We've recently been considering the field of deep learning as a modelling methodology for forming new quantitative trading models. Such models have been shown to be 'unreasonably effective' in the fields of computer vision, natural language processing and games of strategy. This

In a rising rate environment, conventional wisdom says to shorten duration in bond portfolios. Even as rates rise in general, the influence of central banks and expectations for inflation can create short term movements in the yield curve that can be exploited using systematic style premia. Value,

What are the research questions? Are crowdsourced earnings forecasts from a source such as Estimize, useful in the capital markets by capturing new information about future earnings? Does a site such as Estimize add incremental accuracy when combined with the conventional, sell-side earnings

STRUGGLING QUANT episode 1: How I lost USD 500.000 while figuring out the link between questions, math, stats, coding and trading Say that you are 30 years old and you have a good 25 years to work hard. Instead of going down the easy way of working for someone else during the day and killing time in

Density estimation using regression? Yes we can! I like regression. It is one of those simple yet powerful statistical methods. You always know exactly what you are doing. This post is about density estimation, and how to get an estimate of the density using (Poisson) regression. The “go-to”

Let’s start an experiment! This post will be the first in a series on going through the process of creating a trading strategy. It will not only detail the steps that I myself curently follow when I am building a strategy, what I’m hoping for is that others contribute to the process by adding

It is a common misconception that the most important thing to have when you're trading, or investing, systematically is good trading rules. In fact it is much, much, much more important to have a good position management framework (as discussed in my first book) and to trade a diversified set

This is the fourth in a new advanced series of posts written by Imanol Pérez, a PhD researcher in Mathematics at Oxford University and an expert guest contributor to QuantStart. In this post Imanol applies the Theory of Rough Paths to the task of predicting which country a company belongs to based

I will be talking on the Factor Investing panel at the upcoming Evidence-Based Investing Conference in Dana Point, CA next Sunday –Tuesday. I am excited for the opportunity to chat, and figured I would highlight a few thoughts we have on the topic going into the event. First, what is “evidence

Last week I posted an article, which formed the first part in a series on Linear Algebra For Deep Learning. The response to the article was extremely positive, both in terms of feedback, article views and also more broadly on social media. Many of you commented that there was "an appetite"

In the last article we looked at the backtest results from 600,912 iron condor trades entered between January 2007 and September 2016. The focus in that article was on win rate and normalized P&L per day for each of the 3024 variations tested. Recall that we looked at combinations of: Trade

Mean reversion strategies rely on the premise that extremes in price eventually revert to the mean price over time. They are effective during established markets – bull, bear or sideways – but unfortunately do not perform well during market regime changes or tail events. Tail events are outcomes

I am frequently asked if I do out-of-sample testing. The short answer is not always and when I do, it is not how most people do the test. There are lots of considerations and pitfalls to avoid when doing out-of-sample testing. Out-of-sample testing is not the panacea it is made out to be. There are

I'm excited to announce my DataCamp course on importing and managing financial data in R! I'm also honored that it is included in DataCamp's Quantitative Analyst with R Career Track! You can explore the first chapter for free, so be sure to check it out! Course Description Financial

Factor investing has experienced a resurgence in popularity under the moniker “smart beta.” Several traditional factors, such as value, size, momentum, and low beta, are well defined and have been heavily researched in academia as return anomalies for many decades. These factors have also been

The first part of this post is a quick update on Tony Cooper’s of Double Digit Numerics’s volatility ETN momentum strategy from the volatility made simple blog (which has stopped updating as of a year and a half ago). The second part will cover Dr. Jonathan Kinlay’s Beta Convexity concept. So,

In our last post, we covered the importance of a well-designed investment universe as a precondition for thoughtful diversification. In this second article on Dynamic Asset Allocation for Practitioners we will explore several methods for measuring price momentum to compare and contrast their utility

That headline was a response I received from a handful of friends regarding my last post on buying puts as tail risk insurance. And I agree. Well, sort of. It’s been long known that there exists a premium for selling insurance…hey, otherwise why would anyone do it? Now what if you could combine

Continuing our exploration into the smart beta segment (Part 1, Part 2), in this third post we introduce a simple “IQ Test” that can help investors and managers measure the “smartness” of the increasing number of non-cap-weight rules-based products on the market. There are numerous arguments

Title: FURTHER EVIDENCE ON THE STRATEGIC TIMING OF EARNINGS NEWS: JOINT ANALYSIS OF WEEKDAYS AND TIMES OF DAY Authors: RONI MICHAEY, AMIR RUBIN, ALEXANDER VEDRASHKO Publication: JOURNAL OF ACCOUNTING AND ECONOMICS, 2016 (version here) What are the research questions? Do managers act to strategically

The term “multi-asset” appears in many investment strategies and applies to both balanced funds and target date retirement funds. However, multi-asset strategies may be concentrated in a limited set of asset classes, and the performance of these asset classes may be driven by an even more

At the end of my last blog, I had asked a few questions. Now, I will answer them all at the same time. I will also discuss a way to detect the regime/trend in the market without training the algorithm for trends. But before we go ahead, please use a fix to fetch the data from Google to run the code

In this second part of the Algorithmic Options trading series we’ll look more closely into option returns. Especially into the methods of combining different option types for getting user-tailored profit and risk curves, which gives options an interesting advantage over other financial

When the tech bubble collapsed back in 2000, the Nasdaq fell from 5,132 to just 1,470 a few months later. Many popular stocks found their market prices gutted. For example, Cisco lost 86% of its market cap, while Amazon fell over 90% from $107 to $7. Losses such as these decimated investor

Monetary Policy Uncertainty and Bond Risk Premium Fuwei Jiang (Central University of Finance and Economics) and Guoshi Tong (Renmin University) October 1, 2016 We show that uncertainty of monetary policy (MPU) commands a risk premium in the US Treasury bond market. Using the news based MPU measure

The Holy Grail for mutual fund investors is the ability to identify in advance, which of the active mutual funds (or ETFs nowadays) will outperform in the future. The evidence suggests this task is almost impossible. To date, the overwhelming body of academic research has demonstrated that past

Back in March we ran a content survey and found that many of you were interested in a refresher course for the key mathematical topics needed to understand deep learning and quant finance in general. Since deep learning is going to be a big part of this year's content we thought it would be

I. Trading Strategy Developer: John Ehlers. Source: Ehlers, J., FRAMA: Fractal Adaptive Moving Average. Concept: Trend following trading strategy based on adaptive price filters. Research Goal: To verify performance of the Fractal Adaptive Moving Average (FRAMA). Specification: Table 1. Results:

Purely passive investing is theoretically plausible, but practically impossible. That said, the practical implementations can often be “good enough.” As a theoretical index investor, you deploy capital, take a long snooze, and wake up some day to consume your portfolio. Unfortunately, the world

We examine whether and to what extent successful equities investment strategies are transferrable to the commodities futures market. We investigate a total of 7 investment strategies that involve optimization and mean-variance timing techniques. To account for the unique characteristics of the

Victor Haghani began his career at Salomon Brothers in 1984, starting out in a research role before joining their prop trading desk. In 1992, Victor left Salomon to become one of the founding partners of Long Term Capital Management… LTCM was an incredibly successful hedge fund, up until 1998,

In asset management research, we often assume an investor has an infinite horizon, no spending requirements, and no tax consequences. While this may be appropriate for some institutions, it is rarely appropriate for individual investors, leaving financial advisors to fill the gaps. Many factor

Title: A WEALTH MANAGEMENT PERSPECTIVE ON FACTOR PREMIA AND THE VALUE OF DOWNSIDE PROTECTION Authors: LOUIS SCOTT AND STEFANO CAVAGLIA Publication: THE JOURNAL OF PORTFOLIO MANAGEMENT, SPRING 2017 (version here) What are the research questions? The article links two current hot topics: goal based

According to S&P DJ Indices, 92% of all actively managed stock funds failed to beat their benchmarks over the past 15 years. This should come as no surprise. Similar results were published more than 20 years ago. This information has caused a move away from active stock selection and toward

The astonishing bull market (bubble?) in Bitcoin has drawn attention to the cryptocurrency from all corners. One of the questions that’s reasonating: Should Bitcoin be treated as an asset class, on par with stocks, bonds, real estate and commodities? A Forbes article last year, citing a study by

I assume that you're reading this because you are one of many people who were affected by the changes to Yahoo Finance data in May (2017). Not only did the URL change, but the actual data changed as well! The most noticeable difference is that the adjusted close column is now only

This paper compares and contrasts factor investing and sector investing, and then seeks a compromise by optimally exploiting the advantages of both styles. Our results show that sector investing is effective for reducing risk through diversification while factor investing is better for capturing

In 2012 we published a whitepaper entitled “Adaptive Asset Allocation: A Primer” in which we built upon the simple, robust momentum framework proposed by Mebane Faber in his 2009 study “Relative Strength Strategies for Investing.” Our approach utilized a portfolio optimization overlay to

This is the third in a new advanced series of posts written by Imanol Pérez, a PhD researcher in Mathematics at Oxford University and an expert guest contributor to QuantStart. In this post Imanol applies the Theory of Rough Paths to the task of handwritten digit classification—a common task for

Negative month for the State of Trend Following report, putting the YTD well in the red. Please check below for more details. Detailed Results The figures for the month are: May return: -3.14% YTD return: -7.44% Below is the chart displaying individual system results throughout May: StateTF May And

This is a test of the “Classical Asset Allocation” strategy from the paper Momentum and Markowitz: A Golden Combination, authored by three of our favorite minds in tactical asset allocation: Dr. Wouter Keller, Adam Butler of GestaltU/ReSolve AM, and Ilya Kipnis from the blog QuantStrat TradeR.

Title: PORTFOLIO CONCENTRATION AND PERFORMANCE OF INSTITUTIONAL INVESTORS WORLDWIDE Authors: NICOLE CHOI, MARK FEDEINA, HILLA SKIBA, TATYANA SOKOLYK Publication: JOURNAL OF FINANCIAL ECONOMICS, 2017 (version here) What are the research questions? Portfolios in international markets tend to be more

May 2017 Trend Following: DOWN -2.59% / YTD: -13.91% Despite a pick up in the second half of the month, the index closed last month in the red, continuing the downward trend for the year. Below is the full State of Trend Following report as of last month. Performance is hypothetical. Chart for May:

Factors such as value, size, and momentum are generally constructed using dollar-neutral portfolios in academic literature. The market beta exposure in these portfolios is often significant and can vary substantially over time. Each factor has gone through periods where these features have been

If you consider yourself Econometrician\Statistician or one of those numerous buzz word synonyms that are floating around these days, Computer Age Statistical Inference: Algorithms, Evidence and Data Science by Bradley Efron and Trevor Hastie is a book you can’t miss, and now nor should you. You

IQFeed provides streaming data services and trading solutions that cover the Agricultural, Energy and Financial marketplace. It is a well known and recognized data feed provider geared toward retail users and small institutions. The subscription price starts at around $80/month. Stanislav Kovalevsky

It seems like a very long while since my bachelor. Checking my bookshelf the other day I was thinking to flag some of those books which helped or inspired me along the way. Here they are in no particular order. Risk: Elements of Financial Risk Management Clear and to the point, 5 stars. Value at

In the past we have discussed that some investors demand dividends. (Here is a nice post by Larry Swedroe on the topic and there are more holistic measures, such as shareholder yield, which are better predictors of future returns). A few posts we have on the topic highlight that CEOs cater to

One study from the Quantifinder that triggered last has some potential intermediate-term implications, and it is fairly interesting, so I figured I would share it. This study looked at the SPX closing price in relation to its 50-day Bollinger Bands, and the fact that we are now extended upwards. I

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