Quant Mashup
Trade Cost Optimisation II: Tracking Error and the Cutting Plane Algorithm [Scalable Capital]
This blog article builds on our first blog article about trade cost optimisation approaches. We discuss some weaknesses of the simple approach presented in the first article and make suggestions for extending and improving the trade cost optimisation towards a more sophisticated and powerful
- 5 years ago, 29 May 2019, 03:10pm -
Our Systematic Value Philosophy [Flirting with Models]
As a firm, Newfound Research focuses on tactical allocation strategies. However, we also spend time researching other mandates – such as systematic value – in an effort to introduce lateral thinking to our process. Three years ago, we built a systematic value portfolio that seeks to create a
- 5 years ago, 29 May 2019, 03:09pm -
News Sentiment and Bonds [Alpha Architect]
Academic literature has documented a news sentiment effect on equities ( here and here ). The authors investigate the following research question: Does the sentiment derived from media content impact bond market investors? What are the Academic Insights? By studying the sentiment extracted from
- 5 years ago, 28 May 2019, 03:01pm -
A Song of Value and Growth [Quiet Quant]
Despite Uncle Warren’s understanding of the connection of growth and value, those of us that come to investing through the factor and/or academic world, have always been taught that growth investing is a terrible way to invest. This is simply because we have, in most cases, been taught that growth
- 5 years ago, 28 May 2019, 03:33am -
Random Portfolio Generator - Are you Good or Lucky? [Rayner Gobran]
I am not a fan of benchmarking against widely available indexes. Most anyone you ask will tell you that you should benchmark against an index because it is an objective measure of performance. It provides you with the “beta” that allows you to figure out if an investment manager delivers
- 5 years ago, 28 May 2019, 03:32am -
Volatility vs Risk [Two Centuries Investments]
Much has been written on this topic, but for what it’s worth, here is my take. Volatility is how much something moves up and down. The stock market is more volatile than the bond market, on average. Yet, a black-box hedge fund might be less volatile than S&P500, but is it less risky? Risk =
- 5 years ago, 27 May 2019, 02:00pm -
Cheap versus Expensive Countries [Factor Research]
A global value portfolio on country level features structural country biases Returns were positive since 1990, but lacked consistency Value on country and single stock level exhibit the same trends, highlighting common performance drivers INTRODUCTION Holding Value stocks is emotionally challenging
- 5 years ago, 27 May 2019, 02:00pm -
Extended Kalman Filter [Dekalog Blog]
In the code box below I provide code for an Extended Kalman filter to model a sine wave. This is a mashup of code from a couple of toolboxes I have found online, namely learning-the-extended-kalman-filter and EKF/UKF Tollbox for Matlab/Octave. The modelled states are the phase, angular frequency and
- 5 years ago, 27 May 2019, 01:59pm -
An Updated Look At Memorial Week Historical $SPX Performance [Quantifiable Edges]
The week of Memorial Day has shown some interesting seasonal tendencies over the years. But it has been less consistent recently. The chart below is one I have shown in the past, and have now updated. It examines SPX performance from the Friday before Memorial Day to the Friday after it. 2019-05-24
- 5 years ago, 27 May 2019, 03:07am -
Alternatives To Correlation For Quantifying Diversification [Capital Spectator]
Diversification is famously described as the only free lunch in investing and so it’s no surprise that modeling, analyzing and otherwise dissecting the concept is a core part of portfolio design and management. The correlation coefficient is often the go-to metric in this corner of finance. But
- 5 years ago, 27 May 2019, 03:06am -
Risk-Factor Identification: A Critique [Alex Chinco]
In standard cross-sectional asset-pricing models, expected returns are governed by exposure to aggregate risk factors in a market populated by fully rational investors. Here’s how these models work. Because investors are fully rational, they correctly anticipate which assets are most likely to
- 5 years ago, 27 May 2019, 03:05am -
U.S. Treasuries: decomposing the yield curve and predicting returns [SR SV]
A new paper proposes to decompose the U.S. government bond yield curve by applying a ‘bootstrapping method’ that resamples observed return differences across maturities. The advantage of this method over the classical principal components approach would be greater robustness to misspecification
- 5 years ago, 27 May 2019, 03:04am -
Quantopian Review and Comparison to AmiBroker [Alvarez Quant Trading]
In my last post, Avoiding Trades Before Earnings, I mentioned that I used Quantopian to do the research. Several readers asked about my thoughts about Quantopian and how it compares to AmiBroker. Some asked if I had left AmiBroker for Quantopian. What follows are my impressions after using
- 5 years ago, 22 May 2019, 01:47pm -
Volatility Targeting Improves Risk-Adjusted Returns [Alpha Architect]
There’s a large body of research, including the 2017 study “Tail Risk Mitigation with Managed Volatility Strategies” by Anna Dreyer and Stefan Hubrich, that demonstrates that, while past returns do not predict future returns, past volatility largely predicts future near-term
- 5 years ago, 22 May 2019, 01:47pm -
Technical analysis in major brokerages and financial media [Mathematical Investor]
Suppose, in the weather forecast part of a local newscast, the person handling the weather displays a chart of recent temperatures in the local area, pointed out “trends” and “waves,” then mentions a “breakout pattern” from a recent temperature range. Most of us would not have much
- 5 years ago, 22 May 2019, 04:15am -
Volatility Anomalies: IVOL and Vol-of-Vol [Alpha Architect]
Two of the more interesting puzzles in finance are related to volatility—stocks with greater idiosyncratic volatility (IVOL) have produced lower returns and stocks with high uncertainty about risk, as measured by the volatility of expected volatility (vol-of-vol), underperform stocks with low
- 5 years ago, 22 May 2019, 12:24am -
A Dead Simple 2-Asset Portfolio that Crushes the S&P500 (Part 4) [Black Arbs]
In Part 3 of the series we reviewed the relationship between returns and correlation of the 2-asset portfolio UPRO and TMF. The basic equal weight strategy was very compelling in terms of total return and CAGR. However, the strategy is susceptible to large drawdowns, especially in situations where
- 5 years ago, 20 May 2019, 12:39pm -
Disproving a Signal [Flirting with Models]
Last week we introduced a signal that appeared to generate statistically significant performance results for performing country rotation. This week, we walk through the steps taken to explore the robustness of the signal. We first explore out-of-sample data with sector and emerging market country
- 5 years ago, 20 May 2019, 12:39pm -
What is better: Factor Zoo or Factor Museum? [Two Centuries Investments]
Here are my 8-thoughts and 1 solution idea about Campbell Harvey and Yan Liu recently released paper on their influential concept of the factor zoo. To sum it up, it says that there are too many data-mined factors out there and that we should be using much higher t-statistics to accept factors.
- 5 years ago, 20 May 2019, 12:38pm -
Improving the Momentum Factor [Factor Research]
The performance of the Momentum factor in the US has been poor since 2000 Fundamental valuation spreads were ineffective for improving the performance Combinations with other factors and factor volatility filters would have yielded better results INTRODUCTION John H. Cochrane of the Hoover
- 5 years ago, 20 May 2019, 12:38pm -
Exploring Stock Price Movements After Major Events (h/t @PyQuantNews) [Steven Wang]
FDA drug approvals, legal verdicts, mergers, share buybacks, and the occasional CEO podcast appearance, are all examples of events that impact stock prices. Though not as quantifiable as technical indicators, real life events clearly affect prices. In an attempt to further explore the relationship
- 5 years ago, 20 May 2019, 04:07am -
Adaptive Huber Regression [Eran Raviv]
Many years ago, when I was still trying to beat the market, I used to pair-trade. In principle it is quite straightforward to estimate the correlation between two stocks. The estimator for beta is very important since it determines how much you should long the one and how much you should short the
- 5 years ago, 19 May 2019, 07:56am -
The Future of QTPyLib [Ran Aroussi]
I released the first version of QTPyLib, my Python library for algo traders, in 2016. If you had told me then that I would still be working on it three years later, I probably wouldn't have believed you. But guess what? That's precisely where I'm doing 🙂 The first release of QTPyLib
- 5 years ago, 17 May 2019, 10:45am -
Financial Experts Ignoring Better Statistical Methods? [CXO Advisory]
Why are expert economic and financial (econometric) forecasters so inaccurate? In his April 2019 presentation package for a graduate course at Cornell entitled “The 7 Reasons Most Econometric Investments Fail”, Marcos Lopez de Prado enumerates shortcomings of standard econometric statistical
- 5 years ago, 17 May 2019, 10:45am -
Backtesting Bias: Feels Good, Until You Blow Up [Robot Wealth]
In an ideal trading universe, we’d all have a big golden “causation magnifying glass”. Through the lens of this fictional tool, you’d zoom in and understand the fleeting, enigmatic nature of the financial markets, stripping bare all its causes and effects. Knowing exactly what causes
- 5 years ago, 15 May 2019, 09:47am -
How Inflation Makes the 'Value' Factor a Sector Bet [Fortune Financial]
There have been numerous attempts to explain the lackluster performance of value investing so far this decade, which is currently on pace for its worst annualized performance for a decade since the 1930s: Without getting into the arguments made by others, which have been debated elsewhere, I will
- 5 years ago, 14 May 2019, 02:27pm -
A Laboratory for Machine Learning in Finance [Quants Portal]
In the summer of 2018 we attended a conference organized by Quantopian in which we heard Dr. Marcos Lopez de Prado outlined the challenges of building successful quantitative investment platforms. His book, Advances in Financial Machine Learning provides solutions to many of the problems faced by
- 5 years ago, 14 May 2019, 10:53am -
Shiny New Toys [CSS Analytics]
Its been a long time folks, but we have some shiny new toys in the works. Current trends in the industry and working with data scientists has made me a believer in the benefits of using a machine learning approach. I have always been a proponent of “theory-free” approaches on this blog as long
- 5 years ago, 14 May 2019, 10:52am -
Why The Failed Bounce Is Not A Signal To Sell [Quantifiable Edges]
After closing at a 20-day low on Thursday, the market put in a bounce attempt on Friday. Monday’s decline to a new low meant that initial bounce attempt failed. But in last night’s subscriber letter we saw several studies that showed the “failed bounce” was more likely to see another bounce
- 5 years ago, 14 May 2019, 10:52am -
Fractional Differentiation [Quants Portal]
In this article we delve into the challenge of making an asset price series stationary (for reasons discussed below) and preserving as much memory/signal from the original series. We take inspiration from Chapter 5 of the Advances in Financial Machine Learning (AFML) by Dr. Marcos Lopez de Prado
- 5 years ago, 13 May 2019, 01:33pm -
Member Analysis: The Effect of Combining Strategies on Timing Luck [Allocate Smartly]
We enjoy hearing from members about their experiences using our platform to analyze and combine tactical asset allocation strategies. We do a bad job of sharing that feedback with other members, and that’s a shame, because there’s often a lot of wisdom in it. So let’s change that. What follows
- 5 years ago, 13 May 2019, 01:33pm -
Country Rotation with Growth/Value Sentiment [Flirting with Models]
Value investing has not only underperformed with regard to security selection, but also country selection over the last decade. In an effort to avoid country value traps, we set out to design two signals that might better confirm when a country is likely to exhibit positive re-valuation. We find
- 5 years ago, 13 May 2019, 01:09pm -
10 Large Scale Factor Anomaly Studies with Definitions [Two Centuries Investments]
A Taxonomy of Anomalies and their Trading Costs 2015, Robert Novy-Marx and Mihail Velikov (with data) …and the Cross-Section of Expected Returns, 2013, Campbell Harvey, Yan Liu, Caroline Zhu (factor list) A Comparison of New Factor Models, 2014, Kewei Hou, Chen Xue, Lu Zhang The Supraview of
- 5 years ago, 13 May 2019, 01:09pm -
Short Selling + Insider Selling = Profitable Strategy? [Alpha Architect]
What are the research questions? This study uses a long and comprehensive time series covering 1977-2014, with just under 180,000 quarterly observations for trades of short sellers and demand for shares by corporate insiders. (see here for a related paper we covered recently that talks about
- 5 years ago, 13 May 2019, 01:07pm -
SPX Iron Condor - 2018 Review [DTR Trading]
In this post we'll look at how the SPX iron condor has been performing since I last analyzed its results back in 2016 (here). For this article, we'll just look at the following variations and how they performed from January 2007 through December 2018: 66 DTE - 25 pt wings, 12 Delta
- 5 years ago, 13 May 2019, 01:07pm -
Hedge Fund ETFs [Factor Research]
Core hedge fund strategies are available as low-cost and transparent ETFs The performance of hedge fund ETFs has been comparable to that of their benchmarks ETFs have only captured 1% of hedge fund assets INTRODUCTION As Amazon has been decimating large parts of the retail industry over the last two
- 5 years ago, 13 May 2019, 09:18am -
Welcome to Investor IQ [CSS Analytics]
There is some interesting new content on the CSSA blog that will be very useful for readers. Investor IQ is currently a free tool that shows basic trend signals (Buy, Hold or Sell) for a wide range of US and Canadian ETFs as well as a relative strength ranking. The signals will be updated as of the
- 5 years ago, 13 May 2019, 09:18am -
The Edge of Technical Indicators [Philipp Kahler]
Classical technical indicators like RSI and Stochastic are commonly used to build algorithmic trading strategies. But do these indicators really give you an edge in your market? Are they able to define the times when you want to be invested? This article will show you a way to quantify and compare
- 5 years ago, 12 May 2019, 10:58am -
Systematic trading strategies: fooled by live records [SR SV]
Allocators to systematic strategies usually trust live records far more than backtests. Given the moral hazard issues of backtesting in the financial industry, this is understandable (view post here). Unfortunately, for many systematic strategies live records can be even more misleading. First, the
- 5 years ago, 12 May 2019, 10:58am -
Don't Be A Value Hero [Quiet Quant]
Let’s imagine a world where value stocks actually provide some outperformance at some point… In a world like that, are there any simple rules one could implement into their value system to help avoid “falling knives”? The optimist in me says yes, but the realist says nope. Turns out, it is
- 5 years ago, 10 May 2019, 11:24am -
Research Review | 10 May 2019 | Tail Risk [Capital Spectator]
Tail Risk Management for Multi-Asset Multi-Factor Strategies David Chambers (University of Cambridge), et al. January 8, 2019 Multi-asset multi-factor portfolio allocation is typically centred around a risk-based allocation paradigm, often striving for maintaining equal volatility risk budgets.
- 5 years ago, 10 May 2019, 10:16am -
CBI Hits 10+ While $SPX is in a Long-Term Uptrend [Quantifiable Edges]
It is notable that the Quantifiable Edges Capitulative Breadth Indicator (CBI) closed at 10 on Thursday. Below is a study that shows other times the CBI reached 10 while the SPX was above its 200ma. 2019-05-10 A very high percentage of instances closed higher when looking out 4 or more days. The
- 5 years ago, 10 May 2019, 10:16am -
State of Trend Following in April [Au Tra Sy]
Positive month for the State of Trend Following index. YTD fighting back to the zero line… Please check below for more details. Detailed Results The figures for the month are: April return: 2.89% YTD return: -1.6% Below is the chart displaying individual system results throughout April:
- 5 years ago, 10 May 2019, 10:16am -
The True Cost of Hedging S&P Downside [Movement Capital]
Hedging sounds like a smart thing to do. But has it actually worked? This post examines the historical costs and benefits of hedging stock exposure with SPY puts. Interest in hedging strategies tends to increase as market volatility rises. There are many ways to hedge, and a common method is to
- 5 years ago, 9 May 2019, 11:13pm -
Buying Stocks Trading Above 10x Sales-A Good Idea? [Alpha Architect]
Early last week, Meb Faber included me on a conversation on buying stocks trading at 10x their company’s revenue (sales). Is this a good idea and how did it do in the past? Given that most “known” factors have underperformed over the past 10 years, I was interested in seeing if a somewhat
- 5 years ago, 9 May 2019, 08:22pm -
Trade Cost Optimisation [Scalable Capital]
We discuss two major challenges when implementing a dynamic portfolio strategy in practice: Minimising trading costs and enforcing a no-fractional-dealing condition. To master these challenges, we present a flexible and efficient trade cost optimisation algorithm that can be combined with a wide
- 5 years ago, 8 May 2019, 09:36am -
Comparing Tactical Asset Allocation ETFs to Public TAA Strategies [Allocate Smartly]
In this post we compare the performance of the 49 tactical asset allocation strategies that we track to 7 ETFs that provide all-in-one exposure to TAA. We were inspired by James Picerno’s Capital Spectator to run this analysis, so we’ve appropriated his list of 6 ETFs, and added Meb Faber’s
- 5 years ago, 8 May 2019, 09:34am -
F@ck Everything... We’re Going 120/80 [EconomPic]
Jeremy had spent most nights over the previous 30+ years on this earth in search of the next big ETF. After all, you don’t “aspire to be at the forefront of innovative ways for marrying the benefits of the exchange-traded fund structure with goals that are associated with active managers” by
- 5 years ago, 7 May 2019, 08:48pm -
Democratize Quant 2019 Recap [Alpha Architect]
We did it. We democratized quant for one more year. Last year, we suffered through a 50% drawdown in attendance due to a perfectly timed snow storm. This year the weather cooperated with us and we were able to get everyone there. Full access to presentation videos and the accompanying slides (when
- 5 years ago, 7 May 2019, 10:26am -
Option-Based Strategies: Opt In or Opt Out? [Factor Research]
Option-based strategies generated better risk-adjusted returns than the S&P 500 over the last 30 years Investors should be wary of buying options and focus on harvesting the volatility risk premium by writing options Option-based strategies are an interesting alternative to long-short equity
- 5 years ago, 7 May 2019, 10:26am -