Does the industry concentration exhibited in short sellers’ holdings convey new material information about the industry? Are the excess returns obtained from industry shorting combined with firm-specific shorting strategies explained by risk? Is the industry shorting signal correlated with

Traditional value strategies simply sort the investment universe based on one or more valuation metrics (e.g. book-to-market, price-to-earnings, etc.) and purchase the securities that look the cheapest. However, this process is often prone to structural sector bets, which are uncompensated sources

Value & Size generate abnormally large positive returns in January, Momentum negative returns Abnormal returns are limited to the last week of December and first week of January Difficult to harvest these returns efficiently due to illiquidity of markets at these times INTRODUCTION At this time

In this blog, we will step by step implement a machine learning classification algorithm on S&P500 using Support Vector Classifier (SVC). SVCs are supervised learning classification models. A set of training data is provided to the machine learning classification algorithm, each belonging to one

Andreas Koukorinis lives in London and in 2013 he co-founded Stratagem Technologies—a tech startup using AI and machine learning to trade sports as a financial product. These sports predominately include; football, tennis and basketball. But for Andreas, his roots are in trading instruments and

Asian options are path-dependent options whose payoff depends on the average value of the underlying asset during a specific set of dates across the life of the option. Because the payoff of the Asian options depends on the average value of the underlying asset, volatility in the average value is

The US stock market has been on a tear lately. Has the party gone too far? A rising chorus of analysts say that caution is advised, citing several valuation metrics. The Shiller PE Ratio, for instance, is currently at its second-highest level since the late-1800s. Valuations appear stretched, but

Here is a link to our recent podcast on Behind the Uniform. I’m so humbled and honored to have Wesley Gray on the show today, talking about his experience building Alpha Architect. I found Wes through a Wall Street Journal article that starts with: “Wesley Gray’s value-focused fund of overseas

You should have a plan for when you screw things up because I can guarantee it will happen. This is the screw up I did last night and how I handled it this morning. Enjoy this unplanned post. The Nightly Ritual Each night for 250 days of the year, I do the following for my trading. Step 1: In the

In this mini series on Time Series modelling for Financial Data, so far we’ve used AR, MA and a combination of these models on asset prices to try and model how our asset behaves. We’ve found that we were able to model certain time periods well with these models and failed at other times. This

Clustering has already been discussed in plenty of detail, but today I would like to focus on a relatively simple but extremely modular clustering technique, hierarchical clustering, and how it could be applied to ETFs. We’ll also be able to review the python tools available to help us with this.

In the last article, we looked at correlations between Iron Condor returns and Iron Condor structures / trade management. Specifically, we started with the following list of areas to investigate: Correlation between Iron Condor strategy structure / management and result metrics Which result metrics

“Big data” is already a frequently-heard buzzword, both in the business analytics arena, but also in the field of high-performance scientific computing. Basically, “big data” encompasses the collection, processing, indexing and utilization of large-scale datasets. Some concrete examples

Finding quotes and historical data for Bitcoin and Bitcoin futures can be an adventure. Below I’ve assembled links to the online resources that I’ve been able to find. In many cases, data is available from multiple sources. I did not attempt to list all of them. BTC Quotes Yahoo Finance

This paper studies the relation between global foreign exchange (FX) return dispersion risk and the cross-section of currency momentum returns. We find robust empirical evidence that FX return dispersion is a priced risk factor and that it contains information beyond traditional factors. Currencies

What are the research questions? What are the general circumstances associated with independent director departures? Is it possible to identify situations whereby the departure is unexpected and not due to retirements, director outside commitments or firings by the firm? Are the unexpected or

Most institutions are forecasting lower expected returns for traditional asset classes compared to historical realized levels. Rules based upon historically realized numbers – like the 4% withdrawal rule – may fail going forward. Should we simply accept lower withdrawal rates in our financial

Mean-Reversion on index level became profitable post the 1970s, before that Momentum dominated The structural shift from Momentum to Mean-Reversion is consistent across markets Likely explained by the evolution of financial markets INTRODUCTION Investors and traders basically only have two options

Over several time horizons op-ex week in December has been the most bullish week of the year for the SPX. The positive seasonality actually has persisted for up to 3 weeks. I’ve shown the study below in the blog many times since 2008. It looks back to 1984, which was the first year that SPX

Part of my normal routine is to indulge in online research for use useful ideas, and I recently came across An Empirical Evaluation of Similarity Measures for Time Series Classification, and one standout from this paper is the Time Warp Edit Distance where, from the conclusion, "...the TWED

Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. Initial research on momentum was published by Narasimhan Jegadeesh and Sheridan Titman, authors of the 1993 study,

Implementing Momentum: What Have We Learned? Adrienne Ross (AQR Capital Management), et al. December 2017 An abundance of academic evidence and theory exists on the efficacy and intuition behind momentum investing, yet a limited number of studies discuss the feasibility of running momentum

November 2017 Trend Following: DOWN -0.61% / YTD: -15.45% Please find below the latest edition of the Wisdom State of Trend Following as of last month. Performance is hypothetical. Chart for November: Wisdom State of Trend Following - November 2017 And the 12-month chart: Wisdom State of Trend

November was down for the index, sitting just below the negative double-digit line before year-end. It looks like the State of TF will end in the red in 2017, unless a strong bitcoin-inspired December rally lifts the index back in the black. Please check below for more details. Detailed Results The

In the previous posts in this series, we combined the Autoregressive models and Moving Average models to produce Auto Regressive Moving Average(ARMA) models. We found that we were still unable to fully explain autocorrelation or obtain residuals that are discrete white noise. Let’s further extend

In the previous posts in this series, we talked about Auto-Regressive Models and Moving Average Models and found that both these models only partially explained the log-returns of stock prices. We now combine the Autoregressive models and Moving Average models to produce more sophisticated

Determining the correct parameter values to be used in a Jump-Diffusion model is not a trivial process (as outlined here). In this blog post we will be using the biologically inspired differential evolution technique to calibrate a Jump-Diffusion model using simulated share price data. The Jump

Xiao Qiao is a research analyst for a Connecticut-based hedge fund, focused on trading commodity futures. He graduated with a PhD in Finance—and was a teaching assistant to renown economist Eugene Fama. Notably, Xiao has also worked directly with trading legend Blair Hull on two quantitative

A common question I get is where do I find all my research ideas. My main source is Quantocracy. He does a great job of curating posts because the work is manually done. Then there the Better System Trader and Trend Following Radio podcasts. Usually from these sources I get a nugget of an idea to

What an investors pays for an asset directly impacts the forward return an investor is likely to receive. The question for any investor given today’s high stock multiples AND low bond yields globally is how much this matters not only over an intermediate time frame, but over a period potentially

Momentum investing – betting on the persistence of price trends in the short to medium term — has captured the crowd’s attention in recent years. Consider, for instance, the strong growth in ETF assets in the niche. The first fund launched a bit more than five years ago; today, there are

In the last article, posted way back in August, I looked at the Iron Condor structures that appeared to perform the best for each of the seven metrics I tracked. Recall that I tested 3024 different Iron Condor strategy variations over the period from January 2007 through September 2016. This testing

Traditionally, investors have used a balance between stocks and bonds to govern their asset allocation. Expanding this palette to include other asset classes can allow them to potentially both enhance return and reduce risk, benefiting from diversification. Modern portfolio theory tells us, however,

In most parts of Canada we have very distinct seasons. Some months of the year are temperate and relatively dry, while other months are cold and snowy. As a result, most Canadian towns of any size have stores that sell skis and bikes. Of course, they don’t inventory both skis and bikes at the same

Before spending much Monday selling off, the SPX managed to make a new intraday all-time high. The new high followed by a poor and downward close triggered the study below, from the Quantifinder. Results are all updated. 2017-12-05 Results here seem to suggest an upside edge over the next 1-2 weeks.

Shawn McKay, Robert Shapiro, Ric Thomas A version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category. What are the research questions? Diversification is often thought of as the only “free lunch” in finance and

We provide further evidence that markets trend on the medium term (months) and mean-revert on the long term (several years). Our results bolster Black’s intuition that prices tend to be off roughly by a factor of 2, and take years to equilibrate. The story behind these results fits well with the

This is a summary of the recent performance of a wide range of excellent tactical asset allocation strategies. These strategies are sourced from books, academic papers, and other publications. While we don’t (yet) include every published TAA model, these strategies are broadly representative of

Focusing purely on Value is a difficult strategy Sorting by multiple factors improves performance and risk-metrics However, factor selection and allocation remain challenging topics INTRODUCTION Value is likely the most common strategy for equity fund managers as the principle of buying something at

ADC 18 is an event for institutional investors and business professionals working to stay on top of the radically evolving landscape of alternative data. Signal Graphic Alternative Data Vizualization The alternative data landscape is evolving quickly. In less than one year, we've seen rapid

VIX related products (ETNs, futures and options) are becoming popular financial instruments, for both hedging and speculation, these days. The volatility index VIX was developed in the early 90’s. In its early days, it led the derivative markets. Today the dynamics has changed. Now there is strong

Any serious quant trading research with machine learning models necessitates the use of a framework that abstracts away the model implementation from the model specification. This is particularly crucial for deep learning techniques as production-grade models require training on GPUs to make them

Kory Hoang is not a veteran trader—he’s not someone who has been doing this 10-20 years. He’s someone who has been doing this for only a few years, yet he’s begun to make decent gains on his trading capital. Kory is also not a full-time trader …well, at the time of recording this—a few

Much has been made of Factor Investing, and even Vanguard is launching a suite of actively-managed factor ETFs. But even now, with Vanguard offering factor ETFs, there are many investors that only invest passively into an index fund, such as the SP500 or EAFE index. These investors will cite the

In the last post we introduced the concept of using adaptive volatility in order to have a flexible lookback as a function of market conditions. We used the R-squared of price as a proxy for the strength of the trend in the underlying market in order to vary the half-life in an exponential moving

Models are useful. They help us understand the world around us and aid us in predicting what will happen next. But it’s important to remember that models don’t necessarily reflect the underlying reality of the thing we’re modeling. The Ptolemaic model of the solar system assumed the Earth was

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

Many investors, investment professionals, and pundits make comments regarding the relationship between stock correlations and opportunities for active stock pickers. For example, here is a recent example from the Financial Times: Correlation crash clears way for stockpickers. The basic (albeit

Factor investing, and the associated intellectual battles, have raged for decades in academic finance journals. However, now that factor investing has gone mainstream via ETFs, the debate has broader interest among the investing public. Some investors question the very existence of factor premiums.

SPY gapped up and closed lower Monday after leaving an unfilled up gap on Friday. This triggered the study below that examined similar price action in SPY with regards to how it gapped and finished