Quant Mashup
Podcast: Jim Simons - The pinnacle of trading greatness w/ author @GZuckerman [Chat With Traders]
Gregory Zuckerman is a writer at the Wall Street Journal and author of The Man Who Solved the Market: How Jim Simons Launched The Quant Revolution. For anyone unfamiliar, Jim Simons is the brilliant-minded mathematician who founded hedge fund Renaissance Technologies. Using quantitative models and
- 5 years ago, 14 Nov 2019, 08:09pm -
How to avoid unwanted curve fitting during backtest [Philipp Kahler]
Whenever you develop an algorithmic trading strategy, curve fitting is one of the most dangerous hazards. It will lead to severe losses in real time trading. This article will show you some ways to detect if the performance of your algorithmic trading strategy is based on curve fitting. Curve
- 5 years ago, 14 Nov 2019, 08:07pm -
The Investment Factor and Expected Returns [Alpha Architect]
It is well documented in the literature that over the long term, low-investment firms have outperformed high-investment firms.(1) This finding has led to the investment factor (CMA, or conservative minus aggressive) being incorporated into the leading asset pricing models—the four-factor Q model
- 5 years ago, 14 Nov 2019, 08:06pm -
Hiring a Software Developer to Code Up a Trading Strategy [Quant Start]
At QuantStart we place an emphasis on fully automated systematic trading and the processes that surround it. However we should be careful to distinguish between the separate concepts of systemisation and automation. The former involves a trading strategy that can be codified into a set of rules,
- 5 years ago, 14 Nov 2019, 09:01am -
Trend-following vs. Momentum in ETFs [Alvarez Quant Trading]
In Tactical Asset Allocation (TAA) or Dual Momentum (DM) strategies, they often will use trend-following or momentum to decide whether to invest in asset or not. I have two questions. One, how often does either trend-following or momentum they beat buy and hold? Two, of the two which one beats the
- 5 years ago, 13 Nov 2019, 08:19pm -
Investment, Expected Investment, and Expected Stock Returns [Alpha Architect]
A new DFA article by Rizova and Saito (2019, “Investment and Expected Stock Returns”) (1) rehashes previous arguments in Fama and French (2006, 2015) on the investment factor. The core arguments are as follows: Valuation theory predicts that expected investment is negatively correlated with
- 5 years ago, 13 Nov 2019, 08:18pm -
Kurtosis and expected returns [Investment Idiocy]
In my last post, I stated my intention to write a series of posts about skew. Slight change of plan, since one loyal reader suggested that I write about kurtosis. I thought that might be fun, since I haven't thought about kurtosis much, and the literature on kurtosis isn't as well
- 5 years ago, 12 Nov 2019, 10:49am -
The Man Who Solved the Market – Notes [Systematic Edge]
When it comes to the world’s most secretive hedge fund any content is worthwhile to read. I finished the book is 3 days and had to re-read a couple more chapters to ensure I fully absorbed the couple nuggets in there. I would recommend this book to everyone! The mystery behind how Simons
- 5 years ago, 12 Nov 2019, 09:06am -
Investor IQ Website is Live (In Beta) [CSS Analytics]
For readers interested in getting signals and analytics on hundreds of ETFs and individual stocks our Investor IQ website is currently live and free during our beta-testing phase. We will be adding new data and analytics gradually over time as well as improving website functionality. The Economic
- 5 years ago, 12 Nov 2019, 09:06am -
Are Early Stage Investors Biased Against Women? [Alpha Architect]
Recent studies of startup activity in the U.S. find that only roughly 10–15% of startups are founded by women. There are a number of potential explanations including gender differences in technical training or risk preferences. However, many have also speculated that part of the gender gap may, in
- 5 years ago, 12 Nov 2019, 09:06am -
The Limit of Factor Timing [Flirting with Models]
We have shown previously that it is possible to time factors using value and momentum but that the benefit is not large. By constructing a simple model for factor timing, we examine what accuracy would be required to do better than a momentum-based timing strategy. While the accuracy required is not
- 5 years ago, 11 Nov 2019, 09:48am -
Two Centuries of Creativity Quantified [Two Centuries Investments]
In the past, I shared thoughts about the need to combine creative and organized thinking in order to generate investment alpha. “A robust investment process” and “a strict disciplined application” are concepts that one often hears in typical quant and fundamental investment teams. These are
- 5 years ago, 11 Nov 2019, 09:48am -
The Case Against REITs [Factor Research]
Real estate stocks featured moderate correlations to stock markets over the last 30 years However, diversification benefits for equity portfolios were only marginal Other strategies provide similar yield and downside protection characteristics INTRODUCTION Surveys often reveal investor behaviour
- 5 years ago, 11 Nov 2019, 08:28am -
Combine Market Trend and Economic Trend Signals? [CXO Advisory]
A subscriber requested review of an analysis concluding that combining economic trend and market trend signals enhances market timing performance. Specifically, per the example in the referenced analysis, we look at combining: The 10-month simple moving average (SMA10) for the broad U.S. stock
- 5 years ago, 11 Nov 2019, 08:28am -
What’s The Best Methodology For Measuring Drawdown Risk? [Capital Spectator]
The possibilities for quantifying risk in portfolio analytics seems to be limited only by the imagination of researchers. Indeed, you can find dictionaries that wade through an ever-lengthening list of indicators. But any short list of robust metrics surely deserves to include drawdown, which offers
- 5 years ago, 8 Nov 2019, 10:00am -
Buying Global Stocks at All-Time Highs [Allocate Smartly]
This analysis was inspired by EconomPic and Meb Faber. Here we test a simple strategy that goes long Global Stocks (ACWI) when they make a new all-time month-end high, otherwise US bonds. The takeaway: Don’t fear buying stock (indices) when they close at all-time highs. A new high shouldn’t be
- 5 years ago, 5 Nov 2019, 08:16pm -
Combinatorial Purged Cross-Validation Explained [Quantoisseur]
In this tutorial I explain how to adapt the traditional k-fold CV to financial applications with purging, embargoing, and combinatorial backtest paths.
- 5 years ago, 5 Nov 2019, 08:16pm -
Engineering To Quant Finance - How To Make The Transition [Quant Start]
At QuantStart we often receive email queries about the possibility of making a career transition to quantitative finance, particularly for individuals who currently consider themselves mid-career. In a more general sense we have previously discussed whether it is possible to become a quant during
- 5 years ago, 5 Nov 2019, 08:15pm -
Is Buying Stocks at an All-Time High a Good Idea? [Meb Faber]
No, it’s not a good idea, which should surprise no one. The fact that it is a GREAT idea, well, that should surprise everyone. Most investors fret when markets hit new highs, but should they? The below is inspired by our friend Jake @ Econompic, who examined the following query: “What if you
- 5 years ago, 5 Nov 2019, 09:53am -
Introduction to Support Vector Machines [Quant Insti]
Support Vector Machines were widely used a decade back, but now they have fallen out of favour. The below data from google trends can establish this more clearly. (Source: Google Trends) Why did this happen? As more and more advanced models were developed, support vector machines fell out of favour.
- 5 years ago, 5 Nov 2019, 09:38am -
2 Unfilled Up Gaps And A 50-Day High [Quantifiable Edges]
Monday not only saw SPY make a 50-day high, but it was also the 2nd day in a row with an unfilled gap up. The study below is from last night’s letter and was previously discussed several other times in the subscriber letter (click here for free trial). It examined other times SPY left at least 2
- 5 years ago, 5 Nov 2019, 09:38am -
16 Articles on Quantamental Investing [Two Centuries Investments]
As the book about the most successful quant, Jim Simons, comes out tomorrow (“The Man Who Solved the Market”), I felt inspired to review the ‘recent press’ on quant investing, but with a focus on the quantamental theme - where quantitative and qualitative ideas can ‘collaborate’ well to
- 5 years ago, 4 Nov 2019, 11:46am -
Tactical Asset Allocation in October [Allocate Smartly]
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
- 5 years ago, 4 Nov 2019, 11:46am -
Global Growth-Trend Timing [Flirting with Models]
While trend following may help investors avoid prolonged drawdowns, it is susceptible to whipsaw where false signals cause investors to either buy high and sell low (realizing losses) or sell low and buy high (a missed opportunity). Empirical evidence suggests that using economic data in the United
- 5 years ago, 4 Nov 2019, 09:06am -
Factor Investing in Emerging Markets [Factor Research]
The trends in factor performance are similar in emerging and developed markets Factor returns were higher in emerging than in developed markets However, higher transaction costs need to be considered carefully INTRODUCTION Capital markets of developed countries like the US are highly efficient and
- 5 years ago, 4 Nov 2019, 09:06am -
A method for de-trending asset prices [SR SV]
Financial market prices and return indices are non-stationary time series, even in logarithmic form. This means not only that they are drifting, but also that their distribution changes overtime. The main purpose of de-trending is to mitigate the effects of non-stationarity on estimated price or
- 5 years ago, 4 Nov 2019, 09:06am -
Preliminary Results from Weight Agnostic Training [Dekalog Blog]
Following on from my last post, below is a selection of the typical resultant output from the Bayesopt Library minimisation 3 3 2 2 2 8 99 22 30 1 3 3 2 3 2 39 9 25 25 1 2 2 3 2 2 60 43 83 54 3 2 1 2 2 2 2 0 90 96 43 3 2 3 2 2 2 2 43 33 1 2 3 2 3 2 2 0 62 98 21 2 2 2 2 2 18 43 49 2 2 2 3 2 4 1 2 0
- 5 years ago, 4 Nov 2019, 09:05am -
Jim Cramer Using the S&P Oscillator [CXO Advisory]
A reader asked about the usefulness of the S&P Short-range Oscillator as sometimes used by Jim Cramer to forecast U.S. stock market returns. The self-reported “Performance” of the oscillator, relying on in-sample visual inspection with snooped thresholds, is of small use. Since continuous
- 5 years ago, 1 Nov 2019, 10:29am -
The Ubiquitous "Sell in May" [Allocate Smartly]
As a site that tracks all things asset allocation, it seems like a miss not to include the most well known of asset allocation strategies: “Sell in May and go away” (aka the Halloween Indicator). This is a fitting time to add it to the lineup: The strategy is killing it this year and a change in
- 5 years ago, 30 Oct 2019, 07:44pm -
Weight Agnostic Neural Net Training [Dekalog Blog]
I have recently come across the idea of weight agnostic neural net training and have implemented a crude version of this combined with the recent work I have been doing on Taken's Theorem ( see my posts here, here and here ) and using the statistical mechanics approach to creating synthetic
- 5 years ago, 30 Oct 2019, 07:44pm -
Can Anomalies Survive Insider Disagreements [Alpha Architect]
Anomalies such as Value and Momentum have been exploited for years, yet the source of these premiums emerged as a major unresolved puzzle. Potential explanations can be grouped into two broad categories: “compensation for risk” or “mispricing”. This paper studies this puzzle by investigating
- 5 years ago, 30 Oct 2019, 07:43pm -
Towards the Risk-Free Curve: Logarithmic vs. Arithmetic Returns [Quant Dare]
As Nassim Taleb states, ideas come and go, stories stay. So today Maximiliano and myself are going to build for you a story which hopefully will carve in your mind the importance of doing things right; or put differently, of using logarithmic returns instead of arithmetic returns when you should. To
- 5 years ago, 30 Oct 2019, 07:35am -
Tracking Macro Factors In Portfolio Strategies [Capital Spectator]
Earlier this month I briefly reviewed a recent BlackRock report that highlighted that macroeconomic factors are typically driving investment strategy results. As a follow-up, let’s take a quick look at a basic real-world example of analyzing portfolios through a macroeconomic lens. First, let’s
- 5 years ago, 30 Oct 2019, 07:34am -
Yield Curves: Common Patterns in Prices of Fixed-Income Securities [Scalable Capital]
Interest rates and yield curves are not observable, but need to be estimated from prices of fixed-income securities. Common patterns in prices of fixed-income securities can be expressed in three ways: yield curves, forward rate curves or discount functions. When working with interest rates, we need
- 5 years ago, 29 Oct 2019, 09:14pm -
Podcast with Jack Vogel (@jvogs02): Market anomalies and quantitative approach to investing [System Trader Show]
Investing is simple, but not easy, as Warren Buffett says. And yes — technically the investment process should be as simple as possible. But does it mean that an average investor should not even think about active investment strategies and entirely rely on a passive portfolio? Which strategy is
- 5 years ago, 29 Oct 2019, 09:14pm -
Calendar / Seasonal Trading and Momentum Factor [Quantpedia]
We are continuing in our short series of articles about calendar / seasonal trading. In our previous work, we have examined various calendar / seasonal equity trading strategies. In this study, we aim to take this composite calendar strategy as a building block and add another block to enhance the
- 5 years ago, 29 Oct 2019, 07:30pm -
Liquidity might be a better proxy for Size in equity markets [Alpha Architect]
The size premium is one of the factors that we have researched and dug into several times on the blog. You can find just a few here, here, and here. This paper though took a fresh look at the size premium and adds a new perspective that we haven’t previously covered. What are the research
- 5 years ago, 29 Oct 2019, 07:30pm -
Volatility Clustering: Alternative Methods of Filtering [Oxford Capital]
Concept: Large price moves tend to be followed by large price moves, and small price moves tend to be followed by small price moves (Volatility Clustering). Research Question: Can we improve performance of the original volatility clustering model via standard deviation filtering of large price
- 5 years ago, 29 Oct 2019, 07:29pm -
The Edge of an Entry Signal [Philipp Kahler]
When developing a new trading strategy you are usually confronted with multiple tasks: Design the entry, design the exit and design position sizing and overall risk control. This article is about how you can test the edge of your entry signal before thinking about your exit strategy. The results of
- 5 years ago, 28 Oct 2019, 09:13am -
Factor Orphans [Flirting with Models]
To generate returns that are different than the market, we must adopt a positioning that is different than the market. With the increasing adoption of systematic factor portfolios, we explore whether an anti-factor stance can generate contrarian-based profits. Specifically, we explore the idea of
- 5 years ago, 28 Oct 2019, 09:13am -
Tradable economics [SR SV]
Tradable economics is a technology for building systematic trading strategies based on economic data. Economic data are statistics that – unlike market prices – directly inform on economic activity. Tradable economics is not a zero-sum game. Trading profits are ultimately paid out of the
- 5 years ago, 28 Oct 2019, 09:12am -
The Complexity of Factor Exposure Analysis [Factor Research]
Factor exposure analysis is essential for performance and risk contribution However, the results vary depending on methodologies, factor definitions, and other assumptions A holdings-based approach is preferable over regression analysis INTRODUCTION A large part of a capital allocator’s job is to
- 5 years ago, 28 Oct 2019, 09:12am -
Predictable End-of-Month Treasury ETF Returns [Allocate Smartly]
The inspiration for this post comes from a new paper titled Predictable End-of-Month Treasury Returns (h/t Capital Spectator). A description from the authors: We document a distinct pattern in the timing of excess returns on coupon Treasury securities. Average returns are positive and highly
- 5 years ago, 24 Oct 2019, 09:46pm -
Core Earnings: New Data and Evidence [Alpha Architect]
Researchers love novel datasets–it gives them a new set of information to conduct studies and test theories. That brings us to this paper, titled “Core Earnings: New Data and Evidence” by Ethan Rouen, Eric So, and Charles C.Y. Wang. The paper uses a novel database created by our friends at
- 5 years ago, 24 Oct 2019, 09:46pm -
Equities Market Intraday Momentum Strategy in Python – Part 1 [Python For Finance]
For this post, I want to take a look at the concept of intra-day momentum and investigate whether we are able to identify any positive signs of such a phenomenon occurring across (quite a large) universe of NYSE stocks. It has been suggested that, for the wider market in general at least, there is a
- 5 years ago, 23 Oct 2019, 11:46am -
Trick or treat. It’s Halloween! [Quant Dare]
Let’s start with an experiment. We divide people into two groups, A and B. Then, we ask group A to guess how old Mahatma Gandhi was when he died, taking into account it was after age 9. And we ask group B the same question but taking into account that it was before age 140. Of course, the extra
- 5 years ago, 23 Oct 2019, 11:45am -
Pairs Trading Basics: Correlation, Cointegration And Strategy [Quant Insti]
Pairs trading is supposedly one of the most popular types of trading strategy. In this strategy, usually a pair of stocks are traded in a market-neutral strategy, i.e. it doesn’t matter whether the market is trending upwards or downwards, the two open positions for each stock hedge against each
- 5 years ago, 23 Oct 2019, 11:45am -
Superstar Investors [Alpha Architect]
Many famous investors are outspoken about their investment philosophies, and carefully apply them to a select number of securities. Who among us hasn’t thought if they could at least capture some of the talents of our favorite investors in a bottle, we too could be super investors? Turns out you
- 5 years ago, 23 Oct 2019, 11:45am -
The Quality Factor—What Exactly Is It? [Alpha Architect]
While the quality factor has been identified in the literature (including papers such as “Buffett’s Alpha,” “Global Return Premiums on Earnings Quality, Value, and Size,” and “The Excess Returns of ‘Quality’ Stocks: A Behavioral Anomaly”), and there are now a number of investment
- 5 years ago, 23 Oct 2019, 11:44am -
Skew and expected returns [Investment Idiocy]
Some bloke* once said "The most overlooked characteristic of a strategy is the expected skew of it's returns, i.e. how symmetrical they are" * It was me. "Systematic Trading" page 40 Skew then is an important concept, and one which I find myself thinking about a lot. So
- 5 years ago, 21 Oct 2019, 11:05am -