Quant Mashup
Demystifying the Hurst Exponent – Part 1 [Robot Wealth]
This is the first post in a two-part series about the Hurst Exponent. Tom and I worked on this series together, but the awesome code presented throughout is all his. Thanks Tom! Mean-reverting time series have long been a fruitful playground for quantitative traders. In fact, some of the biggest
- 7 years ago, 31 Oct 2016, 08:42am -
Foundations of Successful Trading with Howard Bandy [Better System Trader]
There are a number of different aspects to trading that we really need to get a handle on to increase our odds of success. Some aspects we often put a lot of thought and analysis into, and others we may not consider so carefully or at all, which could be impacting our trading results without us even
- 7 years ago, 30 Oct 2016, 01:08pm -
Mathematics and economics: A reality check [Mathematical Investor]
One of us (Marcos Lopez de Prado) has published the article Mathematics and economics: A reality check in the Journal of Portfolio Management. The article is open-access — there is no fee for viewing or downloading. Lopez de Prado argues that while economics is arguably one the most mathematical
- 7 years ago, 27 Oct 2016, 10:49am -
Portfolio Construction and Optimization [KKB Research]
This is a talk I gave for the Toronto R users group on using various R packages for portfolio construction and optimization with the accompanying source code. So readers can see some of this tech applied to a real product I have included some unofficial performance numbers for the Stance Equity
- 7 years ago, 27 Oct 2016, 10:33am -
Currency Strength Indicator [Dekalog Blog]
Over the last few weeks I have been looking into creating a currency strength indicator as input to a Nonlinear autoregressive exogenous model. This has involved a fair bit of online research and I have to say that compared to other technical analysis indicators there seems to be a paucity of pages
- 7 years ago, 27 Oct 2016, 10:32am -
A Framework for a Short VIX Allocation [EconomPic]
It has historically paid to be a seller of volatility for at least two reasons... 1) Volatility is typically overpriced relative to realized volatility The chart on the left shows the VIX index (predicted volatility) relative to the forward realized volatility of the S&P 500, while the chart on
- 7 years ago, 26 Oct 2016, 07:35pm -
VXX & XIV Strategies [Alvarez Quant Trading]
My recent research has been on the volatility Exchange Traded Products. My focus has been on long trades using VXX and XIV. Although VXX has a very strong downtrend, I am not a fan of developing short strategies on it due to the huge upside risk. I wrote about XIV here and expressed some of the
- 7 years ago, 26 Oct 2016, 07:35pm -
Interactive Brokers API in Docker [Ryan Kennedy]
While Interactive Brokers provide arguably the most extensive retail-level API available for trading, the software is quite frustrating to work with. Rather than IB offering you an API endpoint on their server to interact with, you must run their Gateway or TWS program on your host and interact with
- 7 years ago, 26 Oct 2016, 11:31am -
How to Turn an Engineer into a Quantitative Investor [Alpha Architect]
We receive multiple requests from readers looking to break into the finance industry. Quite often the reader is currently working in a traditional engineering job and looking to make a career switch. The question we often hear is “How does an engineer become a quantitative finance geek?” To
- 7 years ago, 25 Oct 2016, 07:35pm -
Spot Price Patterns with the COT Report [Milton FMR]
This post goes into an in depth analysis of the commitment of traders report and its usefulness for predicting price movements. The CFTC collects data on the daily positions of large participants in the commodity markets. The data is aggregated in the weekly COT report which is published every
- 7 years ago, 25 Oct 2016, 07:34pm -
Strategic and Equal Weighted ETF Portfolios in QSTrader [Quant Start]
In a previous article the monthly rebalance feature of the open-source backtesting library QSTrader was demonstrated on a simplistic equities/bonds ETF mix portfolio. In this article new streamlined code will be presented to allow straightforward modification of the portfolio weightings. In
- 7 years ago, 25 Oct 2016, 08:29am -
Is My Diversified Commodity Index Just Oil? [Flirting with Models]
The benefit of including commodities in individual investor portfolios is often up for debate, focusing on aspects such as expected returns, volatility, access, and diversification. While we think that commodities can add value if the risks are understood, many passive ETFs that offer commodity
- 7 years ago, 25 Oct 2016, 08:29am -
Connecting FXCM over FIX (QuickFix engine) [Quant Insti]
We talked about the defacto standard for message communication in our previous article on FIX protocol. “The Financial Information Exchange (FIX) Protocol is a message standard developed to facilitate the electronic exchange of information related to securities transactions. It is intended for use
- 7 years ago, 24 Oct 2016, 08:56am -
Published Results Impact Future Results [Larry Swedroe]
Financial research has uncovered many relationships between investment factors and stock returns. For investors, an important question is whether the publication of this research can impact the future size of factor premiums. Asking this question is crucial on two fronts. First, if anomalies are the
- 7 years ago, 24 Oct 2016, 08:55am -
Evolving Neural Networks through Augmenting Topologies – Part 4 of 4 [Gekko Quant]
This post explores applying NEAT to trading the S&P. The learned strategy significantly out performs buying and holding both in and out of sample. Features: A key part of any machine learning problem is defining the features and ensuring that they’re normalised in some fashion. The features
- 7 years ago, 23 Oct 2016, 08:32pm -
Flexing VBA For Quants (And Everyone Else) [TrendXplorer]
Would it not be great to have the models for Protective Asset Allocation (PAA) and Global Protective Momentum (GPM) in Excel, so you can run your own backtests without AmiBroker? And not being limited to a pre-defined universe? Actually, now you can. Based on a foundation by InvestExel, Denis
- 7 years ago, 23 Oct 2016, 11:49am -
Tail Protection of Trend-Following Strategies [Quantpedia]
The performance of trend following strategies can be ascribed to the difference between long-term and short-term realized variance. We revisit this general result and show that it holds for various definitions of trend strategies. This explains the positive convexity of the aggregate performance of
- 7 years ago, 22 Oct 2016, 06:00pm -
Algorithmic Trading Basics for New Algorithmic Traders [Quant Insti]
With more than 70% of the trading volumes in the US markets being automated, the rise of the algorithms seem more inevitable than ever before. The mechanical jobs are shifting to computers and only those who can tame the machines can rule the trade markets. Equipping oneself with the skills of
- 7 years ago, 22 Oct 2016, 06:00pm -
Reflexivity and the Feedback Effect in Financial Markets [Alpha Architect]
Eugene Fama’s Efficient Market Hypothesis argues that because stock prices follow a “random walk,” future price behavior cannot be predicted. In his seminal paper, “Random Walks in Stock Market Prices,” he explains the relationship between prices and fundamentals: If the random-walk theory
- 7 years ago, 20 Oct 2016, 11:18pm -
Zero Lag Moving Average Filter | Trading Strategy (Entry & Exit) [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 Filter. Specification: Table 1. Results:
- 7 years ago, 20 Oct 2016, 11:18pm -
Stoken's Active Combined Asset Strategy [Allocate Smartly]
This is a test of Dick Stoken’s Active Combined Asset (ACA) strategy from his book Survival of the Fittest for Investors. This tactical asset allocation strategy uses price channel breakouts to choose between pairs of opposing risk and defensive asset classes. Results from 1988, net of transaction
- 7 years ago, 20 Oct 2016, 02:16am -
Is Equal Weighting Beneficial For Asset Allocation? Part IV [Capital Spectator]
Equal weighting asset allocation doesn’t look encouraging as a portfolio-design tool, based on last week’s preliminary analysis. Can we salvage equal weighting by expanding the opportunity set with a more granular mix of funds? In a word, no. As we’ll see, equal weighting across asset classes
- 7 years ago, 18 Oct 2016, 05:17pm -
Capital Efficiency in Multi-factor Portfolios [Flirting with Models]
The debate for the best way to build a multi-factor portfolio – mixed or integrated – rages on. Last week we explored whether the argument held that integrated portfolios are more capital efficient than mixed portfolios in realized return data for several multi-factor ETFs. This week we explore
- 7 years ago, 17 Oct 2016, 09:09pm -
Book Review of Quantitative Momentum [Dual Momentum]
I have been looking forward to Wes Gray and Jack Vogel's new book, Quantitative Momentum. It is the only book besides my own Dual Momentum that relies on academic research to develop systematic momentum strategies. My book uses a macro approach of applying momentum to indices and asset classes.
- 7 years ago, 17 Oct 2016, 09:08pm -
October Opex Week Has Historically Been Bullish [Quantifiable Edges]
From a seasonal standpoint option expiration week is often a pretty good week for the market. October is one of those months where it has been especially good over the years. The study below examines performance during October op-ex week. 2016-10-17 image1 I decided to exclude 2008 because action
- 7 years ago, 17 Oct 2016, 09:08pm -
Monthly Rebalancing of ETFs with Fixed Initial Weights in QSTrader [Quant Start]
Many institutional global asset managers are constrained by the need to invest in long-only strategies with zero or minimal leverage. This means that their strategies are often highly correlated to "the market" (usually the S&P500 index). While it is difficult to minimise this
- 7 years ago, 17 Oct 2016, 06:30am -
Algorithmic Trading in Indian Markets using Python [Quant Insti]
Algorithmic Trading in Indian Markets using Python We have told you why Python is one of the preferred languages to do algo trading in this article. We have also told you how algorithmic trading in India. Since we are gearing up for our webinar on Trading in Indian Markets using Python (Not
- 7 years ago, 17 Oct 2016, 06:28am -
Podcast: Strategy Optimization with Robert Pardo [Better System Trader]
Why is it that some traders can create trading strategies that perform well in real-time trading while other strategies fall apart? How do some traders keep their trading strategies fresh and adaptive to market conditions while other strategies just stop working altogether? Robert Pardo, president
- 7 years ago, 16 Oct 2016, 12:39pm -
How to Measure Momentum? [Alpha Architect]
Since we’ve released our new book, Quantitative Momentum, we’ve received a handful of basic questions related to momentum–specifically as it relates to stock selection. At this point, the so-called “momentum effect” has occupied academic researchers for several decades. Researchers have
- 7 years ago, 15 Oct 2016, 02:57pm -
Client -III- [Algorythmn Trader]
In my previous post, I started the implementation of WPF program entry point and the View ViewModel interaction basics. The goal of this “Client chapter” is to get a client application which connects to the basic server application I covered earlier. This post continues the basic infrastructure
- 7 years ago, 15 Oct 2016, 02:56pm -
So You Want to Build Your Own Algo Trading System? [Robot Wealth]
Unlike any other business, algorithmic trading has the advantage of being independent of marketing, sales, customers and all those things that need the ‘pretty people’ to make it run. Also, you get almost instant feedback on how good you are in your business. For anyone who is numerically
- 7 years ago, 14 Oct 2016, 01:45pm -
Zero-Crossing Variant of Pairs Trading Strategy [Quantpedia]
Pairs trading is a venerable trading strategy. There is agreement that it worked fine in the far past. But it is less clear if it still profitable today. In this working paper the universe of eligible pairs is defined by the holdings of a given ETF. It is shown that the stocks must be from ETFs
- 7 years ago, 14 Oct 2016, 01:45pm -
The illusion of choice in ETF's [Factor Investor]
A search for all equity ETF's available to U.S. investors in Bloomberg leads to a list of 969 candidates, a surprisingly large number of options for a relatively new investment vehicle. Given that most focus on large capitalization stocks here in the U.S. (not all, but most), this means that
- 7 years ago, 13 Oct 2016, 09:18pm -
A Review of @AlphaArchitect Quantitative Momentum book [QuantStrat TradeR]
This post will be an in-depth review of Alpha Architect’s Quantitative Momentum book. Overall, in my opinion, the book is terrific for those that are practitioners in fund management in the individual equity space, and still contains ideas worth thinking about outside of that space. However, the
- 7 years ago, 13 Oct 2016, 09:17pm -
Reverse Engineering AQR's Risk Parity Strategy [Signal Plot]
I’m going to start this post by saying that it makes no sense for anyone to pay management fees to get a return stream that is highly correlated to any existing asset class. Unfortunately, many actively managed funds fall in this category. There’s two reasons for this. One, you can replicate
- 7 years ago, 13 Oct 2016, 12:55pm -
What Is The Best "Risk Off" Asset for Trend Followers? [Alpha Architect]
So you’re a trend-follower. Great. But here is a question: What do you invest in when your rules suggest “risk off?” Many investors suggest low duration cash or t-bills. Seems reasonable. But is it optimal? Perhaps we should invest in longer duration risk-off assets like 10-yr bonds? We
- 7 years ago, 13 Oct 2016, 12:54pm -
Is Equal Weighting Beneficial For Asset Allocation? Part II [Capital Spectator]
Yesterday’s post on equal weighting for asset allocation motivated a reader to point out that equal weighting’s tendency to outperform in equity portfolios is due to frequent rebalancing events. A passively managed market-cap-weighted portfolio, by contrast, is allowed to drift, with weights
- 7 years ago, 12 Oct 2016, 12:22pm -
How to Implement a Simple Risk Parity Strategy [Signal Plot]
When I worked at Bridgewater Associates, I regularly came across marketing materials about the theory behind risk parity and evidence that risk parity portfolios perform better than traditional portfolios on a risk-adjusted basis. The theory and evidence was quite convincing. The story goes that Ray
- 7 years ago, 11 Oct 2016, 02:32pm -
QuantStart New York City October 2016 Trip Report [Quant Start]
Last Tuesday I flew out to New York City, USA to give a talk at the Quantopian NYC Meetup and moderate a panel on "Programming Wars" at the Trading Show New York 2016. Both events were extremely interesting and I met a lot of great people. I want to write a brief summary of the trip as it
- 7 years ago, 11 Oct 2016, 02:31pm -
Client -II- [Algorythmn Trader]
My previous post explained a bit the overall concept of this client development series. The essence of MVVM pattern was discussed, as well the base line of the project structure was created. Now I pick it up and extend it by some implementations step by step until we get a running version of the
- 7 years ago, 11 Oct 2016, 02:31pm -
Algorithmic Trading (Part 1): Backtesting an RSI Strategy (h/t Algotrading Reddit) [Keith Selover]
The above chart was generated in Python. It's the result of backtesting a basic algorithmic trading strategy that makes use of the Relative Strength Index (RSI). In this tutorial I'll walk through implementing and graphing a simple strategy. The tutorial should provide a framework that
- 7 years ago, 11 Oct 2016, 10:51am -
Is Equal Weighting Beneficial For Asset Allocation? [Capital Spectator]
Equal weighting has an encouraging record as a design choice for earning a moderately higher premium in the stock market compared with the conventional weighting system of holding shares in proportion to their market-capitalization weight. A leading real-world example: the Guggenheim S&P 500
- 7 years ago, 11 Oct 2016, 10:49am -
State of Trend Following in September [Au Tra Sy]
Another down month for the State of Trend Following report, taking the year in the red a bit further for 2016. Please check below for more details. Detailed Results The figures for the month are: September return: -1.64% YTD return: -7.07% Below is the chart displaying individual system results
- 7 years ago, 11 Oct 2016, 10:49am -
Value Investing Got Crushed During the Internet Bubble - Here's Why... [Alpha Architect]
The dot-com bubble of the late 90s was a wild time in the stock market. Internet stocks were trading through the roof, tech IPOs were a practically daily experience, and people quit their jobs to make millions day trading. And why not? Even a day trading chimp could make money in a market that went
- 7 years ago, 10 Oct 2016, 03:06pm -
Presenting in Dallas and Austin, Texas [Alvarez Quant Trading]
I will be in Texas next week giving presentations. Click the links below for more details. I hope to see some readers there. October 17, 2016 Austin Market Technicians Association For more information see https://www.mta.org/event-registration/austin-chapter-meeting-featuring-cesar-alvarez/ October
- 7 years ago, 10 Oct 2016, 03:06pm -
More Reasons To Diversify Factors [Larry Swedroe]
Since the publication in 1992 of Eugene Fama and Kenneth French’s paper “The Cross-Section of Expected Stock Returns,” the traditional way to think about diversification has been to view portfolios as a collection of asset classes. However, we now have a nontraditional way to think about
- 7 years ago, 10 Oct 2016, 03:06pm -
Is That Leverage in My Multi-Factor ETF? [Flirting with Models]
The debate for the best way to build a multi-factor portfolio – mixed or integrated – rages on. FTSE Russell published a video supporting their choice of an integrated approach, arguing that by using the same dollar to target multiple factors at once, their portfolio makes more efficient use of
- 7 years ago, 10 Oct 2016, 10:24am -
Want to Learn Way Too Much About Stock Market Factors? Read This Paper [Alpha Architect]
During the past few decades, newly discovered stock anomalies have been embarrassing existing factor models, such as the Fama-French 3-factor. As many readers know, each long or short “leg” of these popular long/short factor portfolios is generally constructed by ranking stocks on one specific
- 7 years ago, 7 Oct 2016, 01:41pm -
Implementing Predictive Modeling in R for Algorithmic Trading [Quant Insti]
Predictive modeling is a process used in predictive analytics to create a statistical model of future behavior. Predictive analytics is the area of data mining concerned with forecasting probabilities and trends [1] The predictive modeling in trading is a modeling process wherein we predict the
- 7 years ago, 7 Oct 2016, 01:41pm -
Cointegration and Pairs Trading in Stocks [Quantpedia]
We examine a new method for identifying close economic substitutes in the context of relative value arbitrage. We show that close economic substitutes correspond to a special case of cointegration whereby individual prices have approximately the same exposure to a common nonstationary factor. A
- 7 years ago, 7 Oct 2016, 01:40pm -