Quant Mashup
Volatility Anomalies: IVOL and Vol-of-Vol [Alpha Architect]
Two of the more interesting puzzles in finance are related to volatility—stocks with greater idiosyncratic volatility (IVOL) have produced lower returns and stocks with high uncertainty about risk, as measured by the volatility of expected volatility (vol-of-vol), underperform stocks with low
- 1 month ago, 22 May 2019, 12:24am -
A Dead Simple 2-Asset Portfolio that Crushes the S&P500 (Part 4) [Black Arbs]
In Part 3 of the series we reviewed the relationship between returns and correlation of the 2-asset portfolio UPRO and TMF. The basic equal weight strategy was very compelling in terms of total return and CAGR. However, the strategy is susceptible to large drawdowns, especially in situations where
- 1 month ago, 20 May 2019, 12:39pm -
Disproving a Signal [Flirting with Models]
Last week we introduced a signal that appeared to generate statistically significant performance results for performing country rotation. This week, we walk through the steps taken to explore the robustness of the signal. We first explore out-of-sample data with sector and emerging market country
- 1 month ago, 20 May 2019, 12:39pm -
What is better: Factor Zoo or Factor Museum? [Two Centuries Investments]
Here are my 8-thoughts and 1 solution idea about Campbell Harvey and Yan Liu recently released paper on their influential concept of the factor zoo. To sum it up, it says that there are too many data-mined factors out there and that we should be using much higher t-statistics to accept factors.
- 1 month ago, 20 May 2019, 12:38pm -
Improving the Momentum Factor [Factor Research]
The performance of the Momentum factor in the US has been poor since 2000 Fundamental valuation spreads were ineffective for improving the performance Combinations with other factors and factor volatility filters would have yielded better results INTRODUCTION John H. Cochrane of the Hoover
- 1 month ago, 20 May 2019, 12:38pm -
Exploring Stock Price Movements After Major Events (h/t @PyQuantNews) [Steven Wang]
FDA drug approvals, legal verdicts, mergers, share buybacks, and the occasional CEO podcast appearance, are all examples of events that impact stock prices. Though not as quantifiable as technical indicators, real life events clearly affect prices. In an attempt to further explore the relationship
- 1 month ago, 20 May 2019, 04:07am -
Adaptive Huber Regression [Eran Raviv]
Many years ago, when I was still trying to beat the market, I used to pair-trade. In principle it is quite straightforward to estimate the correlation between two stocks. The estimator for beta is very important since it determines how much you should long the one and how much you should short the
- 1 month ago, 19 May 2019, 07:56am -
The Future of QTPyLib [Ran Aroussi]
I released the first version of QTPyLib, my Python library for algo traders, in 2016. If you had told me then that I would still be working on it three years later, I probably wouldn't have believed you. But guess what? That's precisely where I'm doing 🙂 The first release of QTPyLib
- 1 month ago, 17 May 2019, 10:45am -
Financial Experts Ignoring Better Statistical Methods? [CXO Advisory]
Why are expert economic and financial (econometric) forecasters so inaccurate? In his April 2019 presentation package for a graduate course at Cornell entitled “The 7 Reasons Most Econometric Investments Fail”, Marcos Lopez de Prado enumerates shortcomings of standard econometric statistical
- 1 month ago, 17 May 2019, 10:45am -
Backtesting Bias: Feels Good, Until You Blow Up [Robot Wealth]
In an ideal trading universe, we’d all have a big golden “causation magnifying glass”. Through the lens of this fictional tool, you’d zoom in and understand the fleeting, enigmatic nature of the financial markets, stripping bare all its causes and effects. Knowing exactly what causes
- 2 months ago, 15 May 2019, 09:47am -
How Inflation Makes the 'Value' Factor a Sector Bet [Fortune Financial]
There have been numerous attempts to explain the lackluster performance of value investing so far this decade, which is currently on pace for its worst annualized performance for a decade since the 1930s: Without getting into the arguments made by others, which have been debated elsewhere, I will
- 2 months ago, 14 May 2019, 02:27pm -
A Laboratory for Machine Learning in Finance [Quants Portal]
In the summer of 2018 we attended a conference organized by Quantopian in which we heard Dr. Marcos Lopez de Prado outlined the challenges of building successful quantitative investment platforms. His book, Advances in Financial Machine Learning provides solutions to many of the problems faced by
- 2 months ago, 14 May 2019, 10:53am -
Shiny New Toys [CSS Analytics]
Its been a long time folks, but we have some shiny new toys in the works. Current trends in the industry and working with data scientists has made me a believer in the benefits of using a machine learning approach. I have always been a proponent of “theory-free” approaches on this blog as long
- 2 months ago, 14 May 2019, 10:52am -
Why The Failed Bounce Is Not A Signal To Sell [Quantifiable Edges]
After closing at a 20-day low on Thursday, the market put in a bounce attempt on Friday. Monday’s decline to a new low meant that initial bounce attempt failed. But in last night’s subscriber letter we saw several studies that showed the “failed bounce” was more likely to see another bounce
- 2 months ago, 14 May 2019, 10:52am -
Fractional Differentiation [Quants Portal]
In this article we delve into the challenge of making an asset price series stationary (for reasons discussed below) and preserving as much memory/signal from the original series. We take inspiration from Chapter 5 of the Advances in Financial Machine Learning (AFML) by Dr. Marcos Lopez de Prado
- 2 months ago, 13 May 2019, 01:33pm -
Member Analysis: The Effect of Combining Strategies on Timing Luck [Allocate Smartly]
We enjoy hearing from members about their experiences using our platform to analyze and combine tactical asset allocation strategies. We do a bad job of sharing that feedback with other members, and that’s a shame, because there’s often a lot of wisdom in it. So let’s change that. What follows
- 2 months ago, 13 May 2019, 01:33pm -
Country Rotation with Growth/Value Sentiment [Flirting with Models]
Value investing has not only underperformed with regard to security selection, but also country selection over the last decade. In an effort to avoid country value traps, we set out to design two signals that might better confirm when a country is likely to exhibit positive re-valuation. We find
- 2 months ago, 13 May 2019, 01:09pm -
10 Large Scale Factor Anomaly Studies with Definitions [Two Centuries Investments]
A Taxonomy of Anomalies and their Trading Costs 2015, Robert Novy-Marx and Mihail Velikov (with data) …and the Cross-Section of Expected Returns, 2013, Campbell Harvey, Yan Liu, Caroline Zhu (factor list) A Comparison of New Factor Models, 2014, Kewei Hou, Chen Xue, Lu Zhang The Supraview of
- 2 months ago, 13 May 2019, 01:09pm -
Short Selling + Insider Selling = Profitable Strategy? [Alpha Architect]
What are the research questions? This study uses a long and comprehensive time series covering 1977-2014, with just under 180,000 quarterly observations for trades of short sellers and demand for shares by corporate insiders. (see here for a related paper we covered recently that talks about
- 2 months ago, 13 May 2019, 01:07pm -
SPX Iron Condor - 2018 Review [DTR Trading]
In this post we'll look at how the SPX iron condor has been performing since I last analyzed its results back in 2016 (here). For this article, we'll just look at the following variations and how they performed from January 2007 through December 2018: 66 DTE - 25 pt wings, 12 Delta
- 2 months ago, 13 May 2019, 01:07pm -
Hedge Fund ETFs [Factor Research]
Core hedge fund strategies are available as low-cost and transparent ETFs The performance of hedge fund ETFs has been comparable to that of their benchmarks ETFs have only captured 1% of hedge fund assets INTRODUCTION As Amazon has been decimating large parts of the retail industry over the last two
- 2 months ago, 13 May 2019, 09:18am -
Welcome to Investor IQ [CSS Analytics]
There is some interesting new content on the CSSA blog that will be very useful for readers. Investor IQ is currently a free tool that shows basic trend signals (Buy, Hold or Sell) for a wide range of US and Canadian ETFs as well as a relative strength ranking. The signals will be updated as of the
- 2 months ago, 13 May 2019, 09:18am -
The Edge of Technical Indicators [Philipp Kahler]
Classical technical indicators like RSI and Stochastic are commonly used to build algorithmic trading strategies. But do these indicators really give you an edge in your market? Are they able to define the times when you want to be invested? This article will show you a way to quantify and compare
- 2 months ago, 12 May 2019, 10:58am -
Systematic trading strategies: fooled by live records [SR SV]
Allocators to systematic strategies usually trust live records far more than backtests. Given the moral hazard issues of backtesting in the financial industry, this is understandable (view post here). Unfortunately, for many systematic strategies live records can be even more misleading. First, the
- 2 months ago, 12 May 2019, 10:58am -
Alternative data for FX [Cuemacro]
I recently visited the USA. I managed to visit a number of different cities. Whilst I was there primarily for work, I managed to squeeze in a few days to look around the various cities I visited. I visited Philadelphia for the first time, and I saw Independence Hall and the Liberty Bell, both of
- 2 months ago, 12 May 2019, 10:57am -
Don't Be A Value Hero [Quiet Quant]
Let’s imagine a world where value stocks actually provide some outperformance at some point… In a world like that, are there any simple rules one could implement into their value system to help avoid “falling knives”? The optimist in me says yes, but the realist says nope. Turns out, it is
- 2 months ago, 10 May 2019, 11:24am -
Going with the FX flow [Cuemacro]
In this paper, we discuss using CLS intraday hourly flow data to understand FX markets. Using two different trading strategies (daily and hourly) against a generic trend model, we find that CLS’s flow data relating to funds and non-bank financial firms (NBFIs) tends to have a positive contribution
- 2 months ago, 10 May 2019, 10:17am -
Research Review | 10 May 2019 | Tail Risk [Capital Spectator]
Tail Risk Management for Multi-Asset Multi-Factor Strategies David Chambers (University of Cambridge), et al. January 8, 2019 Multi-asset multi-factor portfolio allocation is typically centred around a risk-based allocation paradigm, often striving for maintaining equal volatility risk budgets.
- 2 months ago, 10 May 2019, 10:16am -
CBI Hits 10+ While $SPX is in a Long-Term Uptrend [Quantifiable Edges]
It is notable that the Quantifiable Edges Capitulative Breadth Indicator (CBI) closed at 10 on Thursday. Below is a study that shows other times the CBI reached 10 while the SPX was above its 200ma. 2019-05-10 A very high percentage of instances closed higher when looking out 4 or more days. The
- 2 months ago, 10 May 2019, 10:16am -
State of Trend Following in April [Au Tra Sy]
Positive month for the State of Trend Following index. YTD fighting back to the zero line… Please check below for more details. Detailed Results The figures for the month are: April return: 2.89% YTD return: -1.6% Below is the chart displaying individual system results throughout April:
- 2 months ago, 10 May 2019, 10:16am -
The True Cost of Hedging S&P Downside [Movement Capital]
Hedging sounds like a smart thing to do. But has it actually worked? This post examines the historical costs and benefits of hedging stock exposure with SPY puts. Interest in hedging strategies tends to increase as market volatility rises. There are many ways to hedge, and a common method is to
- 2 months ago, 9 May 2019, 11:13pm -
Buying Stocks Trading Above 10x Sales-A Good Idea? [Alpha Architect]
Early last week, Meb Faber included me on a conversation on buying stocks trading at 10x their company’s revenue (sales). Is this a good idea and how did it do in the past? Given that most “known” factors have underperformed over the past 10 years, I was interested in seeing if a somewhat
- 2 months ago, 9 May 2019, 08:22pm -
Trade Cost Optimisation [Scalable Capital]
We discuss two major challenges when implementing a dynamic portfolio strategy in practice: Minimising trading costs and enforcing a no-fractional-dealing condition. To master these challenges, we present a flexible and efficient trade cost optimisation algorithm that can be combined with a wide
- 2 months ago, 8 May 2019, 09:36am -
Comparing Tactical Asset Allocation ETFs to Public TAA Strategies [Allocate Smartly]
In this post we compare the performance of the 49 tactical asset allocation strategies that we track to 7 ETFs that provide all-in-one exposure to TAA. We were inspired by James Picerno’s Capital Spectator to run this analysis, so we’ve appropriated his list of 6 ETFs, and added Meb Faber’s
- 2 months ago, 8 May 2019, 09:34am -
F@ck Everything... We’re Going 120/80 [EconomPic]
Jeremy had spent most nights over the previous 30+ years on this earth in search of the next big ETF. After all, you don’t “aspire to be at the forefront of innovative ways for marrying the benefits of the exchange-traded fund structure with goals that are associated with active managers” by
- 2 months ago, 7 May 2019, 08:48pm -
Democratize Quant 2019 Recap [Alpha Architect]
We did it. We democratized quant for one more year. Last year, we suffered through a 50% drawdown in attendance due to a perfectly timed snow storm. This year the weather cooperated with us and we were able to get everyone there. Full access to presentation videos and the accompanying slides (when
- 2 months ago, 7 May 2019, 10:26am -
Option-Based Strategies: Opt In or Opt Out? [Factor Research]
Option-based strategies generated better risk-adjusted returns than the S&P 500 over the last 30 years Investors should be wary of buying options and focus on harvesting the volatility risk premium by writing options Option-based strategies are an interesting alternative to long-short equity
- 2 months ago, 7 May 2019, 10:26am -
Tax-Managed Factor Strategies [Alpha Architect]
The authors decompose strategy returns into factor alpha, tax alpha, and residual return for 6 tax-managed versus and 6 tax-indifferent factor strategies and for one indexing strategy. In contrast to other studies, where the impact of starting date dependence is eliminated, this research generates a
- 2 months ago, 7 May 2019, 10:25am -
SPX Straddle - 2018 Review [DTR Trading]
In this post we'll look at how the SPX straddle has been performing since I last analyzed its results back in 2015 (here). For this article, we'll just look at the following variations and how they performed from January 2007 through December 2018: 59 DTE - (25:10) / 2 DTE - exit if the
- 2 months ago, 7 May 2019, 10:25am -
Buy & Hold Backtests are (Inherently) Wrong: Currentizing 16 Popular B&H Strategies [Better Buy And Hold]
All tests of historical strategy performance (“backtests”) are imperfect reflections of the future. No one can say with certainty how stocks, bonds and other asset classes will perform in the coming years, but we have to root our analysis in something, and past performance is usually the best
- 2 months ago, 6 May 2019, 10:10am -
Tactical Portable Beta [Flirting with Models]
In this commentary, we revisit the idea of portable beta: utilizing leverage to overlay traditional risk premia on existing strategic allocations. While a 1.5x levered 60/40 portfolio has historically out-performed an all equity blend with similar risk levels, it can suffer through prolonged periods
- 2 months ago, 6 May 2019, 10:09am -
When QQQ Gaps Down Big From A High [Quantifiable Edges]
Trump’s tweets on Sunday have put the market in a state of disarray. After closing Friday at an all-time high, QQQ is set to gap down nearly 2% this morning. Below is a look at other times QQQ gapped down at least 1% to open the day after closing at a 200-day high the day before. 2019-05-6-12
- 2 months ago, 6 May 2019, 10:09am -
Compound Your Knowledge Ep. 11: ETFs, Manager Wealth, TLH, Value [Alpha Architect]
In this week’s episode, we cover four articles published on our site. The first article, written by Ryan, examines the growth in assets of ETFs and Mutual Funds. The second article, summarized by Elisabetta, examines the performance of funds by differentiating the fund’s manager on his/her
- 2 months ago, 6 May 2019, 10:09am -
When the Jobs Report Sparks the NASDAQ to Rally to a New High [Quantifiable Edges]
The employment report was the catalyst for the big rally Friday, and the NASDAQ closed at a new high. The study below looks back at other instances where the NASDAQ spiked higher and closed at a new high on the day of an employment report. 2019-05-05 Employment-sparked momentum leading to new highs
- 2 months ago, 5 May 2019, 02:33pm -
Bayesian Risk Forecasting [SR SV]
Portfolio risk forecasting is subject to great parameter uncertainty, particularly for longer forward horizons. This simply reflects that large drawdowns are observed only rarely, making it hard to estimate their ‘structural’ properties. Bayesian forecasting addresses parameter uncertainty
- 2 months ago, 5 May 2019, 02:33pm -
A Dead Simple 2-Asset Portfolio that Crushes the S&P500 (Part 3) [Black Arbs]
This is an update to the original blog series that explored a simple strategy of being long UPRO and TMF in equal weight, inverse volatility and inverse-inverse volatility. This strategy crushed the cumulative and risk-adjusted returns of the benchmark SPY etf. However through our research we
- 2 months ago, 3 May 2019, 03:04pm -
Tops Wobble Before Falling Over [Quantifiable Edges]
I’ve shown numerous studies in the past that suggest uptrends often become choppy before they ultimately end. It is highly unusual for an uptrend that is showing strong persistence to abruptly top out. The study below demonstrates this concept. The persistent uptrend of late has kept SPX above its
- 2 months ago, 2 May 2019, 01:03pm -
Deep Dive into the Value Factor [Alpha Architect]
The financial equivalent of the famous Miller Lite, “tastes great, less filling” debate is the debate between traditional financial economics which uses risk theories to explain asset pricing and the newer behavioral finance field that uses human behavior to provide the explanations.
- 2 months ago, 2 May 2019, 01:03pm -
Tactical Asset Allocation in April [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
- 2 months ago, 1 May 2019, 11:21pm -
Convexity Explains the High BitMEX ETH Funding Rate [Falkenblog]
BitMEX offers swaps that make it easy to lever a long or short bitcoin (BTC) and ether (ETH). The main reason it trades so much is that they are based outside of US or EU control in the little archipelago-nation of Seychelles, and also that it transacts only in Bitcoin. This combination makes it
- 2 months ago, 1 May 2019, 11:20pm -