Value Bubbles Messaoud Chibane and Samuel Ouzan (Neoma Business School) February 27, 2019 According to several extended behavioral theories, value profits should mirror momentum profits, and vary over time. We test these theories in the cross section of returns. Value returns depend on market

The Current Ratio is a vital metric for understanding a company’s liquidity position as well as its ability to pay its obligations on time. It is defined simply as the company’s total current assets divided by its current liabilities. Current assets are defined as assets that are cash or

Robert Carver worked in the City of London for over a decade. For seven years he was a portfolio manager at AHL — one of the world’s largest systematic hedge funds — before, during and after the global financial meltdown of 2008. In this interview, we talk about many trading topics, mostly

It has been more than a year since my last post, I’ve been super busy with consulting assignments working on algorithmic/electronic trading. The workload is still heavy but I managed to find a few hours to write this post as I came across a new great tool: LOBSTER (and before anyone asks I’ve no

In Part 1 of this article, we reviewed the performance of using a more complex form of simple trend following (i.e. adding a channel breakout rule alongside a simple time-series momentum rule). The simple trend signal (S) used was based on the sign of the trailing 12-month return of the asset. The

This is our third post in our series on “net-nets” having previously analyzed “Benjamin Graham’s Net Current Asset Values: A Performance Update” by Henry R. Oppenheimer and “Graham’s Net-Nets: Outdated or Outstanding?” by James Montier. The focus of this post is the research paper

The Fama French three-factor model provides a powerful tool for assessing exposures to equity risk premia in investment strategies. In this note, we explore alternative specifications of the value (HML) and size (SMB) factors using price-to-earnings, price-to-cash flow, and dividend yield. Running

The outlook for US equity and bond returns is low based on historical data The return assumptions of US public pension funds are difficult to achieve Only an extreme allocation to alternatives would meet the expected rate of return THE GLOBAL PENSION FUND CRISIS Tens of thousands of Dutch workers

I have written many times over the years about the bullish tendency of the market during opex week in December. I’ve even referred to it as “The Most Wonderful Week of the Year”. And it was…up until last year. So below is an updated look at the stats and profit curve for owning SPX from the

This post will be a quickie detailing a rather annoying…finding about the pandas package in Python. For those not in the know, I’ve been taking some Python courses, trying to port my R finance skills into Python, because R seems to have fallen out of favor in the world of finance. (If you know

Price distortions are an important source of short-term trading profits, particularly in turbulent markets. Here price distortions mean apparent price-value gaps that arise from large inefficient flows. An inefficient flow is a transaction that is not motivated by rational risk-return optimization.

ESG Investing (sometimes called Socially Responsible Investing) is becoming a current trend, and its proponents characterize it as a modern, sustainable, and responsible way of investing. Some people love it, others see it as just another fad that will soon be forgotten. We at Quantpedia have

In a previous post, Trend-following vs. Momentum in ETFs, I compared trend-following and momentum to see which produced better results on a basket of ETFs. In the post, I mentioned combining trend-following and momentum into one strategy to see if combined they can beat buy and hold more often.

A large body of evidence demonstrates that investment strategies focused on buying stocks that are cheap relative to measures of fundamental value have achieved higher long-term returns than the broad market. Motivated by such legendary investors as Benjamin Graham, David Dodd, and Walter Schloss,

We’ve already talked about dimensionality reduction long and hard in this blog, usually focusing on PCA. Besides, in my latest post I introduced another way to reduce dimensions based on autoencoders. However, in that time I focused on how to use autoencoders as predictor, while now I’d like to

I have written about Fed Day edges for years. Much of the research can be found in the Fed Study category blog posts. Today I decided to share a chart showing historical performance on Fed Days over the course of the last 5 Fed chairpeople. 2019-12-10 Have a happy Fed Day tomorrow!

In my recent posts on skew and kurtosis I've put together a large number of ideas for possible trading strategies. The next step will be to create and test these ideas out. However I already know from my initial analysis that many of these ideas will probably have poor performance. This leaves

Years ago, I had made it to the final round in an interview for a Senior Delta One/Quantitative Futures position at an HFT firm (unnamed for privacy). Things were going well, I had answered two out of three of those ridiculous questions that are only applicable in Subsaharan Africa or Finance

The monthly US nonfarm payroll (NFP) announcement by the United States Bureau of Labor Statistics (BLS) is one of the most closely watched economic indicators, for economists and investors alike. (When I was teaching a class at a well-known proprietary trading firm, the traders suddenly ran out of

Smart beta ETFs can be compared via a factor score, which relates fees to the factor exposure Value-focused ETFs in the US show a wide range of factor scores Large firms offer more attractive factor scores, but largely due to lower fees INTRODUCTION Beta is like ice cream and comes in many flavors.

My guest today is … me. But rather than interview myself, my co-portfolio manager Nathan Faber joins the podcast to take the reigns. In this episode, we talk all things rebalance timing luck. It’s been an obsession of mine for years and something we believe to be a dramatically misunderstood and

We’ve done a poor job hiding our interest in Trend Following (see Trend, Trend, Trend, is your friend. And swing over to Corey Hoffstein’s site for even more!). So this paper hits on a subject we know and love. The authors of this study (part 1) have one basic objective: determine if the

One of my recent side projects was building an automated trading system for the crypto markets. To be fair, I probably spent more time on this than on my full-time job, so calling it a side project may not be completely accurate. The internet is full of people ready to teach you about trading. Most

Famed quantitative financial mathematician Marcos Lopez de Prado, who was recently featured as Master of the Robots by Bloomberg, testified today (6 December 2019) before the U.S. Congress, together with four other panelists. The topic for the panel, organized by the U.S. House Committee on

The vast range of academically researched equity return anomalies can be condensed into five categories: [1] return momentum, [2] outperformance of high valuation, [3] underperformance of high investment growth, [4] outperformance of high profitability, and [5] outperformance of stocks subject to

Interest rates measure the level of compensation that financial market participants get for lending money. The level of compensation for lending varies over time and is related to several other economic factors. Most important ones are rates set by central banks, inflation rates and underlying

This post is based on the experience I have got while taking part in a very interesting forecasting competition hosted by XTX. Participants were challenged by the task to forecast the future return of a (presumably) Forex asset based on the limit order book (LOB) data. No details of the asset or

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

A large body of research demonstrates that “familiarity breeds investment.” For example, a study by Gur Huberman found that shortly after AT&T was broken up and shareholders were given shares in each of what were called the Baby Bells, the residents of each region held a disproportionate

Simulating returns using either the traditional closed-form equations or probabilistic models like Monte Carlo has been the standard practice to match them against empirical observations from stock, bond and other financial time-series data. (See Chan and Ng, 2017 and Lopez de Prado, 2018.) Some of

I tend to be a little skeptical when I see books aimed at retail traders with low amount of trading capital, focusing on leveraged trading on FX, CFDs and the like. The very mention of retail forex trading means that there’s a near certainty that whatever comes next is misinformed at best and a

In a recent article we introduced systematic tactical asset allocation (TAA) as a low-frequency example of quantitative trading strategy. For those who are taking their first steps in systematic trading, are wanting to consider systematic trading in the context of their retirement planning or are

In the last post I described a relatively simply method to incorporate the VIX into the well-known AMA or Adaptive Moving Average framework. The alpha formula requires two separate parameters- a short and a long-term constant which requires greater specification by the user. Ideally the fewer

According to Wikipedia “in finance, a trading strategy is a fixed plan that is designed to achieve a profitable return by going long or short in markets. The main reasons that a properly researched trading strategy helps are its verifiability, quantifiability, consistency, and objectivity. For

Gregory Zuckerman, author of The Greatest Trade Ever, has published a new book highlighting the life and work of Jim Simons, who, at the age of 40, walked away from a very successful career as a research mathematician and cryptologist to try his hand at the financial markets, and ultimately

Academic literature recognizes a large set of indicators or factors that are connected with the various assets. These indicators can be utilized in a variety of trading strategies, which means that such indicators are popular among practitioners who seek to invest their funds. Usually, the

When working with time series financial data, stationarity (or lack thereof!) is going to be a defining aspect of how you conduct your analyses. In this article, we're going to give you a quick refresher of what these terms mean and how they affect your data. Let's start with importing the

As readers would know, discussing ways to combine quant and fundamental investing has been a topic I care about (see some prior posts here, here and here). Perhaps I’m biased. But I believe that proper collaboration between quant and fundamental approaches is still a largely unexplored area. Yes,

There are various Python projects which require sorting but not the ones that employ a default alphanumeric functionality. We talk about manually specified order or human-order, in short. One of such examples is the case study presented below. Imagine that your risk system provides you with a list

Since the global financial crisis, the financial press has periodically asserted that the Federal Reserve’s actions were the driving force behind rising stock prices. This study investigates this assertion by asking the following research question: Is there a relationship between stock prices and

ESG ETFs underperformed the stock market since 2005 Likely explained by higher fees, a constrained stock universe, and sector bets Financially-impaired investors like public pension funds and Millennials should avoid ESG investing INTRODUCTION If investors would be looking for the ETF flavor of the

This post will detail a rather important finding I found while implementing a generalized framework for momentum asset allocation backtests. Namely, that when computing momentum (and other financial measures for use in asset allocation, such as volatility and correlations), measuring formal months,

Chart analysis is all about visualizing data. The RSI hellfire indicator uses a heat-map to visualizes how overbought or oversold the market is on a broad scale. This helps to get a broad picture of the current market setup. Multiple Time-frame Relative Strength Index Wells Wilder’s RSI is an old

You may have noticed that this blog has been mostly inactive in 2019. Earlier this year, I took a full-time position with one of my buy-side consulting clients focused on researching methodologies for application of ML / data science to alpha research. While I'm thoroughly enjoying the work, it

The automated trading system or Algorithmic Trading has been at the centre-stage of the trading world for more than a decade now. A “trading system”, more commonly referred as a “trading strategy” is nothing but a set of rules, which is applied to the given input data to generate entry and

This is a collection of Jupyter notebooks based on different topics in the area of quantitative finance. Is this a tutorial? Almost! 🙂 This is just a collection of topics and algorithms that in my opinion are interesting. It contains several topics that are not so popular nowadays, but that can be

Thanksgiving has some seasonal tendencies, with Wednesday and Friday often being bullish, and the Monday after being bearish. This year not only did Wednesday perform well, but it left the SPX at a new high heading into the holiday. So I decided to look back at other times SPX closed at a 50-day

Sometimes an online option calculator isn’t enough and you’d like to implement the Black & Scholes (B&S) option pricing equations in Excel. If you’re just playing around it doesn’t matter how you structure the calculation. In fact, for clarity’s sake, it’s probably a good idea to

The standard academic approach to factor analysis is through the lens of long-short portfolios (which often confuses practitioners!). For example, a researcher may take the universe of the largest 1,000 stocks and sort them on “value”, as measured via book-to-market. The “value factor”

One of the challenges with technical or quantitative analysis is to identify strategies that can adapt to different market regimes. The most obvious is a change in the forecast or implied volatility as proxied by the VIX. During more volatile periods we would expect more signal noise and during less