Quant Mashup Macro Variables in Factor Exposure Analysis [Factor Research]Most investors treat factor and macro variables differently Including macro variables improves a factor exposure analysis Both should be considered simultaneously when analyzing investment portfolios INTRODUCTION The investment world is full of conundrums. For example, discussions on investment(...) Does Emerging Markets Investing Make Sense? [Alpha Architect]This post focuses on the costs and benefits of including generic broad-based emerging market exposures in one’s portfolio (Note, we do not discuss factors/freedom/etc.). The analysis is not meant to be exhaustive and/or highly complex. Nor is it meant to sway the reader in one direction or the(...) Predicting US Treasury Returns [Allocate Smartly]This is a test of the paper Predicting Bond Returns: 70 Years of International Evidence. The authors use an ensemble model to trade US and international treasury bonds. Over the last 60+ years the strategy would have produced long-term returns in line with buy & hold, while significantly(...) Fed Days: Pre vs Post-Announcement Action During Downtrends [Quantifiable Edges]In a blog post a few years ago I showed that the Fed Day edge has basically played out before the announcement even takes place. Returns after the announcement have been somewhat random. In last night’s subscriber letter I decided to take a similar look, but only examining instances during(...) Optimization problems with non-continuous restrictions [Quant Dare]In the financial field, managers usually take advantage of the great development in machine learning techniques to improve their models and get the best performance of their portfolios. These techniques may be clustering, neural networks, or even a more traditional one as optimization algorithms. In(...) Relative Sentiment and Machine Learning for Tactical Asset Allocation [Alpha Architect]By the middle of 2019, we had been running an ensemble of relative sentiment(1) indicators in live asset management for several years. One of the components of that ensemble was a strategy that looked at Sentix sentiment indices. For those unfamiliar with Sentix (a German company), every week it(...) Factors Investing in Cryptocurrency [Alpha Architect]Cryptocurrency investing is a widely debated topic and one can find plenty of debates on Twitter discussing the fed, fiat currencies, and inflation. Regardless of where you fall on the crypto spectrum, we try and focus on research-centric takes on various investment themes whenever possible. The(...) Slava Ukraini! Latest from Only VIX, Quantocracy contributor in Ukraine: Modeling Implied Vol Surfaces of Crypto Options [Only Vix]This is a quick follow-up to my previous post with comments on Artur Sepps's video. From the start Mr Sepp sets up the practical problem familiar to anyone in the crypto options space. The leader is Deribit - an exchange that I wrote about extensively in this blog with ~ 89% market share. The(...) A Rare “Inverse Zweig Breadth Collapse” Triggers [Quantifiable Edges]A few years back I wrote about Zweig Breadth Thrusts in some detail. The Zweig Thrust takes a 10-day exponential moving average of the NYSE Up Issues %. It looks for a move from Over the last 3 days we have essentially what could be considered the inverse setup trigger. The NYSE Up Issues % 10ema(...) Ehlers Loops [Financial Hacker]Price charts normally display price over time. Or in some special cases price over ranges or momentum. In his TASC articles in June and July 2022, John Ehlers proposed a different way of charting. The ratio of two parameters, like price over momentum, or price A over price B, is displayed as a 2D(...) Sector versus Factor Exposure Analysis [Factor Research]Investors tend to talk more about sector than factor performance However, few investors conduct a regression-based sector exposure analysis The high correlations of sectors, even if structured market-neutral, makes this less meaningful INTRODUCTION Switch on CNBC or Bloomberg TV during US stock(...) Six ways to estimate realized volatility [SR SV]Asset return volatility is typically calculated as (annualized) standard deviation of returns over a sequence of periods, usually daily from close to close. However, this is neither the only nor necessarily the best method. For exchange-traded contracts, such as equity indices, one can use open,(...) Trend-Following in the Times of Crisis [Quantpedia]When someone mentions a financial crisis, most people immediately think of the global financial crisis of 2007-2008. Even though this is the most significant economic crisis in recent years, there have been many more significant crisis periods in the past 100 years. This article examines the biggest(...) The Unintended Consequences of Single Factor Strategies [Alpha Architect]Since the 1992 publication of “The Cross-Section of Expected Stock Returns” by Eugene Fama and Kenneth French factor-based strategies and products have become an integral part of the global asset management landscape. While “top-down” allocation to factor premiums (such as size, value,(...) Research Review | 10 June 2022 | Risk Premia Sources [Capital Spectator]Inflation as the Source of the Bond, Equity, and Value Premia Martin Tarlie (GMO) May 2022 A no-arbitrage pricing model with inflation as the only priced risk factor explains the bond, equity, and value premia observed in the United States over the past sixty years. Even though inflation is the only(...) Best Performing Value Strategies - Part 2 [Quantpedia]Value trading strategies have come back into spotlight in recent years. After lackluster performance in years 2018, 2019, 2020, Value has staged a strong comeback in 2021 and also in 2022. With a long history of systematic equity Value strategies, many different variants of the strategy have(...) Visualizing the Robustness of the US Equity ETF Market [Alpha Architect]Market commentators sometimes suggest that the equity ETF market is just a bunch of “index funds” that all do essentially the same thing: deliver undifferentiated stock market exposure. How true is that statement? Fortunately, we can test the hypothesis that the ETF market is roughly a few(...) Mean-Variance Optimization in Practice: Subset Resampling-based Efficient Portfolios [Portfolio Optimizer]In a previous post, I introduced near efficient portfolios, which are portfolios equivalent to mean-variance efficient portfolios in terms of risk-return but more diversified in terms of asset weights. Such near efficient portfolios might be used to moderate the tendency of efficient portfolios to(...) One-Month Trading Strategies [Falkenblog]About half of Robeco’s Quantitative Investing team recently published a short paper on monthly trading strategies (see Blitz et everybody Beyond Fama-French Factors: Alpha from Short-Term Signals Frequencies). I can imagine these guys talking about this stuff all the time, and someone finally(...) Do Connections Pay Off in the Bitcoin Market? [Alpha Architect]Traditional asset pricing theory holds that the workings of information networks among investors are good descriptors of equity markets. Investors that are “better informed” about fundamentals and who trade earlier than less well informed investors will receive higher returns. As the” better(...) Factor Exposure Analysis of Fixed Income ETFs [Factor Research]Factor exposure analysis can be used in fixed income as easily as in equities More variables improve the explanatory power of the model However, it also can make the interpretation challenging INTRODUCTION Running a factor exposure analysis is a core element of the due diligence process for(...) Short-term Momentum [Alpha Architect]Momentum, the tendency of past winner stocks to outperform past loser stocks over the next several months, is one of the most well-documented and well-researched asset pricing anomalies. In the asset pricing literature, momentum is generally defined over the short-, medium- and long-term in the(...) Evaluating Data Coverage with Tiingo [Quant Start]In this article we will be introducting Tiingo, a data and stock market tools provider. Founded in 2014 Tiingo aims to empower its users by providing good, clean and more accurate data. They offer OHLCV data for 82,468 Global Securities, 37,319 US & Chinese Stocks 45,149 ETFs & Mutual Funds.(...) Options Hedging & Leveraged ETFs in Market Swings [Alpha Architect]Not long ago, GameStop stock rose like crazy in only a few hours with the effects of broker-dealer options hedging spurred by retail investor buying pressure. And from February to March 2020, options trading activity was also pointed to as a contributor to stock swings in the Covid-19 selloff. The(...) Trending Fast and Slow [Allocate Smartly]This is a test of a tactical strategy from the paper Trending Fast and Slow. It trades the S&P 500 by switching between fast and slow momentum based on market volatility. The strategy would have kept pace with the S&P 500, while significantly reducing the worst drawdowns. Backtested results(...) An introduction to accessing financial data in EDGAR, using Python [Wrighters.io]Some sources of financial data can be expensive or difficult to find. For example, some is only available from exchanges or vendors who charge a hefty fee for access. However, the financial industry is also heavily regulated, and one of its main regulators provides free access to its data. The (U.S.(...) Introduction and Examples of Monte Carlo Strategy Simulation [Quantpedia]The Monte Carlo method (Monte Carlo simulations) is a class of algorithms that rely on a repeated random sampling to obtain various scenario results. Monte Carlo simulations are used to predict the probability of different outcomes when it would be difficult to use other approaches such as(...) Duration volatility risk premia [SR SV]Duration volatility risk premium means compensation for bearing return volatility risk of an interest rate swap (IRS) contract. It is the scaled difference between swaption-implied and realized volatility of swap rates’ changes. Historically, these premia have been stationary around positive(...) Biotech Stocks: High Idiosyncratic Risks, High Alpha? [Factor Research]Most technological change today is an evolution rather than a revolution. Naturally, it is great to have a mobile device that allows instant access to the global knowledge depository, entertainment, shopping, and so on, but most of these innovations have been predicted decades ago by science fiction(...) 100-Years of Multi-Asset Trend-Following [Quantpedia]Trend-following strategies have gained extreme popularity in the recent decade. Almost every asset manager utilizes trend following, or momentum, in some form – whether consciously or subconsciously. We at Quantpedia are convinced that each and every strategy has to be scrutinized thoroughly(...) Strategies to Mitigate Tail Risk [Alpha Architect]Investors care about more than just returns. They also care about risk. Thus, prudent investors include consideration of strategies that can provide at least some protection against adverse events that lead to left tail risk (portfolios crashing). The cost of that protection (the impact on expected(...) Extending Historical Daily Commodities Data to 100 years [Quantpedia]Finding a high-quality data source is crucial for quantitative trading strategies. Also, having a long history is beneficial. Fama & French, for example, offer free historical data for stocks and a variety of factors. However, it is very hard to get good-quality and free data for other asset(...) Hierarchical clustering: explanation and classification [Quant Dare]Clustering algorithms are one of the main techniques in the field of unsupervised learning. In the machine learning context, we understand by unsupervised learning the process of analyzing and identifying patterns in unlabeled datasets. Unsupervised learning algorithms observe similarities and(...) Best Performing Value Strategies - Part 1 [Quantpedia]Value strategies attempting at determining a fair value of an asset are one of the first-ever employed strategies in the markets. We all know about Benjamin Graham and Warren Buffet that are one of the best known examples of Value pioneers. Since then, however, Value strategies have evolved(...) Risk Parity & Rising Rates [Factor Research]Risk parity strategies have become available via mutual funds and ETFs, but portfolio construction varies Rising interest rates are seen as a threat and recent performance was disappointing However, rising correlations between stocks and bonds would be more concerning INTRODUCTION Risk parity has(...) Value Investing: Headwinds, Tailwinds, and Variables [Alpha Architect]n my past life as a rower, I spent a lot of time figuring out which way the wind was blowing: Would it be a headwind and slow things down? Or would it be a tailwind and shorten the race? But a tailwind that went against the current could cause choppy water…which would slow things back down.(...) Trend Following: Timing Fast and Slow Trends [Alpha Architect]Momentum, the tendency of past winner stocks to outperform past loser stocks over the next several months, is one of the most well-documented and well-researched asset pricing anomalies. In our book “Your Complete Guide to Factor-Based Investing,” Andrew Berkin and I presented the evidence of a(...) How to Increase Factor Definition Robustness [Quant Dare]When dealing with factors information is important to go to the detail and get insight about how the factor is built. Ratios combination improves robustness. When we read papers or studies about the Factor Premium of different factors we almost always come across with the problem of how to define(...) Can You Predict Cryptocurrencies? [Decoding Markets]The Nobel price laureate physicist Niels Bohr once said, “Prediction is very difficult, especially if it’s about the future.” This quote captures the reality in the markets rather accurately. Is Bitcoin breaking through the 50k mark this year? Or even the 100k mark? Will Ethereum outperform(...) Extending Historical Daily Bond Data to 100 Years [Quantpedia]Finding a good data source with quality data and long history is one of the greatest challenges in quantitative trading. There definitely are some data sources with very long histories. However, they tend to be on the more expensive side. On the other hand, cheap or free data usually lacks quality(...) SPX and Gold Momentum Portfolio [Alvarez Quant Trading]Given the current rise in inflation, there has been a lot more interest in assets that do well during these times. Gold is one asset that is frequently brought up as an inflation hedge. I have also seen more lately about combining these two into a portfolio. Testing Notes The test range is from 1970(...) Inflation as equity trading signal [SR SV]Academic research suggests that high and rising consumer price inflation puts upward pressure on real discount rates and is a headwind for equity market performance. A fresh analysis of 17 international markets since 2000 confirms an ongoing pervasive negative relation between published CPI dynamics(...) Bayesian net and Boparan 7.625% 30 Nov 2025 Prospectus [Gautier Marti]This blog is a follow-up on a first naive modelling of Matalan notes using Bayesian nets. Bayesian nets are a good tool to quantify qualitative knowledge, as explained here. The work presented in this blog post was mostly realized by Zhiyuan Shen in the context of his financial mathematics master of(...) Form 3 and Form 4 Alpha: Focus on What Insiders Don't Trade [Alpha Architect]Plenty of research ( most recently, Cziraki et al. 2021) shows that insider buys contain value-relevant information while insider sales include little to no information. But what about the action of “not trading”? The authors of this study ask the following: Are the trades of portfolio insiders(...) The 1-2 Punch of Major Losses in Both Stocks and Government Bonds [Allocate Smartly]This is a follow up to our previous post. Same subject, additional data. Both stocks and government bond funds have suffered major losses this year. Stocks and gov bonds form the core of most portfolios. Gov bonds tend to counterbalance risk assets, helping to smooth returns during periods of market(...) Momentum Investing: What happens if we boot stocks over 10x P/S? [Alpha Architect]Short answer up front–very little.(1) This was a simple question posed to me by one of our blog readers–what impact does excluding stocks trading at 10x P/S have on a Momentum portfolio? A good question–especially for those who are “value” investors that are interested in momentum. For(...) Institutions Trading Against Anomalies: Are Their Trades Informed? [Alpha Architect]Outperforming the market, before expenses, is a zero-sum game—if one group of active investors outperforms, another group of active investors must underperform. Is there a group of sophisticated investors who persistently exploit more naïve investors? The body of research has found that before(...) Selecting a Stock Market Data (Web) API: Not So Simple [Portfolio Optimizer]I am sometimes asked if I recommend any stock market data (web) API for a personal use, especially because I mention Alpha Vantage in a couple of previous posts1. I will describe in this post part of the thought process and of the due diligence which led me to select this financial market data(...) Historic and recent performance by trading rule [Investment Idiocy]Another brief post this month; the deadline for the first draft of my latest book is only a couple of months away and I haven't got much free time! But I was asked an excellent question on twitter recently, which was how the various types of trading rule have contributed to my p&l this(...) Top Quantitative Finance Blogs and Vlogs: Review 2022 [Quant at Risk]The Internet is full of articles covering all kinds of aspects related to finance. Stocks, crypto, indexes have always been a hot topic and many are seeking new ideas in these areas. It is true that in a vast amount of the content one may get lost. There are tons of blogs with irrelevant, outdated,(...)