Quant Mashup
Trend-Following Filters – Part 7 [Alpha Architect]
Financial time series that are structured as data sampled at a uniform time interval, e.g., hourly, daily, weekly, or monthly, are called discrete-time time series and referred to, from a digital signal processing (DSP) perspective, as being in the “time domain.” Technical market analysts
- 1 month ago, 13 Oct 2023, 07:47pm -
AutoRegressive Fractionally Integrated Moving Average (ARFIMA) model [Quant Insti]
Usually, in algorithmic trading, we talk about AutoRegressive Integrated Moving Average (ARIMA) models. They’re very popular in the industry. You might remember that the “d” component in the model can be 0, 1, 2, etc. What if 'd' could take fractional values? We’ll learn about such
- 1 month ago, 13 Oct 2023, 07:47pm -
Research Review | 13 October 2023 | Market Volatility [Capital Spectator]
An ETF-Based Measure of Stock Price Fragility Renato Lazo-Paz (University of Ottawa) July 2023 A growing literature employs equity mutual fund flows to measure a stock’s exposure to non-fundamental demand risk – stock price fragility. However, this approach may be biased by confounding
- 1 month ago, 13 Oct 2023, 07:46pm -
Beyond Stocks: The Surprising Volatility Returns of Oil and Gold [Robot Wealth]
I’ve previously discussed the Volatility Risk Premium (VRP) and how it differs from the Equity Risk Premium (ERP). Probably the most interesting difference, from the perspective of the trader, is that the VRP may be somewhat amenable to timing – more than the ERP at any rate. In this article,
- 1 month ago, 12 Oct 2023, 10:33pm -
Time Invariant Portfolio Protection [Quantpedia]
In this article we are going to continue the discussion on portfolio insurance strategies. An exhaustive description of this methodology was already presented in the article Introduction to CPPI (https://quantpedia.com/introduction-to-cppi-constant-proportion-portfolio-insurance). This article will
- 1 month ago, 11 Oct 2023, 03:22am -
Dynamically combining mean reversion and momentum strategies [Hudson and Thames]
Exploring Mean Reversion and Momentum Strategies in Arbitrage Trading Our recent reading group examined mean reversion and momentum strategies, drawing insights from the article, “Dynamically combining mean reversion and momentum investment strategies” by James Velissaris. The aim of the paper
- 1 month ago, 11 Oct 2023, 03:22am -
How to measure the quality of a trading signal [SR SV]
The quality of a trading signal depends on its ability to predict future target returns and to generate material economic value when applied to positioning. Statistical metrics of these two properties are related but not identical. Empirical evidence must support both. Moreover, there are
- 1 month ago, 9 Oct 2023, 07:15pm -
The ESG-efficient frontier (Part II) [Quantifying ESG]
In the previous week, we looked at the first part of a paper by AQR’s Lasse H Pedersen, Shaun Fitzgibbons and Lukasz Pomorski. This remains an influential paper in that it contains some really useful ideas on how to incorporate ESG in a portfolio optimization problem. You can read the first part
- 1 month ago, 9 Oct 2023, 07:15pm -
Building Better High Yield Portfolios [Finominal]
There is an inverse relationship between yield and total return The ideal yield strategy has a high yield, high Sharpe, and low correlation to stocks The yield-to-downside beta ratio enhances the strategy selection process INTRODUCTION @ChatGPT: “What is a rhyme that includes ‘high dividends are
- 1 month ago, 9 Oct 2023, 07:15pm -
Long-term Returns for US Treasury Funds Are Predictable: What Do We Do with That Information? [Allocate Smartly]
Long-term returns for US Treasury bond funds with a constant maturity (like IEF, TLT and SHY) have been quite predictable simply using initial Treasury yields as an estimate. This observation was popularized by John Bogle. Here’s an excellent recent look from Portfolio Optimizer. How predictable?
- 1 month ago, 6 Oct 2023, 01:10am -
International Value Stocks Offering "More Bang for the Buck" [Alpha Architect]
Over the very long term, while value stocks have been less profitable and have had slower growth in earnings than growth stocks, they have provided higher returns. Among the reasons are that value stocks have traded at substantial valuation discounts compared to growth stocks, and reversion to the
- 1 month ago, 6 Oct 2023, 01:10am -
Diving Deep: My Personal Approach to Equity and Volatility Risk Premia [Robot Wealth]
Lately, I’ve been thinking a lot about the Volatility Risk Premium (VRP). The VRP makes much more sense (to me, at least) when I have the Equity Risk Premium (ERP) for context and comparison. So, in this article, I want to discuss the ERP and the VRP, their similarities and differences, and how I
- 1 month ago, 4 Oct 2023, 10:29pm -
Trading Technical Indicators the Right Way: Digital to Analog Signals [Hanguk Quant]
In the previous lecture, we did a line by line walk through and intuitive explanation of the need for volatility targeting: Code Walkthrough for the Alpha Simulator: Simple Trend Rule with Volatility Targeting HangukQuant · Sep 23 Code Walkthrough for the Alpha Simulator: Simple Trend Rule with
- 1 month ago, 4 Oct 2023, 10:29pm -
The State Of Vol [Investment Idiocy]
I'm sometimes asked where I get my ideas for new trading strategies from. The boring truth is I rarely test new trading strategies, and I mostly steal ideas when I feel in the mood. Today for example I saw this tweet post on twitter X: The original paper is here (requires subscription or
- 1 month ago, 4 Oct 2023, 10:28pm -
AutoRegressive Moving Average (ARMA) models: Using R [Quant Insti]
In the AutoRegressive Moving Average (ARMA) models: A Comprehensive Guide of my ARMA article series, I covered the theoretical aspects of Autoregressive Moving Average models (ARMA). In the AutoRegressive Moving Average (ARMA) models: Using Python, I simulated different ARMA models, their
- 1 month ago, 4 Oct 2023, 10:28pm -
Key insights: Imbalance in the order book [OS Quant]
I summarise key insights from a few papers studying the limit order book. You’l learn how to measure volume imblanace in the limit order book and how well it predicts price moves. Author Adrian Letchford Published 1 October 2023 Length 5 minutes Like what you see? Follow Adrian on Twitter to be
- 2 months ago, 2 Oct 2023, 11:01pm -
How to use VectorBT PRO to algorithmically find chart patterns [PyQuant News]
VectorBT PRO (VBT) is a proprietary Python package designed for backtesting and analyzing quantitative trading strategies. In today’s guest post, you’ll use VectorBT PRO to algorithmically detect chart patterns from 230 million unique pattern and window combinations. All in about 2 minutes.
- 2 months ago, 2 Oct 2023, 11:00pm -
AI case study: Long/Short strategy [Quant Dare]
In today’s post we will be using AI to improve a module of the Alternative Data-Driven Investment (ADDI) strategy developed by ETS Asset Management Factory, which is an automatic Long – Short investment strategy that aims to obtain stable performance de-correlated from the market and with a
- 2 months ago, 2 Oct 2023, 11:00pm -
Is $SPX Selloff Near An End? [Quantifiable Edges]
This past week was the 4th week in a row that the SPX declined. It is quite unusual to see SPX close down for 4 weeks in a row, but still remain above its 40-week moving average. Below is a look at other times since 1975 that this action has occurred. SPX down 4 weeks in a row but above 40-week
- 2 months ago, 2 Oct 2023, 11:00pm -
ETF Evolution: what does it mean for investors? [Alpha Architect]
The first ETFs emerged in 1993 and closely tracked broad-based indexes for a low fee. Since then, the competitive situation in the ETF industry today has differentiated itself by adding a new breed of ETFs that reflected specialization into popular investment themes. When the evolution of the ETF
- 2 months ago, 2 Oct 2023, 10:59pm -
ESG Preferences Negatively Affecting Market Efficiency [Alpha Architect]
Environmental, social, and governance (ESG) investing continues to increase in popularity, with many institutional and individual investors incorporating ESG criteria into their investment decision-making process. Three main themes have driven this massive shift of assets: 1) Many investors are
- 2 months ago, 2 Oct 2023, 10:59pm -
Researching the Quality Factor with Alphalens and Zipline [Quant Rocket]
Buying high-quality stocks and avoiding low-quality ones can improve investment returns. In this post, I use Alphalens and Zipline to analyze the Piotroski F-Score, a composite measure of a firm's financial health and quality. This post is part of the fundamental factors series, which explores
- 2 months ago, 28 Sep 2023, 07:56pm -
AutoRegressive Moving Average (ARMA) models: Using Python [Quant Insti]
In the first part of my ARMA article series, I covered the background theory of lag operators, the stationarity and invertibility of Autoregressive Moving Average models (ARMA) and the different types of versions you can create from it. Here, we’ll explore theoretically these models using Python.
- 2 months ago, 28 Sep 2023, 07:55pm -
An Introduction to Machine Learning Research Related to Quantitative Trading [Quantpedia]
Following the recent release of the popular large language model ChatGPT, the topic of machine learning and AI seems to have skyrocketed in popularity. The concept of machine learning is, however, a much older one and has been the topic of various research and technology projects over the last
- 2 months ago, 27 Sep 2023, 11:36pm -
Reducing Whipsaws When Using 200-day Moving Average for Market Timing [Alvarez Quant Trading]
I was working on testing a market timing indicator that I read about it. It was showing some promise and the next step was to compare it to my benchmark. My benchmark is using the 200-day moving average. But an additional rule removes a lot of the whipsaws that can happen. After doing the
- 2 months ago, 27 Sep 2023, 11:35pm -
Super-Secret Proprietary Black Box Strategies [Allocate Smartly]
Note: This is a rare non-geeky, non-quantitative, stream of thought blog post. Because we’re so deep into this world of Tactical Asset Allocation (TAA), we’re sometimes asked for our thoughts on such-and-such black box TAA strategy. By “black box” we mean a strategy for which the trading
- 2 months ago, 27 Sep 2023, 11:34pm -
Geographic investing: business activity vs. domicile [Alpha Architect]
The article explores the limitations of traditional country-level stock market indexes constructed based on issuing firms’ domicile. Additionally, it introduces a new type of national stock market index called the EMindex, which is based on companies’ business activities rather than their
- 2 months ago, 27 Sep 2023, 11:34pm -
Code Walkthrough for Alpha Simulator: Simple Trend Rule with Vol Targeting [Hanguk Quant]
In the last post we did a line-by-line walkthrough of the alpha simulator, using a uniform random variable to represent the signal generating component of the alpha backtest. We also raised a few questions: How can we manage the varying levels of risk profiles of different stocks in our asset
- 2 months ago, 25 Sep 2023, 09:14am -
The predictive power of real government bond yields [SR SV]
Real government bond yields are indicators of standard market risk premia and implicit subsidies. They can be estimated by subtracting an estimate of inflation expectations from standard yields. And for credible monetary policy regimes, inflation expectations can be estimated based on concurrent
- 2 months ago, 25 Sep 2023, 09:13am -
R&D stocks - do asset pricing models do them justice? [Alpha Architect]
Since the development of the CAPM, which explains about two-thirds of the variation of returns among diversified portfolios, academic research has attempted to find models that increase the explanatory power of the cross-section of stock returns. Models are not like cameras that provide an exact
- 2 months ago, 25 Sep 2023, 09:13am -
Have Stock Markets Changed? [Finominal]
Trading technology continues to make trading of stocks easier, cheaper, and faster However, despite this and other financial innovations like ETFs, the US stock market structure hasn’t changed Likely explained by the fact that its core participants are unable to change INTRODUCTION Consider the
- 2 months ago, 25 Sep 2023, 09:13am -
Tactical Asset Allocation Performance During the 2022 Bear Market [Allocate Smartly]
As a whole, Tactical Asset Allocation (TAA) did not manage losses during the 2022 bear market as well as it has during previous downturns. Individual strategies varied and some did well, but a primary function of TAA is loss management, and any failure to do so is worth analyzing further. In this
- 2 months ago, 22 Sep 2023, 07:52am -
Quant Signal Trade-Offs in the Real World [Robot Wealth]
I want to discuss a couple of simple trade-off considerations around quant trading signals that may not be obvious. Here’s the price of some asset: Our main job is to predict how it’s likely to move. To do this, you use information about it that you think is predictive. And at any point in time:
- 2 months ago, 22 Sep 2023, 07:52am -
Range-Based Volatility Estimators: Overview and Examples of Usage [Portfolio Optimizer]
Volatility estimation and forecasting plays a crucial role in many areas of finance. For example, standard risk-based portfolio allocation methods (minimum variance, equal risk contributions, hierarchical risk parity…) critically depend on the ability to build accurate volatility forecasts1.
- 2 months ago, 20 Sep 2023, 09:45pm -
Analysis of Price-Based Quantitative Strategies for Country Valuation [Quantpedia]
Value investing originated as an investment strategy in which investors try to beat the stock market by looking for stocks that trade at a price below their intrinsic value or book value. Value investors do not subscribe to the efficient-market hypothesis, which suggests that stock prices always
- 2 months ago, 18 Sep 2023, 10:23pm -
A New Wolf in Town? Pump-and-Dump Manipulation in Cryptocurrency Markets [Alpha Architect]
Pump-and-Dump (P&D) schemes to manipulate the prices of cryptocurrencies are unlike the P&D schemes found in the equity market. They produce very large price distortions on the order of 65%, very large trading volumes of 13.5x the average, and generate very large profits to cryptocurrency
- 2 months ago, 18 Sep 2023, 10:23pm -
Don't Convert to Convertible Bonds [Finominal]
Convertible bonds are typically viewed as debt rather than equity instruments However, these are highly correlated to equities The diversification benefits are limited as these just represent diluted equity proxies INTRODUCTION Let’s say you’re the CEO of a small listed company that isn’t
- 2 months ago, 18 Sep 2023, 10:22pm -
The Seasonality of Bitcoin [Quantpedia]
Seasonality effects, one of the most fascinating phenomena in the world of finance, have captured the attention of investors and researchers worldwide. Since these anomalies are often driven by factors other than general market trends, they usually don’t correlate strongly with market movements,
- 2 months ago, 13 Sep 2023, 09:28pm -
There IS a low vol anomaly in SPY [Babbage9010]
TL;DR – There really is a low volatility anomaly in the SPY data; low volatility today predicts low volatility tomorrow and risk-adjusted returns are higher investing daily in the lower vol half of predicted market days. Same data, new analysis, better graphs and you’ll see it too. First up, a
- 2 months ago, 11 Sep 2023, 10:58pm -
Momentum turning points and their impact on market cycles [Alpha Architect]
The article investigates time-series (TS) momentum strategies and their performance in financial markets based on various speeds or lookback horizons. The study aims to understand the connections between different speeds of TS momentum, unobservable variables like trend, turning points, and noise
- 2 months ago, 11 Sep 2023, 10:58pm -
K-Nearest Neighbors Algorithm: Steps to Implement in Python [Quant Insti]
Machine Learning (ML) has emerged as a powerful tool in the field of Artificial Intelligence, revolutionising various aspects of our lives. Whether it's recognising human handwriting or enabling self-driving cars, ML has become an integral part of our daily routines. With the exponential growth
- 2 months ago, 11 Sep 2023, 10:57pm -
Fixed Income Factors II [Finominal]
There are style factors like value and traditional fixed income factors like term premium The correlations of these factors has been low However, it is not clear which are better suited for a factor exposure analysis INTRODUCTION In our last research article, we compared fixed income factors from
- 2 months ago, 11 Sep 2023, 10:57pm -
How to backtest 2,000,000 simulations for the best exits [PyQuant News]
If you’ve been a reader of this newsletter for a while, or a student of Getting Started With Python for Quant Finance, you’ll recognize this statement: Backtests are not a way to brute force optimize parameters to maximize a performance metric. Doing that leads to overfitting and losses. But
- 2 months ago, 9 Sep 2023, 07:16pm -
Equity versus fixed income: the predictive power of bank surveys [SR SV]
Bank lending surveys help predict the relative performance of equity and duration positions. Signals of strengthening credit demand and easing lending conditions favor a stronger economy and expanding leverage, benefiting equity positions. Signs of deteriorating credit demand and tightening credit
- 2 months ago, 9 Sep 2023, 07:16pm -
Price data from Yahoo Finance in R – the Easy Way [Robot Wealth]
Traders typically have many ideas for trading strategies – more than they can ever implement in practice! Therefore it’s useful to be able to move quickly in the early research phase. You want to disprove things as quickly as possible so that you can move onto the next thing. Obviously there is
- 2 months ago, 8 Sep 2023, 09:08pm -
Stock-bond correlation and its lessons for investors [Alpha Architect]
The correlation between stocks and bonds should be a critical component of any asset allocation decision, as it impacts not only the overall risk of a diversified multi-asset class portfolio but also the risk premia one should expect to receive for taking risk in different asset classes. The problem
- 2 months ago, 8 Sep 2023, 09:07pm -
Financial Distress Factors: Altman Z-Score and Interest Coverage Ratio [Quant Rocket]
Are rising interest rates straining balance sheets and increasing the risk of bankruptcies? This article investigates two financial distress factors, the Altman Z-Score and interest coverage ratio, to see if distress is on the rise and how it impacts stock returns. This post is part of the
- 2 months ago, 7 Sep 2023, 07:34pm -
Code Walkthrough for the Alpha Simulator (for Programming Beginners) [Hanguk Quant]
As we advance into our third year on this blog - it’s dawning upon me that many of the readers are getting left behind…the biggest concern by far is the complexity of the current Russian Doll model and not being sure how to proceed with using the statistical suite presented therein, together
- 2 months ago, 7 Sep 2023, 07:34pm -
Testing “TrendYCMacro” from Durian and Vojtko of @Quantpedia [Allocate Smartly]
This is a test of the “TrendYCMacro” strategy from the paper Avoid Equity Bear Markets with a Market Timing Strategy from Ďurian and Vojtko of Quantpedia. The strategy combines trends in price, the slope of the yield curve and key economic indicators to switch between US equities and cash.
- 2 months ago, 5 Sep 2023, 05:27pm -
Short Term Signals - can they produce meaningful alpha? [Alpha Architect]
Short-term return anomalies are generally dismissed in the academic literature “because they seemingly do not survive after accounting for market frictions.” In this research, short-term “factors” are taken seriously, and the authors argue the standard parameters may not apply to short
- 2 months ago, 5 Sep 2023, 05:26pm -