Quant Mashup
Research Review | 15 March 2019 | Nowcasting [Capital Spectator]
Factor Timing Revisited: Alternative Risk Premia Allocation Based on Nowcasting and Valuation Signals Olivier Blin (Unigestion), et al. 10 September 2018 Alternative risk premia are encountering growing interest from investors. The vast majority of the academic literature has been focusing on
- 5 years ago, 15 Mar 2019, 09:56am -
Factor Investing from Concept to Implementation [Alpha Architect]
There is a substantial debate on the topic of factor investing and whether or not the “backtested” excess returns are actually achievable in practice. Much of the research on the topic suggests that practitioners in the field are unable to capture any of the so-called “factor premiums”. For
- 5 years ago, 15 Mar 2019, 09:56am -
Advances in Financial Machine Learning Package (Update) [Quants Portal]
First of all we want to thank everyone who has reached out to us with ideas and contributions to our package. Without all of your help, none of this would be possible. We have done a lot of work this week and hope that this update provides you with more insight into both the package for Advances in
- 5 years ago, 13 Mar 2019, 09:37pm -
How is mean reversion doing? Dead, Shrinking or Doing Just Fine [Alvarez Quant Trading]
A common question I get from readers is “does mean reversion still work?” The last time I wrote about this topic was in 2015, a long time ago, in the post “The Health of Stock Mean Reversion: Dead, Dying or Doing Just Fine” I did not realize it had been so long. Time to look at it again. The
- 5 years ago, 13 Mar 2019, 09:36pm -
Why Taleb's Antifragile Book is a Fraud [Falkenblog]
In Nassim Taleb’ book Antifragile he emphasizes that ‘if you see a fraud and do not say fraud, you are a fraud,’ I am thus compelled to note that Antifragile is a fraud because its theme is based on intentional misdirection. The most conspicuous and popular examples he presents are also
- 5 years ago, 13 Mar 2019, 09:59am -
Reproducible Finance with R: Code Flows and Shiny Apps for Portfolio Analysis [Alpha Architect]
R is a programming language that owes it’s lineage to S, a language designed in it’s own developers words, “to turn ideas into software, quickly and faithfully.”(1) Shiny is an “interactive web technology” that makes it easy to take R models and publish them to the web. Jonathan L.
- 5 years ago, 13 Mar 2019, 09:59am -
Ranking Quality [Quant Dare]
The application of Machine Learning for ranking is widely spread. This application of Machine Learning is a little different from the classical ones of classification and regression. In the case of ranking, the interest is not in the accuracy of an estimated value (regression) or the guess about the
- 5 years ago, 13 Mar 2019, 09:58am -
State of Trend Following in February [Au Tra Sy]
A fairly late and flat report for our State of Trend Following Index. Not the greatest start of the year. Please check below for more details. Detailed Results The figures for the month are: February return: 0.71% YTD return: -6.26% Below is the chart displaying individual system results throughout
- 5 years ago, 13 Mar 2019, 09:58am -
Random Forest Algorithm In Trading Using Python [Quant Insti]
In this blog, we’ll discuss what are Random Forests, how do they work, how they help in overcoming the limitations of decision trees. With the boom of Machine Learning and its techniques in the current environment, more and more of its algorithms find applications in various domains. The functions
- 5 years ago, 12 Mar 2019, 10:33am -
GARP Investing: Golden or Garbage? [Factor Research]
GARP aims to combine Growth and Value investing GARP stocks have outperformed the market since 1989 It is somewhat perplexing how well the strategy worked VALUE VERSUS GROWTH With their thousands of employees, suites of products, international reach, and legendary histories, General Electric (GE)
- 5 years ago, 12 Mar 2019, 10:32am -
Low Volatility Turnover with Value and Momentum [Alpha Architect]
What are the research questions? What is the relationship between turnover and returns from a low volatility portfolio that integrates value and momentum exposures with low volatility? Does the relationship change if a only one factor is integrated with a low volatility strategy? Note: This is a
- 5 years ago, 12 Mar 2019, 10:32am -
The Monsters of Investing: Fast and Slow Failure [Flirting with Models]
Successful investing requires that investors navigate around a large number of risks throughout their lifecycle. We believe that the two most daunting risks investors face are the risk of failing fast and the risk of failing slow. Slow failure occurs when an investor does not grow their investment
- 5 years ago, 11 Mar 2019, 10:59am -
The Largest Cost Facing Investors Today [Two Centuries Investments]
Alternative Title: The Gap Everywhere There exist many flavors of market timing. Some are obvious: In 1929, an influential businessman states that US Equities will return 24% per year for the next 20 years; or in 1999, a stock market forecaster predicts Dow Jones to double On dollar-weighted basis,
- 5 years ago, 11 Mar 2019, 10:59am -
Synthetic Data Generation (Part-1) - Block Bootstrapping [Black Arbs]
Data is at the core of quantitative research. The problem is history only has one path. Thus we are limited in our studies by the single historical path that a particular asset has taken. In order to gather more data, more asset data is collected and at higher and higher resolutions, however the
- 5 years ago, 8 Mar 2019, 08:22pm -
Options Expiration Week Performance By Month – 2019 Update [Quantifiable Edges]
Next week is monthly options expiration week. I’ve noted several times over the years that Op-ex week in general is pretty bullish. March, April, October, and December it has been especially so. S&P 500 options began trading in mid-1983. The table below is one I have showed in March each of
- 5 years ago, 8 Mar 2019, 08:22pm -
Sector Business Cycle Analysis [Alpha Architect]
There are different investment approaches to identify sector winners and losers, such as price momentum strategies, top down approach based on specific macroeconomic indicators or bottom-up approaches to identify sectors with improving fundamentals. One widely used approach is business cycle
- 5 years ago, 7 Mar 2019, 08:22pm -
Intraday Momentum with Leveraged ETFs [Quant Rocket]
Does forced buying and selling of underlying shares by leveraged ETF sponsors cause predictable intraday price moves? This post explores an intraday momentum strategy based on the premise that it does. Daily rebalancing of leveraged ETFs Source: Ernie Chan, Algorithmic Trading: Winning Strategies
- 5 years ago, 5 Mar 2019, 07:46pm -
Tiingo.com - My Go-To Database For Historical Market Prices [Capital Spectator]
In the spring of 2017, Yahoo pulled a fast one on the crowd by suddenly changing the technical coding rules for accessing its financial data, leaving countless R users high and dry, including yours truly. Numerous R files that had been meticulously written, revised and maintained over months and
- 5 years ago, 4 Mar 2019, 08:19pm -
Day of the Week Matters for Some Anomalies [Alpha Architect]
According to psychology literature, mood increases from Thursday to Friday and decreases on Monday. In general, people tend to evaluate future prospects more optimistically when they are in a good mood than when they are in a bad mood. In equity markets, the presence of optimism or pessimism that is
- 5 years ago, 4 Mar 2019, 08:18pm -
Value, Momentum and Basis in Commodity Futures: 1877-2017 [Two Centuries Investments]
Commodity Futures contracts were established in 1865, but commercially available data starts in 1959, leaving an 80+ year period of unstudied history. In our latest academic paper “Two Centuries of Commodity Futures Premia” Chris Geczy and I use hand-collected futures data to extend the
- 5 years ago, 4 Mar 2019, 10:45am -
How Much Accuracy Is Enough? [Flirting with Models]
It can be difficult to disentangle the difference between luck and skill by examining performance on its own. We simulate the returns of investors with different prediction accuracy levels and find that an investor with the skill of a fair coin (i.e. 50%) would likely under-perform a simple
- 5 years ago, 4 Mar 2019, 10:45am -
Tactical Asset Allocation in February [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 Mar 2019, 10:45am -
Benchmarking Smart Beta ETFs [Factor Research]
Long-only factor portfolios can be used for benchmarking smart beta ETFs Results highlight minor tracking errors Likely explained by relatively homogenous factor definitions by ETF issuers INTRODUCTION Investment professionals are not known for their creativity, but that is perhaps only because
- 5 years ago, 4 Mar 2019, 10:44am -
The Open Source Hedge Fund Project from Jacques Joubert (@JacquesQuant) [Quants Portal]
Dear Hedge Fund Enthusiasts, It’s been long since we sent out a newsletter but we would like to report that the Open Source Hedge Fund Project is alive and kicking again! My Msc in Financial Engineering has provided me with the unique opportunity to build an open source python package, like
- 5 years ago, 2 Mar 2019, 09:28pm -
How salience theory explains the mispricing of risk [SR SV]
Salience theory suggests that decision makers exaggerate the probability of extreme events if they are aware of their possibility. This gives rise to subjective probability distributions and undermines conventional rationality. In particular, salience theory explains skewness preference, i.e. the
- 5 years ago, 2 Mar 2019, 09:23pm -
Skew and Trend Following [Investment Idiocy]
In this post I discuss a well known stylised fact of the investment industry: "Trend following is a positively skewed strategy". Spoiler alert: yes it is (sort of), but it's much more complicated (and interesting!) than you might think. A quick primer on positive skew So what actually
- 5 years ago, 28 Feb 2019, 05:41pm -
KDA - Robustness Results [QuantStrat TradeR]
This post will display some robustness results for KDA asset allocation. Ultimately, the two canary instruments fare much better using the original filter weights in Defensive Asset Allocation than in other variants of the weights for the filter. While this isn’t as worrying (the filter most
- 5 years ago, 27 Feb 2019, 09:18am -
Rebalancing...Not so Fast [Alpha Architect]
My last article used Warren Buffett’s pre-crisis sale of put options to highlight the risk of getting over our financial skis. In both temperament and negotiation, Warren can outlast most bear markets. Many of us cannot. Proponents of rebalancing should acknowledge the real risk that downturns can
- 5 years ago, 27 Feb 2019, 09:15am -
Ilya Kipnis' Defensive Adaptive Asset Allocation [Allocate Smartly]
This is a test of Ilya Kipnis’ “Defensive Adaptive Asset Allocation” (KDA). KDA is a “Meta” model of sorts, combining successful elements of multiple other tactical asset allocation strategies that we track. Results from 1989 to the present, net of transaction costs, follow. Read more
- 5 years ago, 26 Feb 2019, 09:46am -
The Extreme Persistence Of The Current SPX Rally [Quantifiable Edges]
The last time the SPX closed below its 10-day moving average was January 3rd. That means it has now been 35 straight trading days that SPX has closed above the 10ma. That is a very long streak. Below is a list of all streaks since 1928 of 35 days or longer. (Note: prior to 1957 S&P 90 Index data
- 5 years ago, 26 Feb 2019, 09:45am -
Developing a Trading Strategy using Volume Data [Quant News]
Traders and market analysts use volume data, which is the amount of buying and selling of an instrument over a given time period, to gauge the strength of an existing trend or identify a reversal. The back-and-forth movement between buyers and sellers for the best available price allows us to
- 5 years ago, 25 Feb 2019, 05:41pm -
Low Volatility Can Be Low Turnover [Alpha Architect]
Low volatility strategies have garnered a fair amount of popularity and a growing body of supporting research. Studies have shown risk reduction levels of 25%, while turnover has varied from 20% to 120%. However, higher turnover produces higher costs of trading, such that the excess return obtained
- 5 years ago, 25 Feb 2019, 05:41pm -
Three Applications of Trend Equity [Flirting with Models]
Trend equity strategies seek to meaningfully participate with equity market growth while side-stepping significant and prolonged drawdowns. These strategies aim to achieve this goal by dynamically adjusting market exposure based upon trend-following signals. A naïve example of such a strategy would
- 5 years ago, 25 Feb 2019, 10:58am -
Minimum Variance Versus Low Volatility [Factor Research]
The largest smart beta Low Volatility ETF is technically a Minimum Variance strategy Low Volatility and Minimum Variance have comparable and attractive characteristics However, both currently feature a high sensitivity to interest rates INTRODUCTION The Low Volatility factor was the best performing
- 5 years ago, 25 Feb 2019, 10:58am -
Pairs Trading - Part 2: Practical Considerations [Jonathan Kinlay]
One of the first things you quickly come to understand in equity pairs trading is how important it is to spread your risk. The reason is obvious: stocks are subject to a multitude of risk factors – amongst them earning shocks and corporate actions -that can blow up an otherwise profitable pairs
- 5 years ago, 21 Feb 2019, 09:59pm -
Factor Decay [Talton Capital]
Recently John Cotter and Niall McGeever posted an interesting paper to ssrn.com. They studied the persistence of nine anomalies in the U.K. equity market: · Accruals · Asset growth · Book to market ratio · Profitability · Stock issuance · Return reversal · Momentum · Equity turnover · Size
- 5 years ago, 21 Feb 2019, 09:59pm -
Trend-Following: A Decade of Underperformance [Alpha Architect]
Everyone in finance remembers 2008–the Global Financial Crisis. Yes, I know, the final downward movement in the stock market was in early 2009. However, many remember 2008 as the year of the crisis. So now we are 10 years removed from the crisis. Why do I mention this? After the crisis, some began
- 5 years ago, 20 Feb 2019, 05:47pm -
ETF Bond Rotation [Alvarez Quant Trading]
In my last post I discussed SPY/TLT rotation strategies. Today, I will be using the same ideas from the post but on a basket of bond ETFs. The Basket The first difficult decision one must make is what ETFs will be in the basket. What we choose here, can have a big impact on the results. I wanted to
- 5 years ago, 20 Feb 2019, 05:46pm -
Build a BitCoin(tegration) Backtester [Patrick David]
This tutorial is in 2 parts — (you can run the backtester as a separate standalone module) : Learn the Statistical technique of Cointegration. Build a Bitcoin Backtesting engine using Python to analyze the performance of a Cointegration based trading strategy. Just want the code? click here.
- 5 years ago, 19 Feb 2019, 09:31am -
G̷̖̱̓́̀litch [Flirting with Models]
Trend following’s simple, systematic, and transparent approach does not make it any less frustrating to allocate to during periods of rapid market reversals. With most trend equity strategies exhibiting whipsaws in 2010, 2011, 2015-2016, and early 2018, it is tempting to ask, “is this something
- 5 years ago, 19 Feb 2019, 09:31am -
Exploiting Business Day Patterns in Forex Markets [Quant Rocket]
Do businesses exchange currencies in predictable ways that forex traders can exploit? This post explores an intraday EUR.USD strategy based on the hypothesis that businesses cause currencies to depreciate during local business hours and appreciate during foreign business hours. Business patterns in
- 5 years ago, 18 Feb 2019, 05:21pm -
What is Worse: Data-Mining or Not Innovating? [Two Centuries Investments]
In most decisions including investing, there are two ways to be wrong: Doing something that doesn’t work (false positive, type 1 error) Not doing something that would have worked (false negative, type 2 error) Investors and quants in particular worry more about the type 1 error - accepting a fake
- 5 years ago, 18 Feb 2019, 11:35am -
Factor Investing in Financials, Real Estate & MLPs [Factor Research]
Beating benchmarks is challenging for fund managers, even in unique sectors Factor performance in financials, REITs, and MLPs is comparable to the cross-sector factor returns Classic factor investing strategies are likely more attractive than industry expertise INTRODUCTION Stating that active
- 5 years ago, 18 Feb 2019, 11:35am -
New Aggregator for Academic Quant Research: Academic-Quant-News.com
Academic Quant News is, at heart, an aggregator of academic research articles and journals related to quantitative finance. A question? A suggestion? Drop me an email! Interested in quantitative portfolio allocation? You can find on my GitHub account an open source JavaScript library with algorithms
- 5 years ago, 17 Feb 2019, 08:13pm -
Algorithmic strategies: managing the overfitting bias [SR SV]
The business of algorithmic trading strategies creates incentives for model overfitting and backtest embellishment: researchers must pass Sharpe ratio thresholds for their strategies to be considered, while managers lack interest in realistic simulations of ideas. Overfitting leads to bad investment
- 5 years ago, 17 Feb 2019, 07:58pm -
Asset Allocation Roundup [Allocate Smartly]
Six recent asset allocation articles (tactical or otherwise) that you might have missed: 1. Right Now It’s KDA…Asset Allocation (QuantStrat TradeR) Here Ilya shares a TAA strategy that combines elements of two popular strategies that we track: Keller & Keuning’s Defensive Asset Allocation
- 5 years ago, 15 Feb 2019, 01:04pm -
Stock Prediction with ML: Ensemble Modeling [Alpha Scientist]
Markets are, in my view, mostly random. However, they're not completely random. Many small inefficiencies and patterns exist in markets which can be identified and used to gain slight edge on the market. These edges are rarely large enough to trade in isolation - transaction costs and overhead
- 5 years ago, 14 Feb 2019, 06:00pm -
Is There a Size Effect in the Stock Market? [Alpha Architect]
One of the oldest and most persuasive arguments in the stock market is that small stocks outperform large stocks.(1) Warren Buffett, speaking at the 2013 Berkshire Hathaway Annual Meeting, summarized the sentiment when discussing the disadvantages of managing a huge amount of capital: There’s no
- 5 years ago, 14 Feb 2019, 12:37pm -
MACD: Moving Average Convergence Divergence (Part 2) [Oxford Capital]
Developer: Gerald Appel. Source: Appel, G. (2005). Technical Analysis. NJ: Pearson Education, Inc. Concept: Trend following trading strategy based on the MACD (Moving Average Convergence Divergence) signal line. Research Goal: Performance verification of momentum signals. Specification: Table 1.
- 5 years ago, 14 Feb 2019, 12:36pm -
Top 10 Machine Learning Algorithms For Beginners [Quant Insti]
Alan Turing, an English mathematician, computer scientist, logician, and cryptanalyst, surmised about machines that, “It would be like a pupil who had learnt much from his master but had added much more by his own work. When this happens I feel that one is obliged to regard the machine as showing
- 5 years ago, 14 Feb 2019, 12:36pm -