Quant Mashup
Really, Beware of Low Frequency Data [EP Chan]
I wrote in a previous article about why we should backtest even end-of-day (daily) strategies with intraday quote data. Otherwise, the performance of such strategies can be inflated. Here is another brilliant example that I came across recently. Consider the oil futures ETF USO and its evil twin,
- 7 years ago, 30 Sep 2016, 10:03am -
Research Review | 30 Sep 2016 | Managing Volatility Risk [Capital Spectator]
Managed portfolios that take less risk when volatility is high produce large alphas, substantially increase factor Sharpe ratios, and produce large utility gains for mean-variance investors. We document this for the market, value, momentum, profitability, return on equity, and investment factors in
- 7 years ago, 30 Sep 2016, 10:03am -
Option Pricing Methods in the Late 19th Century [Quantpedia]
This paper examines option pricing methods used by investors in the late 19th century. Based on the book called “PUT-AND-CALL” written by Leonard R. Higgins in 1896 and published in 1906 it is shown that investors in that period used routinely the put-call parity for option conversion and static
- 7 years ago, 30 Sep 2016, 10:03am -
Trading with different time frames [Milton FMR]
Time frames are used in order to forecast future price trends. Many traders are missing out on this important aspect of trading by only looking at one time frame when trying to define a trend. Therefore its important to categorize trends as primary, intermediate and short-term trends. As a rule of
- 7 years ago, 29 Sep 2016, 02:23pm -
Profitable Market Timing with the Unemployment Rate [iMarketSignals]
If the unemployment rate is higher than three months ago the model exits the stock market and enters the bond market, and re-enters the market when the unemployment rate is equal or lower than where it was three months ago. From 2001 to 2016 switching between bonds and stocks provided significant
- 7 years ago, 29 Sep 2016, 02:23pm -
Introducing the Global Earnings Announcement Premium [Alpha Architect]
How do stock prices react to earnings announcements? Sometimes prices go up, and sometimes they go down. But here is a potentially more interesting question: What is the average performance across all stocks that have an announcement? The question of whether stocks earn excess returns in
- 7 years ago, 29 Sep 2016, 02:33am -
The Optimal ETFs For Each Market Segment [Signal Plot]
In one of my previous posts, I wrote about my framework for choosing ETFs since I wanted a method of choosing the optimal ETFs for expressing my market views. Generally, the framework is to choose an ETF with a low expense ratio, low trading costs, low tracking error, and a tax-advantaged structure.
- 7 years ago, 28 Sep 2016, 01:22pm -
Taming High Return and High Risk [Alvarez Quant Trading]
I was at a recent talk of the Northwest Traders and Technical Analysts group where they presented a VXX strategy with some huge return and drawdown numbers. Trading this would be very difficult. This got me thinking. If I had a strategy like this, how could I tame the numbers? Through the years, I
- 7 years ago, 28 Sep 2016, 01:21pm -
Learning with kernels: an introductory approach [Quant Dare]
Time series pervade financial markets and, although some embrace the so-called efficient market hypothesis, stating that current market prices reflect all available information about a security into its price, I am more inclined to think they provide us with a lot of information that we rarely know
- 7 years ago, 28 Sep 2016, 12:28pm -
Momentum Rotation System AmiBroker Code [DTR Trading]
I've received several requests for details on the AmiBroker (AB) code and settings used for the backtest shown in my April post: Momentum Rotation 60 Day ROC System Results. That post used the AmiBroker Formula Language (AFL) code from my article in March 2015. That was a long time ago, so here
- 7 years ago, 28 Sep 2016, 12:26pm -
QuantStart Events in October and November 2016 [Quant Start]
This is a short post to let QuantStart readers know that I'll be speaking at some events in New York and Singapore over the next couple of months: Wednesday, October 5th 2016, NYC - I'll be talking about "The Quest for Profitability", along with Seong Lee who will be talking
- 7 years ago, 28 Sep 2016, 12:26pm -
The Cost of Contango—It’s Not the Daily Roll [Six Figure Investing]
It’s well known that long volatility Exchange Traded Products (ETPs) like VXX, UVXY, and TVIX often experience devastating losses during market quiet spells—even when the value of the VIX is staying relatively stable. These heavy losses occur when the VIX futures that underlie these funds are in
- 7 years ago, 27 Sep 2016, 05:28pm -
Predicting Booms and Busts in Low Volatility Strategies [Alpha Architect]
Low volatility funds are some of the best performers in the market these days. As such, they have attracted renewed attention in addition to significant asset flows. (note: a refresher on low volatility investing is here, h.t. Eric Falkenstein). But a question remains — What does the future hold
- 7 years ago, 27 Sep 2016, 05:27pm -
TAA Alpha and The Greatest Trick the Devil Ever Pulled [GestaltU]
The investment industry has investors convinced that the only path to better performance is through stock selection. As a result, most investors approach the challenge of portfolio construction exactly backward, and miss out on the most important opportunities to produce differentiated performance.
- 7 years ago, 27 Sep 2016, 01:14pm -
How to Scrape Data for Over 1,900 ETFs [Signal Plot]
You can download the ETF metadata I scraped here and the price history here. You can also take a look at the code I used to scrape this data at my Github repository. Why Scrape ETFs? At the investment management firm I worked at, we had teams of people that devoted lots of time just trying to
- 7 years ago, 27 Sep 2016, 01:13pm -
Alternate Trading Days: An Important Analytical Tool [Allocate Smartly]
Many of the tactical asset allocation strategies that we track are designed to only trade at the end of the month. When tracking these strategies for members however, we show the results of trading on other days of the month as well. We don’t do this to show off our backtesting prowess; it’s an
- 7 years ago, 26 Sep 2016, 12:22pm -
Webinar: Contemporary Portfolio Optimization Modeling with R [Interactive Brokers]
In the first part of this webinar, we will review the most common ways to conduct the task of portfolio optimization with R. After this introduction, we will address some remarks on the modeling of portfolio problems. In the second part, we will demonstrate a revolutionary way to model and solve
- 7 years ago, 26 Sep 2016, 12:21pm -
Is the Value Premium Disappearing (h/t @AbnormalReturns)? [A Wealth of Common Sense]
The value premium has been talked about in investment circles going all the way back to the 1934 release of Benjamin Graham’s Security Analysis. At its core value investing relies on buying undervalued securities, something every investor can or should be able to intuitively understand. You buy
- 7 years ago, 26 Sep 2016, 11:43am -
High Yield Bond ETFs: Liquidity Time Bombs? [Flirting with Models]
Many articles expounding upon the risks of ETFs that invest in illiquid assets (high yield bonds, bank loans, emerging markets, etc.) have been published in recent years. While there are additional risks inherent to these ETFs, the ETF structure provides an additional layer of liquidity that is not
- 7 years ago, 26 Sep 2016, 11:39am -
Kalman Filter-Based Pairs Trading Strategy In QSTrader [Quant Start]
Previously on QuantStart we have considered the mathematical underpinnings of State Space Models and Kalman Filters, as well as the application of the pykalman library to a pair of ETFs to dynamically adjust a hedge ratio as a basis for a mean reverting trading strategy. In this article we will
- 7 years ago, 26 Sep 2016, 02:08am -
Does Interest Rate Exposure Explain the Low Volatility Anomaly? [Quantpedia]
We show that part of the outperformance of low volatility stocks can be explained by a premium for interest rate exposure. Low volatile portfolios have a positive exposure to interest rates, whereas the more volatile stocks have a negative exposure. Incorporating an interest rate premium explains
- 7 years ago, 25 Sep 2016, 07:01pm -
Intuition Behind the Bayesian LASSO [Alex Chinco]
Imagine you’ve just seen Apple’s most recent return, r, which is Apple’s long-run expected return, \mu^\star, plus some random noise, \epsilon \overset{\scriptscriptstyle \mathrm{iid}}{\sim} \mathrm{N}(0, \, 1): (1) \begin{align*} r &= \mu^\star + \epsilon. \end{align*} You want to use
- 7 years ago, 25 Sep 2016, 07:00pm -
Analyzing Risk-Managed Funds With R [Capital Spectator]
Morningstar tells us that efforts at taming volatility in a multi-asset class framework generally turns up mixed results among publicly traded funds. Studying 60 products that are labeled “multiasset volatility-protection funds,” a recent Morningstar article reports that “as a group,
- 7 years ago, 23 Sep 2016, 02:07pm -
Is Momentum Really Dead? [Larry Swedroe]
Earlier this week, we examined a study that sought to determine whether the publication of academics’ findings on the momentum factor have led to a disappearing premium. To review, Steven Dolvin and Bryan Foltice, authors of the 2016 study “Where Has the Trend Gone? An Update on Momentum Returns
- 7 years ago, 23 Sep 2016, 02:06pm -
Tactical Asset Allocation: A Practitioner's Defense of Return Predictability [Alpha Architect]
The prospect of being able to successfully anticipate and predict future market returns is irresistible to practitioners and academics alike, although success has proven elusive. Many have fallen short while seeking this “holy grail” of investing. For instance, Goyal and Welch (2008) examined
- 7 years ago, 22 Sep 2016, 11:51am -
RExcel Tutorial - Leveraging the Power of R in Excel [Quant Insti]
How many times has MS Excel given you a hard time while building complex models or importing that extra-large data set into the spreadsheet? As a trader, I would love to see crisp formulas in my worksheets and more importantly, I would want that my models are less prone to errors when I am trading
- 7 years ago, 22 Sep 2016, 11:51am -
Adam Butler of @GestaltU: Adaptive Asset Allocation [Allocate Smartly]
This is a test of a tactical asset allocation strategy from Adam Butler and the excellent team at GestaltU, as described in the paper: Adaptive Asset Allocation: A Primer. The model combines momentum with a minimum variance portfolio to trade a diverse array of global asset classes. The paper is a
- 7 years ago, 21 Sep 2016, 10:01am -
How Dumb Money and Smart Money Drive Stock Market Anomalies [Alpha Architect]
Stock market anomalies behave in mysterious ways. Over long periods of time they can provide expected outperformance versus passive indexes, but in the short run they can experience bouts of gut-wrenching underperformance (e.g., value and momentum). What accounts for this sporadic performance and
- 7 years ago, 20 Sep 2016, 12:59pm -
Momentum & Value vs. Growth & Value [Systematic Relative Strength]
At Dorsey Wright, we believe momentum can be used as a stand-alone investment strategy, however, combining it with other smart beta factors to which momentum is negatively correlated has its advantages. We have referenced this in previous blog posts, noting that it allows for a portfolio to capture
- 7 years ago, 20 Sep 2016, 12:58pm -
The Promise of Computing [Turing Finance]
You would be forgiven for thinking that Moore's law is a law like Newton's laws. It really does seem that as surely as an apple will fall to the ground, so too shall our computers, phones, tablets, and (now) watches capacity increase year-after-year at an exponential rate ... but
- 7 years ago, 20 Sep 2016, 04:09am -
Extreme Value Theory [Eran Raviv]
Extreme Value Theory (EVT) is busy with understanding the behavior of the distribution, in the extremes. The extreme determine the average, not the reverse. If you understand the extreme, the average follows. But, getting the extreme right is extremely difficult. By construction, you have very few
- 7 years ago, 20 Sep 2016, 04:09am -
High Capital Gains, Low Expected Returns: A Frustrating Combination [Flirting with Models]
When carried through a traditional mean-variance optimization process, J.P. Morgan’s capital market assumptions imply a significant overweight to satellite bonds. Many portfolios have significant capital gains as a result of strong equity and fixed income markets over the last 30+ years. However,
- 7 years ago, 19 Sep 2016, 06:41pm -
Trading with Interactive Brokers using Python: An IBPy Tutorial [Quant Insti]
Since we are gearing up for our webinar on Trading with Interactive Brokers using Python, I thought it would be very good if give you a brief insight on Interactive Brokers API and using IBPy to implement Python in IB’s TWS. As we proceed Interactive Brokers demo account and IBPy. Towards the end
- 7 years ago, 19 Sep 2016, 06:40pm -
Case Study: Leveraging Risk Efficient Portfolios for enhanced returns [KKB Research]
Academics have been shouting from the rooftops about risk-efficient portfolios (minimum variance, minimum correlation, minimum expected shortfall etc) and their merits, for some time now. This has led to a suite of indices from EDHEC-Risk, many minimum variance funds, ETFs, risk parity products and
- 7 years ago, 19 Sep 2016, 09:33am -
Why Momentum Is Struggling [Larry Swedroe]
Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. Mark Carhart, in his 1997 study “On Persistence in Mutual Fund Performance,” was the first to use momentum, together
- 7 years ago, 19 Sep 2016, 09:33am -
The Weakest Week Is Back [Quantifiable Edges]
From a seasonality standpoint, there isn’t a more reliable time of the year to have a selloff than this week. In the past I have referred to is as “The Weakest Week”. Since 1961 the week following the 3rd Friday in September has produced the most bearish results of any week. Below is a graphic
- 7 years ago, 19 Sep 2016, 09:33am -
The Future of Quant Finance Careers [Quant Start]
The world of quantitative finance continues to evolve at a rapid pace. Even in the last four years of the existence of this site the market for quant jobs has shifted significantly. In this article we outline these shifts. The advice on what is likely to be in demand in the next few years will be
- 7 years ago, 19 Sep 2016, 02:26am -
Podcast: Adapting to market conditions with John Ehlers [Better System Trader]
Building robust trading strategies that can detect and adapt to market conditions can be a real challenge, and failure to do so can often result in poor trading performance and drawdowns. How can we build more robust trading strategies that adapt to market conditions as they change? Our guest for
- 7 years ago, 18 Sep 2016, 10:55am -
Average TAA Allocation by Month [Allocate Smartly]
We delayed adding the latest strategy to our site (GestaltU’s Adaptive Asset Allocation) for a week due to technical hurdles running the minimum variance component of the strategy in near real-time for members. Historical results on GestaltU’s strategy are exceptional though, and we plan to have
- 7 years ago, 16 Sep 2016, 03:33pm -
Was the Financial Crisis Really a Valuation Crisis? [Alpha Architect]
Most people look back at the dot-com bubble and acknowledge valuations were elevated far above historical norms. Investors ignored historically useful fundamentals, such as earnings and book value, and started relying on measures like eyeballs and clicks. Investors really started to believe, “This
- 7 years ago, 16 Sep 2016, 03:33pm -
Factor Investing: Buyer Beware [Dual Momentum]
A highlight of the 2016 Morningstar ETF Conference was the keynote address by the former leader of U.S. Navy Seal Team Six, Rob O’Neill. Chief O’Neill shared some stories about his training and operations as an elite Navy Seal. The take away lessons from his talk were the importance of
- 7 years ago, 16 Sep 2016, 10:48am -
A Persistent Kind Of Momentum [Larry Swedroe]
Time-series momentum examines the trend of an asset with respect to its own past performance. This is very different than cross-sectional momentum (often referred to as Carhart momentum), which compares the performance of an asset with respect to the performance of another asset. Ian D’Souza,
- 7 years ago, 16 Sep 2016, 10:48am -
Loading and Manipulating Historical Data From .csv Files [Dekalog Blog]
In my last post I said I was going to look at data wrangling my data, and this post outlines what I have done since then. My problem was that I have numerous csv files containing historical data with different date formats and frequency, e.g. tick level and hourly and daily OHLC, and in the past I
- 7 years ago, 16 Sep 2016, 10:48am -
Podcast: This quants’ approach to designing algo strategies - Michael Halls-Moore [Chat With Traders]
For this episode I’m joined by Michael Halls-Moore, who runs QuantStart.com—a site well-known by many algorithmic traders. Prior to trading, Michael studied computational fluid dynamics and was the co-founder of a tech startup, before getting involved a small equity fund as a quant
- 7 years ago, 15 Sep 2016, 03:50am -
Algorithmic Trading Strategies: Paradigms and Modelling Ideas [Quant Insti]
‘Looks can be deceiving,’ a wise person once said. The phrase holds true for Algorithmic Trading Strategies. The term Algorithmic trading strategies might sound very fancy or too complicated. However, the concept is very simple to understand, once the basics are clear. In this article, I will be
- 7 years ago, 15 Sep 2016, 03:50am -
Value investing is quite possibly the worst idea...EVER [Alpha Architect]
We believe deeply in the value philosophy as first described by Ben Graham: view stocks as ownership in a firm; buy with a margin of safety; avoid stories; think independently; and so forth. In fact, I was so intellectually stimulated by value investing I wrote my dissertation on the subject,
- 7 years ago, 15 Sep 2016, 03:50am -
The Expensive Lesson of Closet Indexing: Avoid Low Active Share and High Expenses [Alpha Architect]
The promise of active investing is compelling: the opportunity to earn higher risk-adjusted returns! And paying a fee to an active manager–who is doing something unique–can make sense. And as we know, the only way to beat a benchmark is by being different from the benchmark, as we discuss here.
- 7 years ago, 13 Sep 2016, 11:39am -
Carry Trade Returns and Political Risks [Quantpedia]
This paper elucidates the channels through which sovereign risk, exchange rates and currency risk premia are related. I show that the channels are different depending on whether a country is classified as emerging or an advanced economy. Generally, for emerging market economies, local sovereign risk
- 7 years ago, 13 Sep 2016, 11:39am -
Sharp Decline in VXO and the New Market Environment [Quantifiable Edges]
Yesterday I showed a VIX-related study that suggested it was so stretched to the upside that the market was likely to get a quick bounce. And we certainly got one on Monday. The VIX is a measure of options pricing and is often referred to as a “fear index”. It saw a 13% drop on Monday.
- 7 years ago, 13 Sep 2016, 11:39am -
Optimizing for Anxiety [Flirting with Models]
When carried through a traditional mean-variance optimization process, J.P. Morgan’s capital market assumptions imply a significant overweight to satellite bonds. Investors can suffer from behavioral biases – particularly around reference points – that can make normative optimal portfolios
- 7 years ago, 13 Sep 2016, 05:22am -