Quant Mashup
Factor Zoo or Unicorn Ranch? [Dual Momentum]
According to Morningstar, as of June 2016, the assets in smart beta exchange traded products totaled $490 billion. BlackRock forecasts smart beta using size, value, quality, momentum, and low-volatility will reach $1 trillion by 2020 and $2.4 trillion by 2025. This annual growth rate of 19% is
- 7 years ago, 22 Feb 2017, 12:00pm -
Country ETF Rotation – Reader’s Suggestions [Alvarez Quant Trading]
My last post on Country ETF Rotation generated several ideas of what to test to improve the results. See the original post for the list ETFs being traded. One important test I left out from the original post was a baseline case. An idea applied to all the tests was trading more ETFS. For all tests,
- 7 years ago, 22 Feb 2017, 12:00pm -
Explaining the Low Risk Effect with @LarrySwedroe [Alpha Architect]
As my co-author, Andrew Berkin, and I(1) explain in our new book, “Your Complete Guide to Factor-Based Investing,”(2) one of the big problems for the first formal asset pricing model developed by financial economists, the CAPM, was that it predicts a positive relation between risk and return.
- 7 years ago, 22 Feb 2017, 02:57am -
Crisis Alpha: A Simple ETF Approach [Flirting with Models]
Trend-following strategies – such as managed futures and tactical equity – have historically provided crisis alpha against sustained drawdowns. For short-horizon events (e.g. single day, week, or month events), the effectiveness of these approaches in managing risk is largely based on the luck
- 7 years ago, 21 Feb 2017, 12:03pm -
Market Regime Detection using Hidden Markov Models in QSTrader [Quant Start]
In the previous article on Hidden Markov Models it was shown how their application to index returns data could be used as a mechanism for discovering latent "market regimes". The returns of the S&P500 were analysed using the R statistical programming environment. It was seen that
- 7 years ago, 21 Feb 2017, 12:03pm -
New Feature: Historical Allocation Analysis [Allocate Smartly]
We’ve added a major new feature to our members area: historical allocation analysis. Every strategy that we track now includes a brand new subpage, which is updated daily and devoted to helping members better understand how each asset class has contributed to the strategy’s performance. In this
- 7 years ago, 21 Feb 2017, 12:02pm -
Modeling Risk With Bootstrapping Techniques In R [Capital Spectator]
Limited data is the financial modeler’s biggest challenge. Making assumptions about risk is tough enough under the best of circumstances. All too often it’s even tougher when the historical record is thin. There are several ways to manage this challenge, including bootstrapping, aka resampling
- 7 years ago, 21 Feb 2017, 10:59am -
Spx 1% low volatility range streaks [Voodoo Markets]
Spx is on a low volatility streak, taking a look at how long the streaks usually last and how the current streak relates to past instances. Also looking at Spx returns once the spell breaks – as do probably most others, i expected volatility to pick up, that does not seem to be the case. Bill Luby
- 7 years ago, 21 Feb 2017, 10:59am -
President's Day Factor Investing Geekout [Alpha Architect]
Our epic piece on factors from a few weeks ago is still ringing in our own ears: Are factors even real? Or just data-mining? The conclusion: who knows. We need more data. And more data we can find. To include a recent master’s thesis on nordic country equities, which looks at Size, value,
- 7 years ago, 20 Feb 2017, 11:31am -
Modeling Asset Processes [Jonathan Kinlay]
Over the last twenty five years significant advances have been made in the theory of asset processes and there now exist a variety of mathematical models, many of them computationally tractable, that provide a reasonable representation of their defining characteristics. While the Geometric Brownian
- 7 years ago, 20 Feb 2017, 05:06am -
Outliers and Loss Functions [Eran Raviv]
A few words about outliers In statistics, outliers are as thorny topic as it gets. Is it legitimate to treat the observations seen during global financial crisis as outliers? or are those simply a feature of the system, and as such are integral part of a very fat tail distribution? I recently read a
- 7 years ago, 19 Feb 2017, 10:11pm -
Will ETFs Destroy Factor Investing? Nope. [Alpha Architect]
One of the popular investing truisms is the following (inspired by Bill Sharpe): For somebody to beat the market (win) someone else has to lag the market (lose). This becomes an even more daunting (efficient market) statement when changed to the following: For someone to consistently beat the market
- 7 years ago, 17 Feb 2017, 11:46pm -
Tactical Asset Allocation Insights via the Geeks from @ThinkNewfound [Alpha Architect]
The Alpha Architect mission is to empower investors through education.(1) We can’t accomplish our mission without help. Fortunately, “finance twitter” and an explosion of bloggers are helping us achieve our goal. Awesome! Of course, with so many new blogs hitting the scene, we now face an
- 7 years ago, 16 Feb 2017, 01:56pm -
Ehlers’s Autocorrelation Periodogram [QuantStrat TradeR]
This post will introduce John Ehlers’s Autocorrelation Periodogram mechanism–a mechanism designed to dynamically find a lookback period. That is, the most common parameter optimized in backtests is the lookback period. Before beginning this post, I must give credit where it’s due, to one Mr.
- 7 years ago, 15 Feb 2017, 08:48pm -
Timing the Stock Market with the Inflation Rate [iMarketSignals]
Stocks usually perform poorly when inflation is on the rise. Using the inflation rate, we developed a market timer according to two simple rules. Switching according to the Timer signals between the S&P500 with dividends and a money-market fund would have provided from Aug-1953 to end of
- 7 years ago, 15 Feb 2017, 11:23am -
Random forest: many is better than one [Quant Dare]
Random forest is one of the most well-known ensemble methods and it came up as a substantial improvement of simple decision trees. In this post, we are going to explain how to build a random forest from simple decision trees and to test how they actually improve the original algorithm. Maybe you
- 7 years ago, 15 Feb 2017, 11:23am -
Stack Financials: Analyze Financial Statement Data [FOSS Trading]
A quantmod user asked an interesting question on StackOverflow: Looping viewFinancials from quantmod. Basically, they wanted to create a data.frame that contained financial statement data for several companies for several years. I answered their question, and thought others might find the function I
- 7 years ago, 15 Feb 2017, 12:27am -
How to Explain Momentum with Rational Investors - It's complicated [Alpha Architect]
A recent theory paper from researchers at NYU and Rutgers attempts to explain the empirical evidence on stock serial correlation (e.g., short-term reversal, long-term stock reversal, and classic stock momentum). The interesting wrinkle with this paper is the authors don’t need to assume irrational
- 7 years ago, 14 Feb 2017, 10:37am -
Anatomy of a Bull Market: Follow-Up [Flirting with Models]
Based on our post from earlier today ("Anatomy of a Bull Market"), we received a request to decompose U.S. equity returns over rolling 10-year periods. The graph presenting this data is below. To perform these calculations, we calculate the annualized return generated by each source
- 7 years ago, 13 Feb 2017, 08:43pm -
QuantCon 2017 Talks Announced! April 28th-30th in NYC [Quatopian]
The first talks from QuantCon 2017 have just been announced. Come out and hear insightful talks on overfitting, backtesting, Bayesian global optimization, and more! QuantCon Talks on April 29th Marcos López de Prado, Senior Managing Director at Guggenheim Partners, and Dr. Michael Kearns, Professor
- 7 years ago, 13 Feb 2017, 08:43pm -
What is Bitcoin's Correlation With Other Financial Assets? [Signal Plot]
I’m strongly considering entering into a substantial investment in bitcoin as part of my passively managed, fully long portfolio. Before I do that, I decided to look into two questions regarding bitcoin’s role in a portfolio: What is bitcoin’s correlation with other financial assets? Can
- 7 years ago, 13 Feb 2017, 08:42pm -
Anatomy of a Bull Market [Flirting with Models]
Long-term average stock returns smooth over the bull and bear markets that investors experience, and no two market cycles ever unfold the exact same way. Bull and bear markets can vary significantly in both duration and magnitude. But there are other characteristics of bull markets that can also
- 7 years ago, 13 Feb 2017, 10:39am -
Annualised Rolling Sharpe Ratio in QSTrader [Quant Start]
In this article the issue of when to retire a trading strategy will be considered. It will present brief reasons why strategies eventually end up underperforming. It will discuss how this can be measured over time and then describe an implementation in QSTrader that provides this functionality. The
- 7 years ago, 13 Feb 2017, 10:38am -
Last Chance for a FREE Ticket to QuantCon in NYC (04/28 – 04/30) [Quantocracy]
This is the last week to snag yourself a free ticket to this year’s QuantCon in NYC in April. Quantopian has generously offered the Quantocracy community 3 free tickets worth a total of $2,497. A number of very smart people on our mashup will be speaking, including EP Chan, Rob Carver (Investment
- 7 years ago, 13 Feb 2017, 04:22am -
Using PMI Data For Tactical Asset Allocation [Backtest Wizard]
The 200 day moving average is perhaps one of the most well-known tactical asset allocation filters and many analysts suggest that you should be long the stock market if the Index is greater than the 200 day MA, and flat the stock market if the Index is less than the 200 day MA. For example, the
- 7 years ago, 12 Feb 2017, 09:50am -
Roll em! How to calculate futures rolls (and why you care) [Adam H Grimes]
This post will be a bit more technical than most, but it’s an important subject to understand. Today, let’s talk about rolling and back-adjusting futures prices: why we did it. How we do it, and what it means when we look at historical charts. Futures pricing First, a little quick background.
- 7 years ago, 10 Feb 2017, 11:09pm -
Research Review | 10 February 2017 | Portfolio Strategy [Capital Spectator]
Liquid Alternative Mutual Funds versus Hedge Funds Jonathan S. Hartley (University of Pennsylvania) February 1, 2017 Despite the rapid rise of the number of liquid alternative mutual funds (LAMFs) available to retail investors in recent years, few studies have compared how their return and risk
- 7 years ago, 10 Feb 2017, 11:07am -
Podcast: A deeper understanding of optimization with Andrea Unger [Better System Trader]
One of the most common uses of optimization is to find the “best” values for a trading strategy, but is this approach only giving us part of the picture? Are there other uses for optimization that we can leverage to create better trading strategies? Today we’re going to have a quick chat with
- 7 years ago, 10 Feb 2017, 11:07am -
Are Hedge Funds Betting Against Low-Volatility Stocks? [Quantpedia]
The low-volatility anomaly is often attributed to limits to arbitrage, such as leverage, short-selling and benchmark constraints. One would therefore expect hedge funds, which are typically not hindered by these constraints, to be the smart money that is able to benefit from the anomaly. This paper
- 7 years ago, 10 Feb 2017, 11:07am -
Drop Out for OOS Sanity [Beyond Backtesting]
The vexing problem facing every system developer is the need to validate their backtest. One rigorous way to do that is to use walk forward optimization. However, an argument can be made that the alternative approach of taking all of the data into consideration can also make sense, and, in fact,
- 7 years ago, 10 Feb 2017, 11:06am -
Why TAA Has Been So Successful in Crises [Allocate Smartly]
Most Tactical Asset Allocation (TAA) strategies have followed the same basic storyline. They keep pace with the market during the good times (like we find ourselves in right now), and shine during the bad times. To illustrate, the graphs below shows the average return of all of the TAA models that
- 7 years ago, 9 Feb 2017, 08:34am -
Podcast: Strategy objectives, statistical significance and market behavior w/ @Alphatative [Chat With Traders]
Returning to Chat With Traders for a second time is David Bush—first on episode 23. David began as a discretionary trader, more than 20-years ago, but over time he’s developed into a quant trader. And he’s exceptionally good at what he does; David’s been the first place winner of two (real
- 7 years ago, 9 Feb 2017, 08:34am -
A Curious Intraday Pattern in Brazilian Stock Index Futures [Quantogo]
Since the first article of this blog (Technical Analysis for intraday stocks trading? FORGET IT!), i’m pointing to the fact that there is a lot of cross correlation between stocks and between stocks and the future index. That’s not new to anyone and even those who are starting at the
- 7 years ago, 9 Feb 2017, 08:33am -
Can you eat geometric returns? [Investment Idiocy]
This post is about a slightly obscure, but very important, issue. Should we use geometric or arithmetic means of returns to evaluate investments? This might seem boring, but answering this will help us with some other serious problems: Does diversification increase the expected value of your
- 7 years ago, 7 Feb 2017, 09:53am -
Tail-Risk Analysis In R: Part II - Extreme Value Theory [Capital Spectator]
The financial crisis of 2008 devastated portfolios far and wide and brought the global economy to the brink of collapse. It was a disaster, but there was at least one positive outcome from the debacle: a wider recognition that tail risk is a real and present danger that’s forever lurking. The
- 7 years ago, 7 Feb 2017, 09:53am -
Embracing Conflict in Asset Allocation [Flirting with Models]
Diversification is a cornerstone of portfolio construction. It provides investors with the important ability to invest in the face of uncertainty. Because it can reduce risk without necessarily sacrificing potential reward, it is known as the only free lunch on Wall Street. Yet, we believe that many
- 7 years ago, 6 Feb 2017, 12:08pm -
Multi-State Classifiers (h/t @SwansJR) [Beyond Backtesting]
One technique for optimizing systems is to create a regime filter. A most common example is a binary classifier that classifies the market into either bull or bear markets based on closing above or below the 200 day moving average. But, there are problems with binary classifiers and we will
- 7 years ago, 6 Feb 2017, 12:08pm -
Conditional Value at Risk Models [Jonathan Kinlay]
One of the most widely used risk measures is the Value-at-Risk, defined as the expected loss on a portfolio at a specified confidence level. In other words, VaR is a percentile of a loss distribution. But despite its popularity VaR suffers from well-known limitations: its tendency to underestimate
- 7 years ago, 6 Feb 2017, 12:08pm -
FREE Tickets to QuantCon in NYC (04/28 - 04/30) [Quantocracy]
Quantopian has generously offered the Quantocracy community 3 free tickets to this year’s QuantCon in NYC. Two of the tickets are for the QuantCon main event on 04/29 ($699 value), and one deluxe ticket includes both the main event and a full day of workshops ($1,099 value). A number of very smart
- 7 years ago, 6 Feb 2017, 02:37am -
Podcast: Combining simple concepts to build robust strategies with Art Collins [Better System Trader]
I’m excited to be sharing this one with you today for a number of reasons. Firstly, I’ve been trying to get this guest on the show for over a year now, in fact it’s been longer than that because we first got in touch in July 2015, so it’s been a long time in the making. But secondly, and
- 7 years ago, 5 Feb 2017, 11:47am -
Back to Basics: Introduction to Algorithmic Trading [Robot Wealth]
This is the first in a series of posts in which we will change gears slightly and take a look at some of the fundamentals of algorithmic trading. So far, Robot Wealth has focused on machine learning and quantitative trading research, but I had several conversations recently that motivated me to
- 7 years ago, 4 Feb 2017, 09:28am -
Value and Growth Stock Behavior During Market Declines [Quantpedia]
Using data for five major stock market declines during the 1987-2008 period, this paper provides evidence that value stocks are generally less sensitive to major stock market declines than growth stocks, controlling for beta, firm size, and industry group. Further analysis using several hundred
- 7 years ago, 4 Feb 2017, 02:59am -
Factor Investing is More Art, and Less Science [Alpha Architect]
Albert Einstein is reported to have said the following: The more I learn, the more I realize how much I don’t know. I can relate. Having studied finance for a long time (PhD, professor, books, articles, etc.), I think I now know less about how the stock market works. In fact, I probably should
- 7 years ago, 3 Feb 2017, 11:58am -
Zero Lag Moving Average Filter | Trading Strategy [Oxford Capital]
I. Trading Strategy Developer: John Ehlers and Ric Way. Source: Ehlers, J., Way, R. (2010). Zero Lag (well, almost). Concept: Trend following trading strategy based on moving average filters. Research Goal: To verify performance of the Zero Lag Moving Average (ZLMA). Specification: Table 1. Results:
- 7 years ago, 3 Feb 2017, 11:58am -
Trend following starts 2017 with negative January [Wisdom Trading]
January 2017 Trend Following: DOWN -2.84% If December bucked the trend of the last 6 months, January was a continuation of the downward direction seen in the second half of 2016. The index starts 2017 with a negative performance, in the context of global uncertainty, and keeps flirting with the
- 7 years ago, 3 Feb 2017, 11:57am -
Two Swing Trade Systems (Part 2) [Throwing Good Money]
Yesterday I discussed two swing-trade systems that work pretty well in out-of-sample data. While each works differently, they overlap enough that you don’t get any benefit from running them both at the same time. One great thing about these two systems is that they’re dead simple to manage.
- 7 years ago, 3 Feb 2017, 11:57am -
State of Trend Following in January: Down [Au Tra Sy]
Trend Following started the year with the same flavour as it ended 2016: down. The index posted a negative performance in January but is still slightly up since the low in October last year. Please check below for more details. Detailed Results The figures for the month are: January return: -3.32%
- 7 years ago, 3 Feb 2017, 11:56am -
A Simple Machine Learning Model to Trade SPY [Signal Plot]
I have created a quantitative trading strategy that incorporates a simple machine learning model to trade SPY as part of my ongoing research in quantitative trading. The focus here was not on creating a strategy with alpha but rather to develop a framework both in my mind and in code to develop more
- 7 years ago, 2 Feb 2017, 10:01am -
Factors are Not Commodities [Investing Research]
The narrative of Smart Beta products is that factors are becoming an investment commodity. Factors are not commodities, but unique expressions of investment themes. One Value strategy can be very different from another, and can lead to very different results. There are many places that factor
- 7 years ago, 2 Feb 2017, 09:57am -
Advanced Algorithmic Trading - Final Release [Quant Start]
The QuantStart team are very happy to announce that the full version of Advanced Algorithmic Trading has now been released. This brings the total number of pages to 517. To access the full version customers simply need to follow the download link received in the original pre-order purchase email. If
- 7 years ago, 2 Feb 2017, 09:56am -