Quant Mashup
A Simple System For Hedging Long Portfolios [Relative Value Arbitrage]
In this post, we are going to examine a trading system with the goal of using it as a hedge for long equity exposure. To this end, we test a simple, short-only momentum system. The rules are as follows, Short at the close when Close of today Cover at the close when Close of today > lowest Close
- 1 month ago, 1 Apr 2018, 11:29am -
Research Review | 30 March 2018 | Portfolio Analysis [Capital Spectator]
Factor Momentum Robert D. Arnott (Research Affiliates), et al. January 31, 2018 Past industry returns predict the cross section of industry returns, and this predictability is at its strongest at the one-month horizon (Moskowitz and Grinblatt 1999). We show that the cross section of factor returns
- 1 month ago, 30 Mar 2018, 11:21am -
Trading rules that keep you trading [Alvarez Quant Trading]
I have written the difficulty in trading and testing short strategies. I had stopped trading my short strategy because it was too hard to trade psychologically for me. About nine months ago, I revisited my short strategy to see how it had been doing since I stopped and of course it has been doing
- 1 month ago, 29 Mar 2018, 11:25am -
Holy Bullish Thursday!! [Quantifiable Edges]
Stock market performance leading up to and around many holidays has often been bullish. This is something I have written about several times over the years. Holy Thursday is one such day that has done quite well. I have shown Holy Thursday stats a few times in the past. The chart and statistics
- 1 month ago, 29 Mar 2018, 11:25am -
Newfound 2018 March Madness: Final Four Update [Flirting with Models]
We outlined the full set of rules for the Newfound 2018 March Madness Brackets here. After two more rounds, we are down to the Final Four in our Newfound 2018 March Madness Bracket Challenge, and while the right hand side of the bracket looks predictable with two number 1 seeds facing off (Kansas
- 1 month ago, 29 Mar 2018, 11:23am -
R – Quantifying Trend Days [Flare 9x]
In this post I will be using R and data.table to extract all trend up / down days. The following method was used to quantify a trend day: 1. Trend up = Close price closes within 25% of the days high 2. Trend down = Close prices closes within 25% of the days low 3. Exclusive of gaps, if open is above
- 1 month ago, 28 Mar 2018, 10:01am -
How Algo Trading Reacts to Market Stress [Quantpedia]
A key issue raised by the rapid growth of computerised algorithmic trading is how it responds in extreme situations. Using data on foreign exchange orders and transactions that includes identification of algorithmic trading, we find that this type of trading contributed to the deterioration of
- 1 month ago, 28 Mar 2018, 10:00am -
Risk-Based Explanations for the Momentum Premium [Alpha Architect]
Most of the literature on the momentum factor has focused on behavioral explanations, generally either investor underreaction or overreaction. For example, in his paper “Explanations for the Momentum Premium,” Yale University professor Tobias Moskowitz points out: Underreaction results from
- 1 month ago, 27 Mar 2018, 11:13am -
Protect & Participate: Managing Drawdowns with Trend Following [Flirting with Models]
Trend following is an investment strategy that buys assets exhibiting strong absolute performance and sells assets exhibiting negative absolute performance. Despite its simplistic description, trend following has exhibited considerable empirical robustness as a strategy, having been found to work in
- 2 months ago, 26 Mar 2018, 09:32am -
Factor Exposure Analysis: Dow Jones [Factor Research]
Factor exposure should be considered a source of returns as well as of risk Factor biases can be measured top-down or bottom-up The results of the two approaches do not necessarily reconcile INTRODUCTION Factor investing has become immensely popular in recent years and assets in smart beta products
- 2 months ago, 26 Mar 2018, 09:31am -
Tax Efficient Tactical Asset Allocation [Allocate Smartly]
New to Tactical Asset Allocation? Learn more: What is TAA? In our previous post, we looked at the tax impact of TAA for investors trading in taxable accounts. Using our database of more than 40 published TAA models we concluded that, while TAA as a whole has been relatively tax efficient, the
- 2 months ago, 23 Mar 2018, 09:11am -
Two Centuries of Momentum [Flirting with Models]
A momentum-based investing approach can be confusing to investors who are often told that “chasing performance” is a massive mistake and “timing the market” is impossible. Yet as a systematized strategy, momentum sits upon nearly a quarter century of positive academic evidence and a century
- 2 months ago, 23 Mar 2018, 09:11am -
What’s Cheap? A Factor Perspective [Factor Investor]
There are a hundred ways to evaluate whether an investment is cheap--discounted cash flows, competitor multiples, mean reversion, multiple of projected earnings--the list goes on...and on. To each his own on what is the "best" valuation methodology, but suffice it to say that the
- 2 months ago, 23 Mar 2018, 09:10am -
Machine Learning Modelling in R Cheat Sheet [R Trader]
I came across this excellent article lately “Machine learning at central banks” which I decided to use as a basis for a new cheat sheet called Machine Learning Modelling in R. The cheat sheet can be downloaded from RStudio cheat sheets repository. As the R ecosystem is now far too rich to
- 2 months ago, 22 Mar 2018, 01:21pm -
Momentum Everywhere, Including in Factors [Alpha Architect]
Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. In 1997, Mark Carhart, in his study, “On Persistence in Mutual Fund Performance,” was the first to use momentum,
- 2 months ago, 22 Mar 2018, 01:20pm -
Liquidity Creation in a Short-Term Reversal Strategies and Volatility Risk [Quantpedia]
We show, both theoretically and empirically, that liquidity creation induces negative exposure to volatility risk. Intuitively, liquidity creation involves taking positions that can be exploited by privately informed investors. These investors' ability to predict future price changes makes
- 2 months ago, 22 Mar 2018, 01:18pm -
When NDX Has Closed At A Multi-Week Low On A Fed Day [Quantifiable Edges]
As far as Fed Days go, Wednesday was a disappointment. Not only did it fail to rally, but it also left SPX and NDX at 10-day lows. With Fed Days typically bullish, finishing at a 10-day low is quite unusual. The results table below is part of a larger examination I did in last night’s Subscriber
- 2 months ago, 22 Mar 2018, 01:18pm -
New Book from Marcos Lopez de Prado: Advances in Financial Machine Learning [Amazon]
Machine learning (ML) is changing virtually every aspect of our lives. Today ML algorithms accomplish tasks that until recently only expert humans could perform. As it relates to finance, this is the most exciting time to adopt a disruptive technology that will transform how everyone invests for
- 2 months ago, 21 Mar 2018, 11:45pm -
Review: Advances in Financial Machine Learning [Mathematical Investor]
Two of the most talked-about topics in modern finance are machine learning and quantitative finance. Both of these are addressed in a new book, written by noted financial scholar Marcos Lopez de Prado, entitled Advances in Financial Machine Learning. In this book, Lopez de Prado strikes a well-aimed
- 2 months ago, 21 Mar 2018, 11:43pm -
Newfound 2018 March Madness: Sweet 16 Update [Flirting with Models]
We outlined the full set of rules for the Newfound 2018 March Madness Brackets here. We have two rounds in the bag in this year’s March Madness bracket competition, and what a wild ride it’s been: 16 seed UMBC made history by beating 1 seed Virginia, edging them out by a mere 20 points… The
- 2 months ago, 20 Mar 2018, 02:18pm -
Stock Buybacks are Bad? What About the Alternative [Alpha Architect]
Recently there has been a fairly active discussion within the financial media on the topic of stock buybacks, or share repurchases. This is probably due to the recent tax reform, which has caused many to question where companies will spend their additional profits now that firms (on average) will be
- 2 months ago, 20 Mar 2018, 02:17pm -
Fed Day Performance In Rising vs Falling Rate Environments [Quantifiable Edges]
The Fed holds policy meetings 8 times per year. Many times since starting Quantifiable Edges in 2008, I have discussed the (primarily bullish) edge that exists on the final day of these meetings when the Fed releases its statement and announces any new policy changes. One question I often get about
- 2 months ago, 20 Mar 2018, 02:17pm -
You Are Not a Monte-Carlo Simulation [Flirting with Models]
Even when an investment has a positive expected average growth rate, the experience of most individuals may be catastrophic. By focusing on the compound average growth rate, we can see the median realizations – which account for risk – are often more crucial decision points than ensemble
- 2 months ago, 19 Mar 2018, 10:04am -
Factor Portfolios: Turnover Analysis [Factor Research]
Some ETF investors claim that passive index products are superior to actively managed funds due to lower turnover and therefore less transaction costs. While this is partially true, most investors are unlikely to be familiar that indices such as the S&P 500 have a relatively high amount of
- 2 months ago, 19 Mar 2018, 10:03am -
When Bullish Opex Weeks Fail To Play Out [Quantifiable Edges]
I discussed last weekend that monthly option expiration (opex) week is typically a bullish week, especially during the months of March, April, October, and December. Obviously, the bullish tendency did not play out this past week. So does this mean the bullish tendency may be delayed a week? Or is
- 2 months ago, 19 Mar 2018, 10:03am -
Interest rate swap returns: empirical lessons [SR SV]
Interest rate swaps trade duration risk across developed and emerging markets. Since 2000 fixed rate receivers have posted positive returns in 26 of 27 markets. Returns have been positively correlated across virtually all countries, even though low yield swaps correlated negatively with global
- 2 months ago, 18 Mar 2018, 01:48am -
Does indexing threaten the market? [Mathematical Investor]
Index investing has grown significantly over the past 30 years. Back in 1990, few were even aware of the option for indexing, and options were limited mostly to a handful of conventional mutual funds tracking the U.S. S&P 500 index. In 1993, Boston’s State Street Global Advisors launched the
- 2 months ago, 17 Mar 2018, 10:05pm -
Is The US Stock Market Overvalued? Depends on which Model You Ask [Alpha Architect]
When stock prices reach a new high, investors start asking the question: Are stocks overvalued? To answer this question, investors have developed several alternative equity valuation models. Typically, each of this models compares the stock market’s current price level to a benchmark. Among
- 2 months ago, 15 Mar 2018, 09:54pm -
Volume and Volatility: A Tale of Two Vols [Quant Fiction]
Outside of price action, two of the most popular market characteristics analyzed are volume and volatility. Volatility is often used to determine market regime, while the traditional use for volume is to confirm price movement. This post will investigate the relationship between these two
- 2 months ago, 15 Mar 2018, 11:04am -
Do Relative-Value Strategies Beat Traditional Systematic Value Investing Strategies? [Alpha Architect]
Readers often send us great questions related to different ideas on systematic value strategies. The outcome of years of back and forth with readers and internal discussions is several books and hundreds of blog posts on the subject of value investing. So…What have we learned? We’ve learned a
- 2 months ago, 14 Mar 2018, 12:51pm -
Demystifying the Hurst Exponent with Cryptocurrencies [Quant Dare]
Is the bitcoin market (Ethereum, Dash and Litecoin) efficient? After reading the paper, “Persistence in the cryptocurrency market”, which tries to answer that question, I was challenged by a colleague to replicate its results. This led me to write this post to highlight the great variability of
- 2 months ago, 14 Mar 2018, 10:46am -
Profiling Correlations For The Major Asset Classes [Capital Spectator]
The case for holding a portfolio that’s diversified across markets and asset classes is built on the assumption that return correlations will remain below 1.0 (perfect positive correlation) by more than a trivial degree. To the extent that you own assets that move independently of one another
- 2 months ago, 14 Mar 2018, 10:45am -
Is Equity Pairs Trading Profitable Due to Cointegration? [Quantpedia]
We study the theoretical implications of cointegrated stock prices on the profitability of pairs trading strategies. If stock returns are fairly weakly correlated across time, cointegration implies very high Sharpe ratios. To the extent that the theoretical Sharpe ratios are "too large,"
- 2 months ago, 14 Mar 2018, 10:45am -
News Buzz Impacts Stock Returns [Raven Pack]
To bridge the gap between the quantitative community and discretionary investors, RavenPack launched the latest edition of its self-service data and visualization platform back in Fall 2017 - making it easier to create custom daily indicators on top of RavenPack’s granular data. Indicators which
- 2 months ago, 13 Mar 2018, 01:42pm -
Three Trading "Truths" Quantified [Build Alpha]
I want to discuss three trading “truths” that I often heard but when I finally got into testing ideas found them to be myths. These discoveries were instrumental in turning my trading around. For those that know my story, it was not all roses and rainbows – what trading story is?!? I actually
- 2 months ago, 13 Mar 2018, 01:41pm -
Newfound's 2018 March Madness Bracket Challenge [Flirting with Models]
Bracket templates can be downloaded here. Bracket submissions must be sent here with a subject of "March Madness 2018" by 11:59PM Eastern time on Wednesday March 14, 2018. On the heels of ReSolve’s past four years of progressive March Madness bracket challenges, we are pleased to take
- 2 months ago, 13 Mar 2018, 01:41pm -
Tactical Asset Allocation and Taxes [Allocate Smartly]
Tactical asset allocation, by its nature, generates more transactions than buy & hold. Investors trading in taxable accounts would be justifiably concerned that the negative tax consequences of that might outweigh the benefits of TAA by shifting returns to less advantageous short-term capital
- 2 months ago, 12 Mar 2018, 12:56pm -
Worried about extreme down markets? Consider formal portfolio risk models [Alpha Architect]
Are there variations in the methods that funds use to manage risk? Do hedge funds practicing risk management outperform other funds during periods of financial crisis? Are there differences in the type of risk management practices in terms of performance? Are there competing explanations that may
- 2 months ago, 12 Mar 2018, 12:56pm -
March Madness for Investors [Flirting with Models]
Over the past few years, ReSolve Asset Management has progressively worked to develop new and exciting rules for the March Madness bracket tournament. While the stakes may be much lower than in investing, many of the lessons we have learned translate well to portfolio construction and strategy
- 2 months ago, 12 Mar 2018, 12:56pm -
Algorithmic trading is here to stay [R Trader]
A foreword for the regular reader: this article has nothing to do with R With the increase of market “electronification”, algorithmic trading is becoming more and more popular. As a result, the regulator has paid a particular attention to this activity in the MIFID II regulation, designing a
- 2 months ago, 12 Mar 2018, 06:55am -
Equity Factors and GDP Growth [Factor Research]
Economic cycles have a clear impact on factor performance Some factors show pro-cyclical while others highlight anti-cyclical characteristics Given that real GDP is not published in real-time, it is unlikely effective for factor selection INTRODUCTION Financial commentators frequently explain a
- 2 months ago, 12 Mar 2018, 06:55am -
Today’s Employment-Sparked NASDAQ Rally Appears To Be A Short-Term Bullish Indication [Quantifiable Edges]
The employment report has helped to spark a big rally today, and the NASDAQ is hitting new all-time highs. I looked back at other instances where the NASDAQ spiked higher and closed at a new high on the day of an employment report. The results I saw were compelling. Here are the list of instances
- 2 months ago, 12 Mar 2018, 06:54am -
Text Mining Corporate Filings by Yin Luo [Quantopian]
Web scraping, distributed cloud computing, NLP, and machine learning techniques (in short, text mining) can be applied to systematically analyze corporate filings from the EDGAR database. Equipped with his own NLP algorithms, Yin Luo, Vice Chairman at Wolfe Research, studies a wide range of models
- 2 months ago, 8 Mar 2018, 06:25pm -
Solvency Risk Premia and the Carry Trades [Quantpedia]
This paper shows that currency carry trades can be rationalized by the time-varying risk premia originating from the sovereign solvency risk. We find that solvency risk is a key determinant of risk premia in the cross section of carry trade returns, as its covariance with returns captures a
- 2 months ago, 8 Mar 2018, 06:24pm -
Idea to Algorithm: Turning a Predictive Model into Trades [Quantopian]
Quantitative finance is, at the core, a process which is attempting to turn thought into money. In that light, it is no different from many other jobs, the main question is what path quants take in order to turn their thinking in cash. We’ll lay out some brief thoughts here on very high level
- 2 months ago, 7 Mar 2018, 11:10am -
Machine learning is simply statistics [Eran Raviv]
Note: I usually write more technical posts, this is an opinion piece. And you know what they say: opinions are like feet, everybody’s got a couple. Machine learning is simply statistics A lot of buzz words nowadays. Data Science, business intelligence, machine learning, deep learning, statistical
- 2 months ago, 7 Mar 2018, 11:09am -
Are Long/Short Equity Strategies Worth the Fees? [Alpha Architect]
High net worth individuals, university endowments, and public pension funds have heavily invested in long/short equity hedge funds. But is the long/short equity asset class benefiting investors? The pitfalls of expensive financial products are well documented in the academic literature; however, the
- 2 months ago, 7 Mar 2018, 11:09am -
State of Trend Following in February [Au Tra Sy]
The State of Trend Following index opened the year with strong returns, but February brought the index down with a strong negative performance. Please check below for more details. Detailed Results The figures for the month are: February return: -8.16% YTD return: -1.94% Below is the chart
- 2 months ago, 7 Mar 2018, 11:09am -
Thinking in Long/Short Portfolios [Flirting with Models]
Few investors hold explicit shorts in their portfolio, but all active investors hold them We (re-)introduce the simple framework of thinking about an active portfolio as a combination of a passive benchmark plus a long/short portfolio. This decomposition provides greater clarity into the often
- 2 months ago, 6 Mar 2018, 05:24am -
Macroeconomic factors and Tactical Asset Allocation [Alpha Architect]
The literature shows that macroeconomic factors can drive asset returns, however, economists and investment teams operate independently. In this paper, the authors attempt to bring macroeconomic discipline to tactical asset allocation by highlighting macroeconomic “dashboards:” The authors
- 2 months ago, 6 Mar 2018, 05:24am -
