock price. We
- 1 month ago, 6 Dec 2018, 10:49am -
Portfolio construction through handcrafting: motivating [Investment Idiocy]
I've talked around a type of portfolio construction called "Handcrafting" for some time now, in both of my first two books, and in the odd blog post. I thought it would be useful to explain how the technique works in a more thorough and complete series of blog posts, and also share
- 1 month ago, 5 Dec 2018, 12:42pm -
The Emotional Quant Curve [Alvarez Quant Trading]
While writing my presentation for TradersFest 2018, I wanted to add the trader’s emotional curve. But looking at it closer, it did not capture my feelings as I go through the cycle of up and downs of trading a strategy. Here is my curve. I have been on every part of this curve multiple times.
- 1 month ago, 5 Dec 2018, 12:42pm -
MACD: Moving Average Convergence Divergence (Part 1) [Oxford Capital]
I. Trading Strategy Developer: Gerald Appel. Source: Appel, G. (2005). Technical Analysis. NJ: Pearson Education, Inc; Star, B., PhD (2016). Zero In On The MACD. Stocks & Commodities, May 2016. Concept: Trend following trading strategy based on the MACD (Moving Average Convergence Divergence)
- 1 month ago, 5 Dec 2018, 12:41pm -
A Portfolio of Leveraged Exchange Traded Funds vs. Benchmark Asset Allocation [Quantpedia]
A new interesting financial research paper gives an idea to build a diversified portfolio of leveraged ETFs (scaled down to have the same risk as a benchmark asset allocation built from a non-leveraged ETFs) to beat benchmark asset allocation. However, caution is needed as the most of the
- 1 month ago, 5 Dec 2018, 12:41pm -
