Quant Mashup
Algorithmic Trading System Development [Auquan]
Often a Quantitative Researcher will develop trading models in Python or R. These models are then passed off to Quantitative Developers, who implement them in trading systems with Java or C++. Usually, a Quantitative Trader will then execute trades with the help of these systems. I have had the
- 1 month ago, 9 Aug 2018, 12:56pm -
The Carry Factor and Global Risks [Alpha Architect]
The carry factor is the tendency for higher-yielding assets to provide higher returns than lower-yielding assets — it is a cousin to the value factor, which is the tendency for relatively cheap assets to outperform relatively expensive ones. A simplified description of carry is the return an
- 1 month ago, 9 Aug 2018, 12:56pm -
SPY Mean Reversion With John Ehlers Adaptive RSI [Flare 9x]
It has been a busy few months. I have been exploring market indicators that John Ehlers has created which he publicly made available in his book: Cycle Analytics for Traders : Advanced Technical Trading Concepts. The key theme of his book is applying digital signal processing filters to better
- 1 month ago, 8 Aug 2018, 07:37pm -
Our Conversation with @MebFaber [Flirting with Models]
This post is the first of a series where we will be providing some of our own thoughts and commentary the conversations we had in the first season of our new podcast. This post covers our conversation with Meb Faber, which you can listen to here. 2:09 - Meb hijacks the show to ask a very important
- 1 month ago, 8 Aug 2018, 07:37pm -
Warning: Stock and Bond Correlation Assumptions are Regime Dependent! [Alpha Architect]
It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so. — attributed to Mark Twain. Mark Twain had some great insights. The quote above can apply to just about every aspect of life, including investing. This axiom is particularly relevant
- 1 month ago, 7 Aug 2018, 11:31am -
July 2018 Trend Following [Wisdom Trading]
July 2018 Trend Following: DOWN -1.98% / YTD: -7.85% Please find this month’s report of the Wisdom State of Trend Following. Performance is hypothetical. Chart for July: Wisdom State of Trend Following - July 2018 And the 12-month chart: Wisdom State of Trend Following 12 months - July 2018 Below
- 1 month ago, 7 Aug 2018, 11:31am -
State of Trend Following in July [Au Tra Sy]
Slightly positive month for the State of Trend Following, with the YTD slightly negative. Please check below for more details. Detailed Results The figures for the month are: July return: 0.57% YTD return: -2.19% Below is the chart displaying individual system results throughout July: StateTF July
- 1 month ago, 7 Aug 2018, 11:30am -
Mean Reversion and Bond ETF Returns [Flirting with Models]
In July 2016, we argued that bond investors should be quick to celebrate the strong returns they had realized year-to-date. The combination of a defined maturity and known coupon rate creates a gravitational pull for bond returns. Using a global bond ETF universe, we develop a simple model to
- 1 month ago, 6 Aug 2018, 11:31am -
Momentum Variations [Factor Research]
The simplicity of the Momentum factor can be intellectually challenging Various alternative Momentum versions highlight remarkable similar return profiles The robustness is an attractive characteristic of the investment strategy INTRODUCTION What do selfies, the Kardashians, Crocs, blue cheese, and
- 1 month ago, 6 Aug 2018, 11:30am -
An Extensive Test of Market Timing Strategies in the Gold Market [Quantpedia]
While the literature on gold is dominated by studies on its diversification, hedging, and safe haven properties, the question “When to invest in gold?” is generally not analyzed in much detail. We test more than 4,000 seasonal, technical, and fundamental timing strategies for gold. While we find
- 1 month ago, 6 Aug 2018, 11:30am -
Getting Down To Business! [System Trader Success]
In the previous parts of this 3-part article (see part 1 and part 2), I introduced you to algo trading, and then discussed features of algo trading, along with advantages and disadvantages. Algo trading can definitely help you compete with the “big boys,” but it is not automatically a
- 1 month ago, 6 Aug 2018, 11:29am -
A replication of the Practical Application section in 'The Probability of Backtest Overfitting' [Open Source Quant]
In their paper “The Probability of Backtest Overfitting” [https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2326253] Bailey et al. introduce a method for detecting overfitting. They refer to the method as CSCV or Combinatorially Symmetric Cross Validation. Bailey et al. proceed to show that
- 1 month ago, 5 Aug 2018, 09:34am -
Conference: Financial Revolution - Sentiment Analysis, AI and Machine Learning - Oct 30, 2018, Zurich
Artificial Intelligence is deemed to be the main driver of the 4th Industrial Revolution. IDC predicts that investment in AI will grow from $12bn in 2017 to $57.6 by 2021, while Deloitte Global predicts the number of machine learning pilots and implementations will double in 2018 compared to 2017.
- 1 month ago, 4 Aug 2018, 12:42pm -
What variance swaps tell us about risk premia [SR SV]
Variance swaps are over-the-counter derivatives that exchange payments related to future realized price variance against fixed rates. Variance swaps help estimating term structures for variance risk premia, i.e. market premia for hedging against volatility risk based in the difference between
- 1 month ago, 4 Aug 2018, 12:41pm -
Mutual fund performance and survivorship bias [Mathematical Investor]
As we have noted in previous Mathematical Investor blogs (see this blog for instance), surprisingly few mutual funds beat their respective benchmark (typically some market index). Even fewer consistently beat their benchmarks year after year. A new report from S&P Dow Jones sheds light on this
- 1 month ago, 4 Aug 2018, 12:40pm -
A Q&A Discussion with Vanguard Researchers on the "Fair Value CAPE Ratio" [Alpha Architect]
As everyone who’s been invested for the last ten years knows, post-financial crisis stock returns have been incredible. The chart below highlights the total returns for the S&P 500 Index, the MSCI EAFE Index, the MSCI EEM Index, and the MSCI ACWI Index. The results are hypothetical results and
- 1 month ago, 3 Aug 2018, 12:54pm -
Tactical Asset Allocation in July [Allocate Smartly]
This is a summary of the recent performance of a wide range of excellent tactical asset allocation 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 are
- 1 month ago, 3 Aug 2018, 06:29am -
RSI2 Strategy: Double returns with a simple rule change [Alvarez Quant Trading]
While playing around with a 2 period RSI (Relative Strength Index) mean reversion strategy, I came up with a very simple rule change with a much larger impact on the results than expected. I doubled the compounded annual growth rate and cut the maximum drawdown in half. That never happens. In my
- 1 month ago, 1 Aug 2018, 12:04pm -
Consistent Momentum [Sutherland Research]
It’s been some time since I last posted so what better way to start than by quantifying and exploring a momentum strategy that was first introduced to me by the good guys at Quantpedia (www.quantpedia.com). If you haven’t heard of this site before, then I encourage you to check it out. For a
- 1 month ago, 1 Aug 2018, 12:03pm -
Momentum Solutions for Retirement [Dual Momentum]
As the surge of boomer retirements continues, commentators have given new thought to what safe withdrawal rates are for retirement accounts. The topic is especially significant given two additional factors. First, retirement balances are shockingly low for boomers (Ghilarducci 2015)[1]. Second,
- 1 month ago, 1 Aug 2018, 12:02pm -
Measuring Process Diversification in Trend Following [Flirting with Models]
We prefer to think about diversification in a three-dimensional framework: what, how, and when. The “how” axis covers the process with which an investment decision is made. There are a number of models that trend-followers might use to capture a trend. For example, trend-followers might employ a
- 1 month ago, 30 Jul 2018, 09:41pm -
Factors: Shorting Stocks vs The Index [Factor Research]
Most factor investing research is based on long-short stock portfolios Investible risk premia strategies often feature a short index position Trade-off between theoretical alpha and implementation costs & efficiency INTRODUCTION Amundi, a French asset manager, was the first institution to launch
- 1 month ago, 30 Jul 2018, 09:40pm -
Finance Journals Rarely Publish Articles with low T-stats [Alpha Architect]
Coined by Rosenthal in 1979, the term file drawer problem refers to the notion that journal editors are biased toward accepting articles that include statistically significant results over those with nonsignificant results. The competition for increasing the citation count and improving journal
- 1 month ago, 30 Jul 2018, 09:40pm -
Review: Quantpedia.com [Throwing Good Money]
Quantpedia contacted me a few months ago and asked if I’d be interested in reviewing their site on my blog. I’m always looking for new ideas for trading systems, so I said “sure!” (Disclosure: they provided me with free account access during the review period.) Quantpedia.com is an
- 1 month ago, 30 Jul 2018, 09:39pm -
Predictability of Betting-Against-Beta Factor [Quantpedia]
The leverage aversion theory implies that returns to the betting-against-beta (BAB) strategy are predictable by past market returns: An outward shift in investors' aggregate demand function simultaneously increases market prices and increases the expected future BAB return. I confirm the
- 1 month ago, 30 Jul 2018, 09:39pm -
Market intraday momentum [Eran Raviv]
I recently spotted the following intriguing paper: Market intraday momentum. From the abstract of that paper: Based on high frequency S&P 500 exchange-traded fund (ETF) data from 1993–2013, we show an intraday momentum pattern: the first half-hour return on the market as measured from the
- 1 month ago, 29 Jul 2018, 10:15am -
Seasonalities: Bad Period for Stocks? [Quintuitive]
I just finished the implementation of another approach to finding repetitive calendar behaviour, and was quite surprised that the only short period for stocks, has just began. What are the odds of this?
- 1 month ago, 29 Jul 2018, 10:15am -
Understanding Stock Price Range Forecasts [Jonathan Kinlay]
Range forecasts are produced by estimating the parameters of a Geometric Brownian Motion process from historical data and using the model to project a large number of sample paths for the stock price over the coming month and year. For example, this is a range forecast for Netflix, Inc. (NFLX) as at
- 1 month ago, 29 Jul 2018, 12:50am -
The dangerous disregard for fat tails in quantitative finance [SR SV]
The statistical term ‘fat tails’ refers to probability distributions with relatively high probability of extreme outcomes. Fat tails also imply strong influence of extreme observations on expected future risk. Alas, they are a plausible and common feature of financial markets. A summary article
- 1 month ago, 28 Jul 2018, 02:58am -
A Simple Hedging System With Time Exit [Relative Value Arbitrage]
This post is a follow-up to the previous one on a simple system for hedging long exposure during a market downturn. It was inspired by H. Krishnan’s book The Second Leg Down, in which he referred to an interesting research paper [1] on the power-law behaviour of the equity indices. The paper
- 1 month ago, 27 Jul 2018, 09:40pm -
Factor Investing Insights You Won't Hear from Fama and French [Alpha Architect]
Factor investing research has a long storied past. Fama and French’s 1992 and 1993 papers arguably put factor investing “on the map,” but truth be told, factor investing is an old topic with roots grounded in the so-called arbitrage pricing theory. We have a longer piece on the history of
- 1 month ago, 26 Jul 2018, 10:03pm -
A Look At Past NDX Leaders That Gapped Down Big (For FB Traders) [Quantifiable Edges]
After the market close on Wednesday, Facebook (FB) released earnings, and the news and future outlook was not viewed well. After closing at an all-time high on Wednesday, it traded down in excess of 25% in the after-hours. So it seems certain it will be opening Thursday with a sizable gap lower. I
- 1 month ago, 26 Jul 2018, 10:03pm -
NDX Leader Performance Over Several Weeks After Large Gaps Down (FB Follow-Up) [Quantifiable Edges]
This is a follow-up from my FB post last night. Traders that looked to take advantage of a possible bounce from today’s open have seen moderate gains so far today. So what are the chances FB continues to bounce over the next several days and weeks? I re-looked at the study from last night, and
- 1 month ago, 26 Jul 2018, 10:02pm -
We Are All FX Traders Now [Alpha Scientist]
It's easy to forget that virtually all asset classes we hold are priced in US dollar terms. Portfolio valuations are as impacted by the denominator (US dollars) as by the numerator (asset value) Commodity assets like oil and gold are highly (negatively) correlated to US dollar strength. Certain
- 1 month ago, 25 Jul 2018, 07:20am -
Conviction, evidence, and accepting ignorance [Factor Investor]
Countless studies have demonstrated that incorporating feedback loops into life is beneficial. Want to improve at work; seek a mentor. Want to nix that slice; get a swing coach. Want to get in shape; find a trainer. Want to become a better surgeon; get a coach. When left to our own designs,
- 1 month ago, 25 Jul 2018, 07:20am -
Machine Learning, Subset Resampling, and Portfolio Optimization [Flirting with Models]
Portfolio optimization research can be challenging due to the plethora of factors that can influence results, making it hard to generalize results outside of the specific cases tested. That being said, building a robust portfolio optimization engine requires a diligent focus on estimation risk.
- 2 months ago, 23 Jul 2018, 12:18pm -
2D Asset Allocation Using PCA (Part 1) [CSS Analytics]
Asset allocation is a complex problem that can be solved using endless variations of different approaches that range from theoretical like Mean-Variance to heuristic like Minimum Correlation or even “tactical strategies.” Another challenge is defining an appropriate asset class universe which
- 2 months ago, 23 Jul 2018, 12:18pm -
ETFs, Smart Beta and Factor Exposure [Factor Research]
Factor exposure analysis can be used to derive factor themes Smart beta ETFs offer relatively low factor exposure It is all about how factors are defined INTRODUCTION The Austrian energy drinks company Red Bull advertised for almost two decades that Red Bull “gives you wings” and improves a
- 2 months ago, 23 Jul 2018, 12:17pm -
Practical Statistics for Algo Traders [Robot Wealth]
How do you feel when you see the word “statistics”? Maybe you sense that it’s something you should be really good at, but aren’t. Maybe the word gives you a sense of dread, since you’ve started exploring its murky depths, but thrown your hands up in despair and given up – perhaps more
- 2 months ago, 22 Jul 2018, 08:25pm -
The importance of volatility of volatility [SR SV]
Options-implied volatility of U.S. equity prices is measured by the volatility index, VIX. Options-implied volatility of volatility is measured by the volatility-of-volatility index, VVIX. Importantly, these two are conceptually and empirically different sources of risk. Hence, there should also be
- 2 months ago, 21 Jul 2018, 08:23am -
Complex Backtesting in Python – Part II – Zipline Data Bundles [Following the Trend]
In the last article on Python backtesting, we looked at how to install the Zipline library and get a basic simulation going. But what we did not touch upon was how to get your own data hooked up. If you are reading this, there is a good chance that you take your backtesting and trading simulation
- 2 months ago, 20 Jul 2018, 09:59am -
Which Investment Factors Drive Corporate Bond Returns [Alpha Architect]
What are the research questions The presence of historical prices impacting future returns, i.e., momentum, has been well researched in the equity market, which we’ve covered here. We’ve also closely looked at momentum in bond markets here, here, and here. What the Bali, Subrahmanyam, & Wen
- 2 months ago, 20 Jul 2018, 09:58am -
New Strategy Added: Vigilant Asset Allocation – Balanced [Allocate Smartly]
Vigilant Asset Allocation from Dr. Keller and JW Keuning is one of the most popular tactical asset allocation strategies that we track (click for the full list). The authors’ original paper includes multiple variations of the strategy, based on the number of assets held at any given time and how
- 2 months ago, 19 Jul 2018, 10:17am -
A Very Influential Paper About Tether-Bitcoin Relationship (Manipulation?) [Quantpedia]
This paper investigates whether Tether, a digital currency pegged to U.S. dollars, influences Bitcoin and other cryptocurrency prices during the recent boom. Using algorithms to analyze the blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable
- 2 months ago, 19 Jul 2018, 10:16am -
Stock Prediction with ML: Walk-forward Modeling [Alpha Scientist]
Key Takeaways: Traditional methods of validation and cross-validation are problematic for time series prediction problems The solution is to use a "walk-forward" approach which incorporates new information as it becomes available. This approach gives us a more realistic view of how
- 2 months ago, 18 Jul 2018, 09:34pm -
Our Conversation with Tobias Carlisle (@Greenbackd) [Flirting with Models]
This post covers our conversation with Tobias Carlisle, which you can listen to here. 2:09 - Toby starts at the beginning: with school classes that included sheering sheep in Australia. Corey Hoffstein ("CH"): I was so taken aback by this introduction that I was totally caught off-guard. I
- 2 months ago, 18 Jul 2018, 09:34pm -
10 Reasons for loving Nearest Neighbors algorithm [Quant Dare]
I fell in love with k-Nearest Neighbors algorithm at first sight, but it isn’t blind love. I have plenty of reasons to be mad about it. 1. It’s pretty intuitive and simple Given that all you need to do is to compare samples, the Nearest Neighbors (k-NN) algorithm is a perfect first step to
- 2 months ago, 18 Jul 2018, 04:39am -
Momentum's Magic Number [Flirting with Models]
In HIMCO’s May 2018 Quantitative Insight, they publish a figure that suggests the optimal holding length of a momentum strategy is a function of the formation period. Specifically, the result suggests that the optimal holding period is one selected such that the formation period plus the holding
- 2 months ago, 16 Jul 2018, 11:55am -
A look at SOMA changes influence on SPX since Quantitative Tightening began [Quantifiable Edges]
The chart below is from this weekend’s QE subscriber letter. It is one I have updated frequently the last few months. It looks at compound performance of two opposing strategies. The blue line represents a strategy that is invested in the market during weeks that the Fed’s SOMA account value
- 2 months ago, 16 Jul 2018, 11:55am -
Portfolio Craftsmanship is Just as Important as Choosing an Investment Style [Alpha Architect]
This is an important article for practitioners because it brings specific investing decisions that are often treated as afterthoughts, to the forefront in style-based investing. The authors propose that decisions made beyond the initial decision to invest in a style, such as value or momentum, are
- 2 months ago, 16 Jul 2018, 11:53am -
