Quant Mashup
Asset Pricing using Extreme Liquidity with Python (Part-2) [Black Arbs]
POST OUTLINE Part-1 Recap Part-1 Error Corrections Part-2 Implementation Details, Deviations, Goals Prepare Data Setup PYMC3 Generalized Linear Models (GLM) Evaluate and Interprate Models Conclusions References part-1 recap In part 1 We discussed the theorized underpinnings of Ying Wu of Stevens
- 7 years ago, 14 Dec 2016, 09:02am -
Betting on Perfection [EconomPic]
Just how perfect do circumstances need to be going forward for an investor in the S&P 500 to make money? Let's take a look at one measure. The first chart plots forward 10-year returns for the S&P 500 at various 5 point "CAPE" valuation buckets (i.e. less than 10x P/E all the
- 7 years ago, 14 Dec 2016, 02:29am -
Machine Learning for Stock Market Prediction: Global Indices [Keith Selover]
When applying Machine Learning tools to market prediction, the internet is saturated with academic papers and lacking in practical code examples. In this post, it’s my goal to translate one such paper from text to code. Mark Dunne’s Undergraduate Thesis, “Stock Market Prediction“, approaches
- 7 years ago, 13 Dec 2016, 12:04pm -
Timing the Stock Market with the Shiller CAPE [iMarketSignals]
The Shiller CAPE (cyclically adjusted price-earnings ratio) is typically regarded as a stock market valuation measure. When the CAPE is high stocks are supposed to be expensive, and vice-versa. The CAPE itself is not a good stock market timer. However, the CAPE can indirectly be used for market
- 7 years ago, 13 Dec 2016, 12:02pm -
Portfolio Optimization – Risk Preferences In, Trades Out w/ @ScottBSanderson & @TheStreetQuant [Chat With Traders]
When one has a price model that they think will work well for forecasting returns, the next step is to actually trade it. This isn’t that simple for a variety of reasons. For one thing, you need to define how much risk you’re okay with taking on in a portfolio, and then try to maximize your
- 7 years ago, 13 Dec 2016, 12:02pm -
A Dynamic Approach to Factor Allocation [EconomPic]
ETF Trends (hat tip Josh) showed the following "quilt" of large cap factor calendar year returns in the post Low Volatility is Not a Buy and Hold Strategy. Author John Lunt's takeaway (bold mine): It is reasonable to conclude that low volatility is not a buy and hold strategy. This is
- 7 years ago, 12 Dec 2016, 04:32pm -
The Ghost of GDP Past [Flirting with Models]
Summary Economic growth is a key driver of long-term stock and bond returns. Economic growth comes from two main sources: demographic changes (i.e. increases in the number of workers) and productivity growth (i.e. each worker producing more output). Historically, approximately 55% of growth has
- 7 years ago, 12 Dec 2016, 04:31pm -
Interest Rates and Value Investing [Alpha Architect]
There is still no value in bonds today. Many readers just had a knee-jerk reaction and they’ve determined that I fall into one of two categories: A total idiot A total genius But let’s dig a bit deeper into the claim that bonds lack “value,” even with this quarter’s 85 basis point back-up
- 7 years ago, 12 Dec 2016, 04:31pm -
Hacking True Random Numbers in Python: Blockchain Miners [Quant at Risk]
The magnitude and importance of random numbers in finance does not have to be explained. We need them. Either it is an option pricing or a Monte Carlo simulation, random numbers are with us. However, we make a trade-off: the speed in their generation versus uniqueness. That is why a widely accepted
- 7 years ago, 12 Dec 2016, 04:30pm -
The… Most… Wonderful… Weeeeek… Of…The… Yeeeaaaarrrrr!! [Quantifiable Edges]
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
- 7 years ago, 12 Dec 2016, 04:30pm -
Cryptocurrencies and Machine Learning with @BMouler [Better System Trader]
As markets become more mature and more efficient, it can be become increasingly difficult to find sustainable edges. Many traders are looking at the same data and using the same techniques, so what are our options here? 2 of the obvious options we have are: Try to find a unique approach to the
- 7 years ago, 11 Dec 2016, 11:06am -
Sources of Return for CTAs - A Brief Survey of Relevant Research [Quantpedia]
This survey paper will discuss the (potential) structural sources of return for both CTAs and commodity indices based on a review of empirical research articles from both academics and practitioners. The paper specifically covers (a) the long-term return sources for both managed futures programs and
- 7 years ago, 11 Dec 2016, 01:23am -
Reading Fundamental Data from Yahoo Finance [Copula.de]
Recently I read a blogpost and someone was recommending the book "DIY Financial Advisor "by Wesley R. Gray, Jack Vogel and David Foulke. I believe it was the QuantStrat blog but I might be wrong. The book is a good read and also suggest a couple of simple systems any investor can implement
- 7 years ago, 11 Dec 2016, 01:23am -
Research Review | 8 Dec 2016 | Volatility & Risk Management [Capital Spectator]
How Should Investors Respond to Increases in Volatility? Alan Moreira (Yale University) andn Tyler Muir (UCLA) December 2, 2016 They should reduce their equity position. We study the portfolio problem of a long-horizon investor that allocates between a risk-less and a risky asset in an environment
- 7 years ago, 9 Dec 2016, 10:31am -
You Probably Can't Lose [Cantab Capital]
What can an interesting and surprising experiment with finance students and finance professionals tell us about financial decisions and how to maximise extracting returns from low information content systems? Introduction It is well known that humans are bad at estimating probabilities. We
- 7 years ago, 9 Dec 2016, 10:30am -
Pairs Trading on ETF - EPAT Project Work [Quant Insti]
This article is the final project submitted by the author as part of his coursework in Executive Programme in Algorithmic Trading (EPAT™) at QuantInsti. You can check out our Projects page and have a look at what our students are building after reading this article. About the AuthorEPAT student
- 7 years ago, 9 Dec 2016, 10:30am -
Conditional Value-at-Risk in the Normal and Student t Linear VaR Model [Quant at Risk]
Conditional Value-at-Risk (CVaR), also referred to as the Expected Shortfall (ES) or the Expected Tail Loss (ETL), has an interpretation of the expected loss (in present value terms) given that the loss exceeds the VaR (e.g. Alexander 2008). For many risk analysts, CVaR makes more sense: if VaR is a
- 7 years ago, 8 Dec 2016, 07:35am -
Replicating CRSP Volatility Decile Portfolios in R [Propfolio Management]
In this post, I provide R code that enables the replication of the Center for Research in Security Prices (CRSP) Volatiliy Deciles using Yahoo! Finance data. This post is related to my last blog post in that it will generate the CRSP low volatility decile portfolio, thereby facilitating the
- 7 years ago, 7 Dec 2016, 06:39pm -
Using recent returns for Mean Reversion [Alvarez Quant Trading]
In most of my mean reversion posts, I use RSI(2) to determine if a stock has sold off. In this post, I will explore how to use a stock’s recent return to determine if it has sold off. This will be done in way to normalize the return between low and high volatile stocks. This basic strategy has
- 7 years ago, 7 Dec 2016, 06:38pm -
Ranking the top and bottom TAA strategies [Investing For A Living]
Following up on my last post, I’d like to take a deeper dive into the performance of TAA strategies. In particular, I’ll take a look at the differences between the top performing TAA strategies and the bottom performing ones. There are some important points that come out of this analysis which I
- 7 years ago, 7 Dec 2016, 06:37pm -
State of Trend Following Drawdown Levels Comparison [Wisdom Trading]
A couple of months ago, we published a study on the performance of trend following after drawdowns, as the State of Trend Following index was hitting high levels of drawdown (about 2/3 of the historical maximum). We showed that in 80% of cases, the post-drawdown performance is positive, showing that
- 7 years ago, 7 Dec 2016, 06:37pm -
Testing Popular Portfolio Optimization Techniques [Allocate Smartly]
This is a test of a number of popular approaches to portfolio optimization. Each seeks to answer the question: given a universe of assets, how much should we allocate to each? We’ve intentionally made these tests as simple and fair (read: unoptimized) as possible in order to best represent each
- 7 years ago, 6 Dec 2016, 09:23pm -
TRINdicators [Throwing Good Money]
When I start to write a blog post, usually my process is this: Come up with a really bad pun for the title. Write the rest of it. Bad puns are an important part of finance, and life in general. A blog reader contacted me recently to chat about various technical analysis indicators, and one he
- 7 years ago, 6 Dec 2016, 08:23pm -
The Look of a Winner is a Loser (h/t SystematicRelativeStrength.com) [Basis Pointing]
Investors tend to have some pretty engrained misconceptions of what “winning” funds look like. For instance, winning funds lay waste to the index and category peers; they do so over the short- and long-term; they corner really well, deftly avoiding big drawdowns and rocking during rallies; they
- 7 years ago, 6 Dec 2016, 07:08pm -
Seeking Alpha? Try MORE Alpha Factors w/ @JonathanRLarkin & @TheStreetQuant [Chat With Traders]
In practice, no one trading model will ever be that good on its own. Luckily statistics has come up with a lot of theory about how you can combine weaker models to create better overall predictions. We’ll discuss how to combine many different trading signals into overall models and some of the
- 7 years ago, 5 Dec 2016, 10:10pm -
Is dividend investing dangerous? [Flirting with Models]
Summary In a persistent, low interest rate environment, dividend strategies have rapidly increased in popularity. In theory, investors should be indifferent to dividends. In practice, they are not. As a strategy, a focus on high dividend yield may simply be a (poor) value strategy in drag. A focus
- 7 years ago, 5 Dec 2016, 11:23am -
K-Means Clustering of Daily OHLC Bar Data [Quant Start]
In this article the concept of unsupervised clustering will be considered. In quantitative finance finding groups of similar assets, or regimes in asset price series is extremely useful. It can aid in the development of filters, or entry and exit rules. This helps improve profitability for certain
- 7 years ago, 5 Dec 2016, 09:38am -
Optimism of the Training Error Rate [Eran Raviv]
We all use models. We all continuously working to improve and validate our models. Constant effort is made trying to estimate: how good our model actually is? A general term for this estimate is error rate. Low error rate is better than high error rate, it means our model is more accurate. By far
- 7 years ago, 5 Dec 2016, 09:38am -
Sentiment Analysis on News Articles using Python for traders [Quant Insti]
In our previous post on sentiment analysis we briefly explained sentiment analysis within the context of trading, and also provided a model code in R. The R model was applied on an earnings call conference transcript of an NSE listed company, and the output of the model was compared with the
- 7 years ago, 2 Dec 2016, 05:26pm -
You Would Have Missed 780% In Gains Using The CAPE Ratio, And That's A Good Thing [Meb Faber]
780%. That’s the amount of gains you would have missed had you followed the market timing strategy I’m going to describe in the following article that utilizes the CAPE ratio. Yes, that’s significant. But there’s far more to this story, and I suspect that had you acted on this strategy,
- 7 years ago, 2 Dec 2016, 05:25pm -
November Fall for Trend Following [Wisdom Trading]
Every month of this second half of the year seems to have a recurring theme and/or unilateral direction, rendering the YTD performance quite clearly negative. November was no different and produced a variation on the same theme, as you can see below. Below is the full State of Trend Following report
- 7 years ago, 2 Dec 2016, 12:32pm -
Tactical Asset Allocation in November [Allocate Smartly]
This is a summary of the recent performance of a number 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 the
- 7 years ago, 1 Dec 2016, 10:14pm -
TAA strategy performance over time [Investing For A Living]
In this post I’m going to take a look at performance as a whole of a group of TAA strategies and how that performance has varied over time. I’ll then compare it to the classic 60 40 US stock US bond portfolio and a more globally diversified and modern portfolio, the All Weather Portfolio.
- 7 years ago, 1 Dec 2016, 10:10pm -
Looking Forward Not Backward When Estimating Volatility [Blue Sky AM]
When you drive a car, you need to look out your front window and not the rear-view mirror. The same should be true for estimating risk in financial markets. Ironically, most of the “low volatility” products use backward looking information regardless of whether they emphasize low beta or low
- 7 years ago, 1 Dec 2016, 07:51pm -
Common Mistakes of Momentum Investors [Dual Momentum]
Like most investors, those using momentum are often guilty of chasing performance. In fact, momentum requires that we do this. But it should be done in a disciplined and systematic way. Performance chasing should not be due to myopia, irrational loss aversion, or other psychological biases.
- 7 years ago, 1 Dec 2016, 07:50pm -
An Impact of Correlation and Volatility on a Pairs Trading Strategy [Quantpedia]
This paper explains the idiosyncratic risk puzzle in a novel test setting with a combination of arbitrage risk and arbitrage asymmetry as in Stambaugh/Yu/Yuan (2015). We utilize the popular investment strategy pairs trading to identify a different kind of mispricing and find a dominant negative
- 7 years ago, 1 Dec 2016, 07:50pm -
Chicago Python Workshop [Portfolio Effect]
You will learn why the use of high frequency market data is necessary to be able to measure correctly the risk and rebalance your portfolio adequately. You will also learn how to build strategies to generate alpha. You will study how to build your own portfolio, create a strategy, backtest it,
- 7 years ago, 1 Dec 2016, 07:49pm -
Non-Linear Cross-Bicorrelations between Oil Prices and Stock Fundamentals [Quant at Risk]
When we talk about correlations in finance, by default, we assume linear relationships between two time-series “co-moving”. In other words, if one time-series changes its values over a give time period, we seek for a tight correlation reflected within the other time-series. If found, we say they
- 7 years ago, 1 Dec 2016, 08:07am -
Predicting Forward 60/40 Returns [EconomPic]
In a recent post, Long-Term Bonds Behave More Like Stocks Than You Might Think, Lawrence via Fortune Financial fame outlined: It shouldn't be surprising that long-term Treasurys exhibit almost the same degree of volatility as equities. After all, as we discussed in A Better Way to Think of
- 7 years ago, 30 Nov 2016, 05:30pm -
Is the Low Volatility Anomaly driven by Lottery Demand? [Alpha Architect]
A few years ago I wrote a summary on a working paper titled “A Lottery Demand-Based Explanation of the Beta Anomaly.” The paper is still a working paper, and has been updated (unfortunately they took out a neat picture from the original paper!). Here is a link to the new version of the paper,
- 7 years ago, 30 Nov 2016, 05:30pm -
BERT: a newcomer in the R Excel connection [R Trader]
A few months ago a reader point me out this new way of connecting R and Excel. I don’t know for how long this has been around, but I never came across it and I’ve never seen any blog post or article about it. So I decided to write a post as the tool is really worth it and before anyone asks,
- 7 years ago, 30 Nov 2016, 10:30am -
A Stylized History of Quantitative Finance (h/t @AbnormalReturns) [Big Picture]
The evolution of a quantitative approach to finance has proceeded through many small but significant steps and occasional large epiphanies. Over the past 70 years financial models have quantified the notion of derivatives, diffusion, risk, diversification, hedging, volatility, replication, and no
- 7 years ago, 29 Nov 2016, 06:49pm -
Here's A Better Measure Of Value [Larry Swedroe]
Eugene Fama and Kenneth French’s seminal 1992 paper, “The Cross-Section of Expected Stock Returns,” resulted in the development of the Fama-French three-factor model. This model added the size and value factors to the market beta factor. One of the benefits of adding the value factor (the
- 7 years ago, 29 Nov 2016, 06:48pm -
Alpha Factors with @JStauth and @TheStreetQuant [Chat With Traders]
Factors are at the core of a modern quant equity workflow. This episode introduces the notion of alpha and risk factors at a high level, and delves into some of the use cases which include: understanding how the market is moving, understanding how a portfolio is exposed to sources of risk, and
- 7 years ago, 29 Nov 2016, 08:16am -
A Very Different Kind of Trend Model [Following the Trend]
Trend following is all about following the price. Typically the only input we need for a trend following model is the price. But what if I told that we could make a kind of trend following model which does not use the price direction as an input at all? It also has no stops and no targets. In this
- 7 years ago, 28 Nov 2016, 03:39pm -
Should we celebrate rising rates? [Flirting with Models]
With 10-year rates jumping over 40bp in November, investors are beginning to talk about rising rates again. While rising rates may cause short-term volatility, coupon yield is a much more significant contributor to portfolio return over the long run. Increasing rates actually allow us to reinvest at
- 7 years ago, 28 Nov 2016, 03:39pm -
FX Market Pairs Trading Strategy [Quant Insti]
This article is the final project submitted by the author as a part of his coursework in Executive Programme in Algorithmic Trading (EPAT) at QuantInsti. Do check our Projects page and have a look at what our students are building. About the Author Harish Maranani did his Bachelors in Technology
- 7 years ago, 28 Nov 2016, 03:38pm -
Trading Market Sentiment [Jonathan Kinlay]
Text and sentiment analysis has become a very popular topic in quantitative research over the last decade, with applications ranging from market research and political science, to e-commerce. In this post I am going to outline an approach to the subject, together with some core techniques, that have
- 7 years ago, 28 Nov 2016, 03:38pm -
Bootstrap Aggregation, Random Forests and Boosted Trees [Quant Start]
In a previous article the decision tree (DT) was introduced as a supervised learning method. In the article it was mentioned that the real power of DTs lies in their ability to perform extremely well as predictors when utilised in a statistical ensemble. In this article it will be shown how
- 7 years ago, 28 Nov 2016, 08:30am -
Podcast: Market Regimes with @HelixTrader [Better System Trader]
Most trading strategies have an optimal type of market condition where they work at their absolute best, so having an understanding of market conditions and being able to detect and adapt to them can really have a huge impact on trading performance. But how can we measure market regimes properly?
- 7 years ago, 27 Nov 2016, 07:00am -