Quant Mashup SigCWGAN, a new generation GAN architecture for Time Series Generation [Quant Dare]As a continuation to our last post on Time Series Signatures and our running list of posts regarding GANs and synthetic data we now want to present the Signature Conditional Wasserstein GAN, shortened as SigCWGAN, a new GAN architecture presented in [1] that is specifically designed to generate time(...) Accelerate Design of Multi-Factor Multi-Asset Models with Quantpedia Pro [Quantpedia]We hinted in the past few blogs that we were preparing a small surprise. And now it’s time to unveil what we have been cooking during the previous several months. Quantpedia’s main mission is to help with the discovery of new ideas for systematic trading strategies. Our users can quickly(...) 3 ways traders kill trading strategies w/ Rob Carver of @InvestingIdiocy [Better System Trader]Ever built an angelic trading strategy that performed heavenly in a backtest, only to find it’s a devil in live trading? Well… there are some very specific “sins” traders make when building trading strategies that destine them (the strategies that is) to a miserable life of soul-sucking(...) How useful are Moving Averages - Backtest Results [Milton FMR]How can we know if moving averages are effective? Can a moving average tell us whether a trend will continue or not? Is the golden cross really useful in predicting trend reversals? What about predicting bear markets with a moving average crossover? First of we start by defining what a moving(...) The Risk and Returns to Private Debt Investments [Alpha Architect]The subject of private debt and its associated performance characteristics has not been covered sufficiently in the academic literature. Relatively few research articles have attempted to characterize the returns and risk on the types of private debt strategies available to investors. This is true,(...) Sparse Mean-reverting Portfolio Selection [Hudson and Thames]“Buy low, sell high.” One cannot find a more succinct summary of a mean-reversion trading strategy; however, single assets that show stable mean-reversion over a significant period of time such that a mean-reversion trading strategy can readily become profitable are rare to find in markets(...) The R&D Premium: Is it Risk or Mispricing? [Alpha Architect]Asset pricing models are important because they help us understand which factors explain the variation of returns across diversified portfolios. However, models are not like cameras that provide a perfect picture of the world. If models were perfectly correct, they would be laws, like we have in(...) Understanding the disposition effect [SR SV]Investors have a tendency to sell assets that have earned them positive returns and are reluctant to let go of those that have brought them losses. This behavioural bias is called “disposition effect” and is attributed to loss aversion and regret avoidance. It has been widely documented by(...) Finance Database GitHub (h/t @PyQuantNews)As a private investor, the sheer amount of information that can be found on the internet is rather daunting. Trying to understand what type of companies or ETFs are available is incredibly challenging with there being millions of companies amd derivatives available on the market. Sure, the most(...) Identifying Anomalies in Capital Markets: Accrual Anomaly [Milton FMR]Since the financial crisis in 2008 the number of anomaly related academic papers exploded and has grown so quickly that it is impossible to keep up with the full scope of research. To accommodate the need of an overview in this interesting research field we will summarize the most prominent market(...) Copula for Pairs Trading: Strategies Overview [Hudson and Thames]This is the third article of the copula-based statistical arbitrage series. You can read the previous two articles: Copula for Pairs Trading: A Detailed, But Practical Introduction. Copula for Pairs Trading: Sampling and Fitting to Data. Introduction Systematic approaches of pairs trading gained(...) The coastline paradox and the fractal dimension of markets [Philipp Kahler]Coastlines are fractal curves. When you zoom in, you will see similar shaped curves on every scale. The same is true for market data. On a naked chart you can hardly tell if it is a daily or hourly chart. This article will explore this feature of crinkly curves and show how much markets and(...) ESG Factors and Traditional Factors [Alpha Architect]Environmental, Social, and Governance (ESG) investing has become a priority for a lot of investors. We have previously written on ESG being combined with factor investing here and here. However, if one chooses to ignore our previous musings on the subject and only pursue ESG, how would that decision(...) Advanced Pairs Trading Lecture Videos [Hudson and Thames]ArbitrageLab is a python library filled with algorithms from the best academic journals and graduate-level textbooks, which focuses on the branch of statistical arbitrage known as pairs trading. This playlist is a series of lecture videos that explore advanced topics and highlight how your team can(...) Do ETFs Adversely Affect Market Quality? Nope. [Alpha Architect]Editor’s note: Seeing how the results may have shifted since the “ARK phenomenon” would be a great robustness test for this paper. ETFs are growing at a rapid pace and becoming a significant contributor to intraday activity (and we are only making the problem worse!). Naturally, some will(...) Research Review | 12 February 2021 | Equity Factor Risk [Capital Spectator]Why Are High Exposures to Factor Betas Unlikely to Deliver Anticipated Returns? Chris Brightman (Research Affiliates) et al. January 11, 2021 By choosing investment strategies that intentionally create exposure to factor betas, investors may be obtaining uncompensated risks. We show across a wide(...) Three types of systematic strategies that "work" [Robot Wealth]Broadly, there are three types of systematic trading strategy that can “work.” In order of increasing turnover they are: Risk premia harvesting Economically-sensible, statistically-quantifiable slow-converging inefficiencies Trading fast-converging supply/demand imbalances This post provides an(...) Second chances with momentum [Quant Dare]A couple of days ago we were seeing in the news the story about GameStop, and how small investors made some hedge funds abandon their short-selling positions after some big losses. After reading the article I couldn’t resist thinking about short-selling strategies and their performance in the(...) Persistent Moves To New Highs Rarely End Abruptly [Quantifiable Edges]I have not posted many price-action studies to the blog lately, so I thought I would share this one from last night’s subscriber letter. A theme I have seen many times over the years is that persistent uptrends don’t often end abruptly. The study below is an example of this. It considers what(...) Trading with the ISEE Sentiment Index? [Qusma]The ISEE sentiment index is the ratio of opening long call options to opening long short options. The idea is that the greater the ratio of calls, the more bullish the sentiment, and that this is a more reliable indicator (compared to other sentiment indices) because it’s based on actual trades as(...) Will the Real Value Factor Funds Please Stand Up? [Alpha Architect]If you’re a value investor who has determined that you have better things to do with your time, at some point you may have decided to outsource the investment task to a fund manager. And if you read our blog (especially this post) you’re probably looking to oursource to a systematic process(...) Risk-constrained optimization [OSM]Our last post parsed portfolio optimization outputs and examined some of the nuances around the efficient frontier. We noted that when you start building portfolios with a large number of assets, brute force simulation can miss the optimal weighting scheme for a given return or risk profile. While(...) Contagion and self-fulfilling dynamics [SR SV]Contagion and self-fulfilling feedback loops are propagation mechanisms at the heart of systemic financial crises. Contagion refers to the deterioration of fundamentals through the financial network, often through a cascade of insolvencies. A critical factor is the similarity of assets held by(...) Copula for Pairs Trading: Sampling and Fitting to Data [Hudson and Thames]This is the second article of the copula-based statistical arbitrage series. You can read the first article: Copula for Pairs Trading: A Detailed, But Practical Introduction. Overview Whether it is for pairs trading or risk management, two natural questions to ask before putting copula for use are:(...) Improving time series animations in matplotlib (from 2D to 3D) [Quant Dare]Animating time series is a very powerful tool to show evolution over time, but matplotlib default animations are boring and they are not well suited for comparison purposes. Along this blog, animations are widely used: from explaining how neural networks train, to showing synthetic time-series(...) Heatmap Plot of Forex Temporal Clustering of Turning Points [Dekalog Blog]Following up on my previous post, below is the chart of the temporal turning points that I have come up with. This particular example happens to be 10 minute candlesticks over the last two days of the GBP_USD forex pair. The details I have given about various turning points over the course of my(...) Do Security Analysts Follow the Academic Evidence? [Alpha Architect]As my co-author Andrew Berkin and I explain in our new book “Your Complete Guide to Factor-Based Investing,” there is considerable evidence of cross-sectional return predictability. Citing more than 100 academic papers, we presented evidence of predictability for both equity and bond factors.(...) When a correlation matrix is not a correlation matrix and what can be done about it [Portfolio Optimizer]Estimating how individual assets are moving together is an important part of many financial applications1 and the most commonly used measure for this is the Pearson correlation. Unfortunately, for a variety of reasons, what sometimes appears to be a correlation matrix is actually not a valid(...) Understanding Variance Explained in PCA - Matrix Approximation [Eran Raviv]Principal component analysis (PCA from here on) is performed via linear algebra functions called eigen decomposition or singular value decomposition. Since you are actually reading this, you may well have used PCA in the past, at school or where you work. There is a strong link between PCA and the(...) The failure of anomaly indicators in finance [Mathematical Investor]Recent public reports have underscored a crisis of replicability in numerous fields of science: In 2012, Amgen researchers reported that they were able to replicate fewer than 10 of 53 cancer studies. In March 2014, physicists announced with fanfare that they had detected evidence of gravitational(...) So you want to be a quant/systematic trader? [Investment Idiocy]One of the upsides of having a (very, very minor) public profile is that you get a lot of people asking you for advice, which is flattering (and if you say otherwise, you need to consider just how first world that particular 'problem' is). The only downside of this is you get asked the(...) Myth-Busting: Low Rates Don't Justify High Valuations [Factor Research]High equity valuations are frequently justified by low interest rates There is no long-term evidence in the US to support this theory P/E ratios in Japan and Europe have remained low, despite zero or negative yields INTRODUCTION One of the more peculiar transactions I worked on as an investment(...) Hot Topic: Does “Gamma” Hedging Actually Affect Stock Prices? [Alpha Architect]More and more evidence seems to suggest that social Media impacts daily momentum and volatility. Some hedge funds that were short GME the past couple of months should have read these blog posts. In a similar vein, there is plenty of twitter chatter on the topic and anecdotal evidence that during the(...) Parsing portfolio optimization [OSM]Our last few posts on risk factor models haven’t discussed how we might use such a model in the portfolio optimization process. Indeed, although we’ve touched on mean-variance optimization, efficient frontiers, and maximum Sharpe ratios in this portfolio series, we haven’t discussed portfolio(...) Probing Price Momentum of Bitcoin during its Bull Runs with a Piecewise Linear Model [Quant At Risk]In 2020 Bitcoin delivered us another spectacular bull run. It was as impressive as the one we witnessed in 2017. The analysis of Bitcoin price time-series during its bull runs can uncover interesting results. By comparing a selected set of characteristics we could find some commonalities in trading.(...) Temporal Clustering Times on Forex Majors Pairs [Dekalog Blog]In the following code box there are the results from the temporal clustering routine of my last few posts on the four forex majors pairs of EUR_USD, GBP_USD, USD_CHF and USD_JPY. This is based on 10 minute bars over the last year or so. Readers should read my last few previous posts for background.(...) The Trend Persistence Indicator [Financial Hacker]Financial markets are not stationary: price curves can swing all the time between trending, mean reverting, or entire randomness. Without a filter for detecting trend regime, any trend following strategy will bite the dust sooner or later. In Stocks & Commodities February 2021, Richard Poster(...) The Complete Guide to Portfolio Optimization in R Part 2 [Milton FMR]Congratulations you made it to part2 of our tutorial. Give yourself a round of applause. If you stumbled upon part2 before reading part1 we advise you to start from the beginning and read part1 first. In Part2 we dive into mean variance portfolio optimization, mean CVar portfolios and backtesting.(...) Do Candlesticks Work? A Quantitative Test Of 23 Candlestick Formations [Quantified Strategies]This article explains candlesticks and why we like to use candlesticks when displaying charts. Moreover, we test quantitatively 23 different candlestick formations. Perhaps surprisingly, some of the formations work pretty well. Some of the formations can highly likely be improved by adding one more(...) The Quality Factor—What Exactly Is It? [Alpha Architect]The existence of a quality premium in stocks that has been persistent over time, pervasive around the globe, and robust to various definitions have been well documented by studies such as “Buffett’s Alpha,” “Global Return Premiums on Earnings Quality, Value, and Size,” and “The Excess(...) Why is data cleaning important and how to do it the right way? [Quant Insti]Data cleaning is the time-consuming but the most important and rewarding part of the data analysis process. The process of data analysis is incomplete without cleaning data. But what happens if we skip this step? Suppose we had certain erroneous data in our price data. The incorrect data formed(...) New Research Tries To Solve For Beta Risk’s “Failure” For Stocks [Capital Spectator]At the core of modern finance is the proposition that beta (market) risk is the dominant factor that drives performance. But numerous empirical tests of the capital asset pricing model (CAPM) over the decades suggest otherwise. There have be various attempts to adjust CAPM to find a closer mapping(...) The Correct Vectorized Backtest Methodology for Pairs Trading [Hudson and Thames]Whilst backtesting architectures is a topic on its own, this article dives into how to correctly backtest a pairs trading investment strategy using a vectorized (quick methodology) rather than the more robust event-driven architecture. This is a technique that is very common amongst analysts and is(...) A Review of Ben Graham’s Famous Value Investing Strategy: "Net-Nets" [Alpha Architect]Benjamin Graham, often considered a strong candidate for the “the father of quantitative value investing“, developed an investment strategy that involved purchasing securities for less than their “current-asset value”, “a rough index of the liquidating value”. We uncovered ten research(...) Fundamental and Sentiment analysis with different data sources [Quant Insti]Technical analysis of price and volume history won’t cut it alone nowadays. When we want to perform value investing and/or measure a security’s intrinsic value, we need to make a fundamental analysis of the security. To perform fundamental analysis we need data, lots of data. We want fundamental(...) Machine Learning for Trading Pairs Selection [Hudson and Thames]In this post, we will investigate and showcase a machine learning selection framework that will aid traders in finding mean-reverting opportunities. This framework is based on the book: “A Machine Learning based Pairs Trading Investment Strategy” by Sarmento and Horta. A time series is known to(...) Recent Weaknesses of Factor Investing [CXO Advisory]How have value, quality, low-volatility and momentum equity factors, and combinations of these factors, performed in recent years. In their October 2020 paper entitled “Equity Factor Investing: Historical Perspective of Recent Performance”, Benoit Bellone, Thomas Heckel, François Soupé and(...) Market Timing via the VRP? [Factor Research]Stock market returns were highly positive when the variance risk premium (VRP) was negative Returns were slightly negative across markets when the VRP was positive This relationship can not be exploited for market timing INTRODUCTION The US stock market in 1999 and 2020 had probably more(...) Macro uncertainty as predictor of market volatility [SR SV]Market volatility measures the size of variations of asset returns. Macroeconomic uncertainty measures the size of unpredictable disturbances in economic activity. Large moves in macroeconomic uncertainty are less frequent and more persistent than shifts in market volatility. However, macroeconomic(...) The Complete Guide to Portfolio Optimization in R Part 1 [Milton FMR]The purpose of portfolio optimization is to minimize risk while maximizing the returns of a portfolio of assets. Knowing how much capital needs to be allocated to a particular asset can make or break an investors portfolio. In this article we will use R and the rmetrics fPortfolio package which(...)