Quant Mashup
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 -
Market Leverage as an Explanation of Low Volatility Anomaly [Quantpedia]
The 'low-beta' or 'low-volatility anomaly' is one of the most researched in the field of 'alternative beta'. Despite strong published evidence going back to the 1970s that high beta/volatility stocks underperform relative to expectations generated by the Capital Asset
- 7 years ago, 27 Nov 2016, 06:59am -
Singapore November 2016 Trip Report [Quant Start]
A couple of weeks ago I flew out to Singapore to give a talk at the Quantopian Singapore QuantCon. The event was absolutely fantastic with an incredibly diverse and interesting set of talks. I gave a talk was on the topic of Hunting For Alpha In Alternative Data. Here is a brief summary of the trip,
- 7 years ago, 24 Nov 2016, 11:57am -
An EMA Trading Strategy for a Low Volatility Portfolio [Propfolio Management]
The process I’m going to follow is based on content from the University of Washington’s CFRM561 course Advanced Trading System Design. “Hypothesis driven development” is the core principle of this course, where each step in the development process involves hypothesizing testable ideas, and
- 7 years ago, 22 Nov 2016, 12:16pm -
Great Minds Agree to Disagree on the Source of the Value Investing Premium [Alpha Architect]
Active investing sounds so easy. But we all know it is extremely difficult. Ask any deep value investor how they have felt over the past few years (although, they are feeling a lot better recently). Certainly, any credible active investor should be able to answer 2 questions: 1) What is the source
- 7 years ago, 22 Nov 2016, 12:16pm -
Podcast: You Don’t Know How Wrong You Are w/ @TheStreetQuant [Chat With Traders]
The worst case in finance is when you think you’re right, but you’re actually wrong. This can be especially dangerous when you’ve used some methodology or statistics to justify a decision, but are unaware of all the subtle biases that can cause false results. In this episode we’ll cover many
- 7 years ago, 21 Nov 2016, 10:59pm -
How to Not Ditch Your Investment Plan [Flirting with Models]
A well-designed investment plan is an important part of achieving investment objectives, but even the best investment plan is useless if you cannot stick to it. Rolling relative performance can give context to the size of short-term portfolio fluctuations while looking at risk exposures can give
- 7 years ago, 21 Nov 2016, 10:26am -
Thanksgiving Week Edges [Quantifiable Edges]
The time around Thanksgiving has shown some strong tendencies over the years – both bullish and bearish. In the table below I show SPX performance results based on the day of the week around Thanksgiving. The bottom row is the Monday of Thanksgiving week. The top row is the Monday after
- 7 years ago, 21 Nov 2016, 10:26am -
Testing the Random Walk Hypothesis with R, Part One [Turing Finance]
Whilst working on some code for my Masters I kept thinking, "it would be really awesome if there was an R package which just consumed a price series and produced a data.frame of results from multiple randomness tests at multiple frequencies". So I decided to write one and it's named
- 7 years ago, 20 Nov 2016, 11:12am -
The Perils Of Bargain Hunting [Larry Swedroe]
As I have been discussing in a series of articles (which you can find here, here and here), we now have a substantial body of evidence demonstrating that individual investors possess a preference for low-priced equities. This is anomalous behavior, because the level of a company’s stock price is
- 7 years ago, 20 Nov 2016, 11:11am -
In Calm Markets Should We Buy "Cheap" Put Protection? [Alpha Architect]
Time for a little myth busting. Recently, the Motley Fool posted an article that argued the following: when market volatility is low, protective put options are cheap. From the article: Smart investors know that the time to buy most investments is when most investors aren’t paying attention to
- 7 years ago, 18 Nov 2016, 12:02pm -
Pre-earnings Annoucement Strategies [EP Chan]
Much has been written about the Post-Earnings Announcement Drift (PEAD) strategy (see, for example, my book), but less was written about pre-earnings announcement strategies. That changed recently with the publication of two papers. Just as with PEAD, these pre-announcement strategies do not make
- 7 years ago, 18 Nov 2016, 08:54am -
R-view: Backtesting – Harvey & Liu (2015) [Open Source Quant]
In this post i take an R-view of “Backtesting – Harvey & Liu (2015).” The authors propose an alternative to the commonly practiced 50% discount that is applied to reported Sharpe ratios when evaluating backtests of trading strategies. The reason for the discount is due to the inevitable
- 7 years ago, 17 Nov 2016, 09:03pm -
Quant investing: making momentum tolerable [Investing For A Living]
For today’ s post and the next few I’ll be going back to my favorite topic, quant investing. In this post I want to explore pure momentum quant portfolios and in particular ways to make pure momentum investing tolerable and implementable to more investors. Note: for a refresher on momentum and
- 7 years ago, 16 Nov 2016, 06:38pm -
Is synthetic XIV/VXX data safe to use? [Alvarez Quant Trading]
I have done several posts about trading XIV & VXX. In these posts (here, here and here) I refer to using synthetic data before these ETFs started trading. I supported the use of the data due to the very high correlation of daily returns during the overlap period. With a correlation of .97, I
- 7 years ago, 16 Nov 2016, 06:38pm -
An Evidence-Based Low Volatility Investing Discussion [Alpha Architect]
Jack and I had the honor of attending the Evidence-Based Investing conference, hosted by the team at Ritholz Wealth Management. Wow. What a great event and a great group of inspiring investors and thinkers. Abe, Meb, John, Mike, and I had the opportunity to chat about systematic investing. Mr.
- 7 years ago, 16 Nov 2016, 06:38pm -
What is the Capacity of Smart Beta Strategies? [Quantpedia]
Using a transaction cost model, and an assumption for the smart beta premium observed in data, we estimate the capacity of momentum, quality, value, size, minimum volatility, and a multi-factor combination of the first four strategies. Flows into these factor strategies incur transaction costs. For
- 7 years ago, 16 Nov 2016, 06:37pm -
Mean Reversion Trading System [Milton FMR]
Many traders who managed to design and implement a mean reversion system ‘correctly’ made a fortune. Fact is that financial markets move in patterns and especially in cycles. In simple words everything that goes up must come down and everything that goes down must come up. Nothing moves in one
- 7 years ago, 16 Nov 2016, 10:43am -
Levy flights. Foraging in a finance blog [Quant Dare]
Does this graph look like a kid’s drawing? Maybe a piece of art from the monkey Jeff? No, of course Jeff draws better than this. Actually, it is a representation of what is known as a Lévy flight, a mathematical concept that shows up in nature, marketing, cryptography, astronomy, biology, physics
- 7 years ago, 16 Nov 2016, 10:43am -
Momentum: Letting the Cheap Get Cheaper? [Flirting with Models]
As an investment strategy, momentum focuses solely on prior returns. Being valuation agnostic, however, does not mean that a momentum strategy does not have first-order valuation effects on portfolio construction. Using historical US sector data, we find that both cross-sectional and time-series
- 7 years ago, 15 Nov 2016, 02:01am -
Long-Short Investing Might Shorten Your Investment Lifespan [Alpha Architect]
Over the past several decades, academics have identified numerous variables that seem to predict future expected returns. This has led to a proliferation of so-called “factors” identified in the literature, and created what John Cochrane has labeled the “factor zoo.” Now we we have a zoo of
- 7 years ago, 15 Nov 2016, 02:01am -
Does Risk Parity Maximize Risk-adjusted Returns? [Markov Processes]
While it is well known that risk parity strategies typically allocate more weight or apply leverage to asset classes with lower risk, it is not well understood how higher volatility affects the Sharpe ratios exhibited by the assets that get over- or under- weighted. We find that in practice the
- 7 years ago, 15 Nov 2016, 02:00am -
Central Moments [Eran Raviv]
Sometimes I read academic literature, and often times those papers contain some proofs. I usually gloss over some innocent-looking assumptions on moments’ existence, invariably popping before derivations of theorems or lemmas. Here is one among countless examples, actually taken from Making and
- 7 years ago, 14 Nov 2016, 10:07am -
Podcast: Mean Reversion strategies with @QuantLabInfo [Better System Trader]
The performance profile of Mean Reversion is extremely desirable to a lot of traders. Mean reversion trading strategies can produce high win rates and a smooth equity curve, however there are risks, which can result in giving back a large portion of profits, or of your trading account, some times in
- 7 years ago, 13 Nov 2016, 09:41am -
Diversification For The Long Term [Larry Swedroe]
The table below, taken from the newly released book I co-authored with Andrew Berkin, “Your Complete Guide to Factor-Based Investing,” shows the annual premium and Sharpe ratio for the equity factors of market beta, size, value, momentum, profitability and quality. It also shows the odds that
- 7 years ago, 13 Nov 2016, 09:41am -
Pandas tutorial : Convert tick by tick data to OHLC data [Quant Insti]
In this post, we will explore a feature of Python pandas package. We usually find queries about converting tick-by-tick data into OHLC (Open, High, Low and Close) frequently. This can be accomplished with minimal effort using pandas package. The OHLC data is used for performing technical analysis of
- 7 years ago, 11 Nov 2016, 09:59am -
Five points of caution for dividend investors [Factor Investor]
At a time when demand for income generating assets is at an all-time high, the yields on income generating assets are at, or near, all-time lows. While the headlines often speak to the number of Baby Boomers entering retirement, the more important statistic is actually the amount of wealth entering
- 7 years ago, 10 Nov 2016, 09:01pm -
100 Years of dow jones returns [Voodoo Markets]
A quick look at annual returns over the 100+ years of daily percent change (close to close) data that we have on dow jones 1 2 3 4 5 6 7 import matplotlib.pyplot as plt import pandas as pd import numpy as np import datetime dj = local_csv("DjiaHist.csv", date_column = "Date",
- 7 years ago, 10 Nov 2016, 11:24am -
Algorithmic Trading (Part 2): Pairs Trading and Statistical Arbitrage [Keith Selover]
This post will address what pairs trading is, how you can test for a pairs trading opportunity, and how to implement a pairs trading strategy. For information on the libraries I’ve used and how I structured my trading methods, I recommend starting with my previous post on the subject. Pairs
- 7 years ago, 10 Nov 2016, 10:11am -
TAA portfolios: Antonacci’s Composite Dual Momentum [Investing For A Living]
One of the TAA strategies that I have often been asked about is Antonacci’s Composite Dual Momentum (ACDM from now on). I never got around to tracking or writing about it but now the the folks at Allocate Smartly have it covered. In this post I’ll highlight the key details of the strategy and
- 7 years ago, 10 Nov 2016, 10:11am -
Preliminary Tests of Currency Strength Indicator [Dekalog Blog]
Since my last post on the currency strength indicator I have been conducting a series of basic randomisation tests to see if the indicator has better than random predictive ability. The first test was a random permutation test, as described in Aronson's Evidence Based Technical Analysis book,
- 7 years ago, 8 Nov 2016, 08:33pm -
Over-Rebalancing [Meb Faber]
Research Affiliates has been churning out some great content lately. In their recent piece titled “Timing “Smart Beta” Strategies? Of Course! Buy Low, Sell High!” they examine some value based factor rotation strategies. Namely, they examined rotating among the factors that had the worst
- 7 years ago, 8 Nov 2016, 08:33pm -
Outperforming by Underperforming [Flirting with Models]
If you want long-term outperformance, you must be able to stomach short-term underperformance. As William Bernstein said, “The most important investment ability is an emotional discipline.” Investing is a team sport that requires this discipline from both the investment manager (to stick to his
- 7 years ago, 7 Nov 2016, 11:31am -
State of Trend Following in October [Au Tra Sy]
The results from last month’s trend following index were only slightly negative, which is quite surprising as most of other indices were sharply down, including The Wisdom Trading State of Trend Following report, which I write as a version 2 of this report. The principles for the index are the
- 7 years ago, 7 Nov 2016, 11:31am -
Your best strategy in 2016… up till Q3 [Quant Investing]
I wanted to send you this article shortly after the end of the third quarter 2016 but, like a lot of things, it slipped my mind. What has worked in 2016 – value is not dead I will get right to the point about what strategy would have given you the best return so far in 2016. Here is a short
- 7 years ago, 7 Nov 2016, 07:30am -
Python Data Visualization using Bokeh for Algo Traders and Quants [Quant Insti]
A picture is worth a thousand words or said a wise woman a hundred years ago. True to every word of the idiom, the beauty of visualization lies in how clearly it might convey multiple messages. Visualization of data is one of the key functions of a data scientist and decoding the visual messages is
- 7 years ago, 7 Nov 2016, 07:28am -
Research Review | 4 Nov 2016 | Risk Factors & Return Premia [Capital Spectator]
Measuring Factor Exposures: Uses and Abuses Ronen Israel and Adrienne Ross (AQR Capital Management) September 19, 2016 A growing number of investors have come to view their portfolios (especially equity portfolios) as a collection of exposures to risk factors. The most prevalent and widely harvested
- 7 years ago, 5 Nov 2016, 10:41am -
October brings another down month to Trend Following [Wisdom Trading]
Election year is shaping up to be a bad year for trend following. October saw the State of Trend Following index post another successive down month. The current drawdown is still within the limits of the max value from the historical back-test run, but the Year-To-Date performance is now well into
- 7 years ago, 5 Nov 2016, 10:40am -
Principal Component Analysis [Quant Dare]
Principal Component Analysis (PCA) is a technique used to reduce the dimensionality of a data set, finding the causes of variability and sorting them by importance. >How? If you have a set of observations (features, measurements, etc.) that can be projected on a plane (X, Y) such as: DataSet
- 7 years ago, 5 Nov 2016, 10:40am -
Bottom-Up Works Best With Multiple Factors [Larry Swedroe]
CAPM was the first formal asset pricing model. Market beta was its sole factor. With the 1992 publication of their paper, “The Cross-Section of Expected Stock Returns,” Eugene Fama and Kenneth French introduced a new-and-improved three-factor model, adding size and value to market beta as
- 7 years ago, 5 Nov 2016, 10:40am -
Antonacci's Composite Dual Momentum [Allocate Smartly]
This is a test of Gary Antonacci’s “Composite Dual Momentum” strategy from his seminal paper: Risk Premia Harvesting Through Dual Momentum. The model uses Antonacci’s unique approach to measuring momentum, which considers both absolute (aka time-series) and relative (aka cross-sectional)
- 7 years ago, 4 Nov 2016, 01:56am -
Podcast: How to think about strategies like a quant w/ Derek Wong [Chat With Traders]
On this episode, I have our very first guest from China; Derek Wong—he is the Director of Systematic Trading and Options at a private fund in Shanghai. Initially though, Derek got his start in the agricultural pits at the CBOT, then following on from this, he’s worked at various quant shops in
- 7 years ago, 4 Nov 2016, 01:55am -
The Risk of Low Volatility Strategies [Investing Research]
Most factor-based, otherwise known as Smart Beta, ETF strategies are based on a single concept like value or momentum. Over the last two years, the largest flows have been to ETFs investing in low volatility stocks. The most popular being the iShares Edge MSCI Min Vol USA ETF (USMV), which as of
- 7 years ago, 3 Nov 2016, 08:50pm -
Financial Time-Series Segmentation Based On Turning Points in Python [Quant at Risk]
A determination of peaks and troughs for any financial time-series seems to be always in high demand, especially in algorithmic trading. A number of numerical methods can be found in the literature. The main problem exists when a smart differentiation between a local trend and “global” sentiment
- 7 years ago, 3 Nov 2016, 10:19am -
A Reversal-Based Trading Strategy Around Earnings Announcements [Quantpedia]
This study documents that earnings announcements serve as a reality check on short-term, fear and greed driven price development: stocks with extreme abnormal returns in the week before an earnings announcement experience strong price reversal around the announcement. A trading strategy that
- 7 years ago, 3 Nov 2016, 10:19am -
Value Investing using Enterprise Multiples - Is the Premium Due to Risk and/or Mispricing? [Alpha Architect]
At Alpha Architect, we are big fans of Value investing (and Momentum). In the past, Wes and I examined which valuation measure had the largest spread between Value and Growth firms. The evidence showed (updated results here) that Enterprise Multiples had the largest spread between Value and Growth
- 7 years ago, 2 Nov 2016, 09:37am -
Risk Parity and The Four Faces of Risk [GestaltU]
Benjamin Graham famously said that "In the short run, the market is a voting machine but in the long run, it is a weighing machine." But this is not quite correct. Rather, in the short term, the market is a machine where investors "vote" about what the market will
- 7 years ago, 2 Nov 2016, 09:36am -
Low Priced Stocks No Bargain [Larry Swedroe]
As I wrote about last week, the absolute level of a firm’s stock price is arbitrary, as it can be easily manipulated by the firm through altering the number of shares outstanding (for example, by splitting the stock). Despite this obvious fact, the research into investor behavior has found a
- 7 years ago, 2 Nov 2016, 09:31am -