Quant Mashup
Factors from Scratch with Philosophical Economics (@Jesse_Livermore)
With a million dollars to invest today, would you rather buy a portfolio of New York City taxi medallions or shares in Uber stock? When we ask investing audiences this question, the answer is almost always Uber. People tend to think in terms of fundamental growth without also thinking about price.
- 1 month ago, 4 Jun 2018, 08:31am -
Market Timing with Multiples, Momentum and Volatility [Factor Research]
Equity multiples have been elevated in recent years Using valuation multiples for allocation decisions is a challenging strategy Momentum and volatility-based strategies are more attractive INTRODUCTION In recent years the stock market in the US has been expensive on a variety of valuation
- 1 month ago, 4 Jun 2018, 08:30am -
Kalman Filter Techniques And Statistical Arbitrage In China's Futures Market In Python [Quant Insti]
This article is the final project submitted by the author as a part of his coursework in Executive Programme in Algorithmic Trading (EPAT™) at QuantInsti®. Do check our Projects page and have a look at what our students are building. About the Author Xing Tao is a Bachelor in Computer Science
- 1 month ago, 4 Jun 2018, 08:30am -
Sharpe Ratio > 1 : Careful What You Wish For [Quantum Financier]
I had the pleasure to hang out with the good folks over at Resolve Asset Management recently. Part of our discussion centered around the differences between our two worlds. As you can imagine, prop trading is fairly different from institutional asset management. A topic of particular interest to
- 1 month ago, 3 Jun 2018, 01:51am -
Cleaning data for trading [Cuemacro]
Nobody likes doing the boring stuff. We all want to go on holiday, but packing our bags is not the fun bit. We all want to have a nice burger (well, I do), but queuing for ages at an ever popular burger joint is not what we want. Traders all want to have positive P&L, but well negative P&L
- 1 month ago, 3 Jun 2018, 01:50am -
Shapley Value Allocation of Operational Risk Capital Charges using Airport Problem Solution [Quant At Risk]
In Financial Risk Management the most challenging part for quantitative modeling is, beyond any doubt, the Operational Risk (Ops Risk). It is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes legal
- 1 month ago, 3 Jun 2018, 01:50am -
A simple rule for exchange rate trends [SR SV]
Over the past decades developed market exchange rates have displayed two important regularities. First, real exchange rates (nominal exchange rates adjusted for domestic price trends) have been mean reverting. Second, the mean reversion has predominantly come in form of nominal exchange rate trends.
- 1 month ago, 2 Jun 2018, 09:32am -
Factor Regressions Problems and How to Fix Them [Alpha Architect]
Factor Regressions are one way to ascertain a fund’s exposure to certain factors that an investor/advisor may want to allocate towards, such as Value, Momentum, Quality, etc. Luckily, there are some great free tools available online, such as portfoliovisualizer.com, that allows investors to run
- 1 month ago, 1 Jun 2018, 09:34pm -
The Big Data and Machine Learning Revolution: Event takeaways, slides & videos [Raven Pack]
More than 600 finance professionals registered to attend the London Revolution. An excellent group of top finance professionals shared their latest research and experience with big data and machine learning. The event took place on April 24, 2018 at the Banking Hall, one of the most exquisite venues
- 1 month ago, 31 May 2018, 04:27pm -
Sharpening the Arithmetic of Active Management [Alpha Architect]
For many investors, the superiority of passive investing over active investing is axiomatic (Earth to passive investors; Lunch is never free!) And why not? Study after study has demonstrated that only a small portion of actively managed funds beat their benchmarks over long time frames. A recent
- 1 month ago, 31 May 2018, 04:07pm -
Style Investing in Fixed Income [Alpha Architect]
The paper investigates this issue by answering the following research questions: Can common robust risk premia (value, momentum, carry and defensive) enhance returns in Fixed Income investing? Do style-based Fixed Income portfolios present diversifying potential? Is a long/short implementation
- 1 month ago, 31 May 2018, 04:06pm -
Dollar-Cost Averaging: Improved by Trend? [Flirting with Models]
The choice to lump sum invest (“LSI”) or dollar-cost average (“DCA”) is one fraught with emotion. Intuition tells us that LSI likely offers the best bet for long-term investors as markets, in general, tend to go up. However, can signals derived from simple trend models offer an edge? We find
- 1 month ago, 29 May 2018, 10:26am -
How Seasonality The Week Of Memorial Day Has Changed Over The Years [Quantifiable Edges]
Happy Memorial Day! The week of Memorial Day has shown some interesting seasonal tendencies over the years. But it has faltered greatly the last few. The chart below is one I have shown in the past, and have now updated. It examines SPX performance from the Friday before Memorial Day to the Friday
- 1 month ago, 29 May 2018, 10:26am -
Short-Term Return Reversals and Intraday Transactions [Quantpedia]
I examine whether a short-term reversal is attributed to past intraday or overnight price movements. The results show that intraday returns significantly reverse in the following week, while overnight returns do not, indicating that the short-term reversal is attributed to past intraday price
- 1 month ago, 29 May 2018, 10:25am -
Tactical Mean-Reversion [Factor Research]
The Mean-Reversion factor is driven by volatility Allocating tactically when volatility is high generates an attractive payoff profile The strategy can be considered as a tail risk hedge for equity portfolios INTRODUCTION Our most recent research note focused on the Mean-Reversion factor (please see
- 1 month ago, 28 May 2018, 11:50am -
An Improved Currency Strength Indicator plus Gold and Silver Indices? [Dekalog Blog]
In the past I have blogged about creating a currency strength indicator ( e.g. here, here and here ) and this post talks about a new twist on this idea. The motivation for this came about from looking at chart plots such as this, which shows Gold prices in the first row, Silver in the second and a
- 1 month ago, 28 May 2018, 11:50am -
Building A Better Trend Filter [System Trader Success]
In this article I will create a trend filter (also known as market mode filter or regime filter) that is adaptable to volatility and utilizes some of the basic principles of hysteresis to reduce false signals (whipsaws). As you may know, I often will use the 200-period simple moving average
- 1 month ago, 28 May 2018, 11:50am -
Investor Attention and the Low Volatility Anomaly [Alpha Architect]
One of the big problems for the first formal asset pricing model developed by financial economists, the Capital Asset Pricing Model (CAPM), was that it predicts a positive relationship between risk and return. However, the historical evidence demonstrates that while the slope of the security market
- 1 month ago, 26 May 2018, 11:20am -
Research Review | 25 May 2018 | Business Cycle Risk [Capital Spectator]
Is Fertility a Leading Economic Indicator? Kasey Buckles (University of Notre Dame), at al. March 28, 2018 Many papers show that aggregate fertility is pro-cyclical over the business cycle. In this paper we do something else: using data on more than 100 million births and focusing on within-year
- 1 month ago, 26 May 2018, 11:20am -
Trading the Equity Curve – More Ideas [Alvarez Quant Trading]
A couple posts ago, I looked at Trading the Equity Curve and found interesting results but nothing that made me decide this works for me. Using the equity curve to decide when to stop trading a strategy just sounds like it should work. But for me it is always about testing. I cannot count how often
- 1 month ago, 24 May 2018, 09:51am -
Using Quadratic Discriminant Analysis To Optimize An Intraday Momentum Strategy [Quant Insti]
In this post, we will create an intraday momentum strategy and use QDA as a means of optimizing our strategy. We’ll begin by reviewing Linear Discriminant Analysis or LDA and how it is associated with QDA, gain an understanding of QDA and when we might implement this technique instead of Linear
- 1 month ago, 24 May 2018, 09:51am -
Dimensions of Return [Factor Investor]
There are three universal dimensions of return that drive the performance of all strategies—regardless of investment style or asset class: consistency, magnitude, and conviction. These dimensions serve as levers that can increase or decrease performance of any strategy. They also provide context
- 1 month ago, 23 May 2018, 07:53am -
What to do with Underperforming Investments? Assessment via Bayesian Inference [Alpha Architect]
Assume you made a decision to invest in an active strategy based on, say, a backtest of the underlying process (to be clear, active means NOT passive market-cap weight in my context). Over the next few years, you sit in the strategy watching it underperform the passive benchmark. You are a
- 1 month ago, 23 May 2018, 07:53am -
Interesting Insights into Trend-Following Strategies [Quantpedia]
Because of the adaptive nature of position sizing, trend-following strategies can generate the positive skewness of their returns, when infrequent large gains compensate overall for frequent small losses. Further, trend-followers can produce the positive convexity of their returns with respect to
- 1 month ago, 23 May 2018, 07:53am -
Biclustering time series [Quant Dare]
In this post, we’ll take a brief look at biclustering algorithms. They reveal easily interpretable patterns in our data and give us more information about the links between observations and features than simpler clustering algorithms usually do. We’ve already reviewed a number of non-supervised
- 1 month ago, 23 May 2018, 07:52am -
QuantMinds Lisbon 2018 [Cuemacro]
Lisbon sits wedged between the Atlantic on the West and the river Tagus on the south. It’s buildings seemingly tanned to deep pastel shades, reflect a sun, which seems forever present. Whilst is it the history of the city, which appears to greet the visitor at first, whether it the Tower of Belem,
- 1 month ago, 21 May 2018, 01:06pm -
Technical Analysis in the Chinese Stock Market: Does it Work? [Alpha Architect]
The authors conduct a comprehensive analysis of five categories of technical trading rules (including channel break rules, filter rules, moving average rules, oscillator rules and support/resistance rules) using aggregate data from the Chinese stock market for the period 1997 to 2015. Do technical
- 1 month ago, 21 May 2018, 01:06pm -
Separating Ingredients and Recipe in Factor Investing [Flirting with Models]
Portfolio construction is a lot like cooking. There are two equally important elements: the ingredients and the recipe. The ingredients are the signals that are used to select investments. The recipe is the set of rules used to transform those signals into portfolio allocations. In factor investing,
- 1 month ago, 21 May 2018, 08:51am -
Mean-Reversion Across Markets [Factor Research]
Volatility spiked in the first quarter of 2018 when global stock markets declined, which was mainly due to concerns on proposed tariffs by the US government and rising interest rates. Since then markets recovered and volatility declined again, but higher interest rates are likely to have a negative
- 1 month ago, 21 May 2018, 08:51am -
Commodity pricing [SR SV]
A new paper combines two key aspects of commodity pricing: [1] a rational pricing model based on the present value of future convenience yields of physical commodity holdings, and [2] the activity of financial investors in form of rational short-term trading and contrarian trading. Since convenience
- 1 month ago, 21 May 2018, 08:50am -
Explaining the Demand for Higher Beta Stocks [Alpha Architect]
The Capital Asset Pricing Model (CAPM) indicates returns should go up linearly as beta increases (in other words, risk and return are positively related). However, as I’ve previously discussed, the historical evidence demonstrates that, while the slope of the security market line is generally
- 2 months ago, 17 May 2018, 01:03pm -
Is The Russell Breakout Likely To Spark A Rally In The SPX? [Quantifiable Edges]
The new high in the Russell is notable, since it is the 1st major index to get there. But it does not necessarily mean the other indices will follow. In the study below I looked at SPX performance following instances of a fresh RUT breakout while SPX had still not broken out. 2018-05-17 Whether you
- 2 months ago, 17 May 2018, 01:03pm -
5 Cutting Edge Investment Research Articles [Alpha Architect]
This year’s annual financial research “geekfest,” officially known as the American Finance Association Annual Meeting, assembles the world’s top-tier academic researchers to discuss their latest financial research. Source: Wes’s art studio and a photo by Daniel Cheung If you are looking to
- 2 months ago, 15 May 2018, 11:48am -
Alpha Momentum [Factor Research]
Stocks can be ranked by alpha instead of stock returns Alpha Momentum generates a higher and more consistent performance than Price Momentum Momentum crashes are reduced significantly and risk-return ratios increase INTRODUCTION Alpha in finance is shrinking continuously as investors are getting
- 2 months ago, 14 May 2018, 09:54am -
How to Benchmark Trend-Following [Flirting with Models]
Benchmarking a trend-following strategy can be a difficult exercise in managing behavioral biases. While the natural tendency is often to benchmark equity trend-following to all-equities (e.g. the S&P 500), this does not accurately give the strategy credit for choosing to be invested when the
- 2 months ago, 14 May 2018, 09:54am -
Giving Computers the Ability to Learn from Data [Golden Jumper]
General concepts of Machine Learning 3 types of learning and basic terminology – Supervised learning. Learn a model from labeled training data that allows us to predict future or unknown data. Supervised refers to a set of sample where desired output signals (labels) are already known. Eg spam
- 2 months ago, 14 May 2018, 09:54am -
SPX Performance Based on SOMA Action During the Present QT Initiative [Quantifiable Edges]
The Fed’s System Open Market Account (SOMA is the account at the Fed that contains all of its bond purchase holdings. Fed SOMA data going back to 2003 can be downloaded from the New York Fed’s website. Over this time, there has been a strong relationship between the changes in the SOMA and
- 2 months ago, 14 May 2018, 09:53am -
Position Sizing for Practitioners - Part 2: Dealing with Drawdown [Quant Fiction]
What does “optimal” mean, anyway? In the first part of this series, we discovered that the staked fraction of capital that yields the greatest compounded returns also yields a less-than-optimal level of drawdown. To realize the greatest return on capital, an investor in SPY since its inception
- 2 months ago, 13 May 2018, 11:14am -
Correlations and the market [Cuemacro]
When I have a burger I feel better. I feel that there is some causation here, in particular because of I’ve got lots of statistical data to justify this! However, in practice, if we look away from burgers and at finance, it’s a bit more difficult to answer the conundrum of causation versus
- 2 months ago, 13 May 2018, 11:13am -
Using yield curve information for FX trading [SR SV]
FX carry trading strategies only use short-term interest rates (and forward basis) as signal. Yet both theoretical and empirical research suggests that the whole relative yield curve contains important information on monetary policy and risk premia. In particular, the curvature of a yield curve
- 2 months ago, 12 May 2018, 03:59am -
Improving data diversity. Synthetic Financial Time Series Generator [Quant Dare]
When dealing with data we (almost) always would like to have better and bigger sets. But if there’s not enough historical data available to test a given algorithm or methodology, what can we do? Our answer has been: creating it. How? By developing our own Synthetic Financial Time Series Generator.
- 2 months ago, 9 May 2018, 11:26am -
Introducing Fed-Based Quantifiable Edges for Stock Market Trading (Research Paper) [Quantifiable Edges]
I have shown Fed-based studies here at Quantifiable Edges since inception in 2008. And since 2010 I have closely tracked SOMA movement and its influence on the market in the Quantifiable Edges subscriber letter. This has proven extremely valuable in my research and trading. Now, after years of
- 2 months ago, 9 May 2018, 11:26am -
Seasonal Strategy on US Equities + Genovest tests Quantpedia strategy [Quantpedia]
We revisit a series of popular anomalies: seasonal, announcement and momentum. We comment on statistical significance and persistence of these effects and propose useful investment strategies to incorporate this information. We investigate the creation of a seasonal anomaly and trend model composed
- 2 months ago, 9 May 2018, 11:25am -
Leverage and Trend Following [Flirting with Models]
We typically discuss trend following in the context of risk management for investors looking to diversify their diversifiers. While we believe that trend following is most appropriate for investors concerned about sequence risk, levered trend following may have use for investors pursuing growth. In
- 2 months ago, 7 May 2018, 11:34am -
Value Factor - Comparing Valuation Metrics [Factor Research]
This research note was originally published at Alpha Architect. INTRODUCTION Mirror, mirror, on the wall – which is the fairest of them all? Recent commentary (to include a recent Barron’s article) seems to suggest that value is dead and may never come back. Of course, most of these comments
- 2 months ago, 7 May 2018, 11:34am -
Position Sizing for Practitioners - Part 1: Beyond Kelly [Quant Fiction]
Albert Einstein once proclaimed that “compound interest is the eighth wonder of the world” (allegedly, at least; people attribute all kinds of sayings to that guy). Let’s just assume that he did. This is the single most important reason why people participate in the markets. The magic of
- 2 months ago, 6 May 2018, 11:10am -
A Different Way To Think About Drawdown — Geometric Calmar Ratio [QuantStrat TradeR]
This post will discuss the idea of the geometric Calmar ratio — a way to modify the Calmar ratio to account for compounding returns. So, one thing that recently had me sort of annoyed in terms of my interpretation of the Calmar ratio is this: essentially, the way I interpret it is that it’s a
- 2 months ago, 4 May 2018, 10:15pm -
Value Investing Portfolios are Not Dead, But Some Have Done Better than Others [Alpha Architect]
Mirror, mirror, on the wall – which is the fairest of them all? Recent commentary (to include a recent Barron’s article) seems to suggest that value is dead and may never come back. Of course, most of these comments revolve around the price-to-book valuation metric, which, as the Barron’s
- 2 months ago, 4 May 2018, 11:04am -
A Historical Look At Employment Days [Quantifiable Edges]
Friday the employment report will be released about an hour before the NYSE open. Employment days have an interesting history and they have contributed to some worthwhile studies over the years. Below is a chart of SPX performance on Employment Days going back to 1993. 2018-05-04 What I find
- 2 months ago, 4 May 2018, 11:04am -
Research Review | 4 May 2018 | Equity Risk Premium [Capital Spectator]
The Equity Risk Premium in 2018 John R. Graham and Campbell R. Harvey (Duke University) March 27, 2018 We analyze the history of the equity risk premium from surveys of U.S. Chief Financial Officers (CFOs) conducted every quarter from June 2000 to December 2017. The risk premium is the expected
- 2 months ago, 4 May 2018, 11:04am -
