Quant Mashup
Dynamic Hedge Ratio Between ETF Pairs Using the Kalman Filter [Quant Start]
A common quant trading technique involves taking two assets that form a cointegrating relationship and utilising a mean-reverting approach to construct a trading strategy. This can be carried out by performing a linear regression between the two assets (such as a pair of ETFs) and using this to
- 7 years ago, 30 Aug 2016, 04:07am -
Uncertain Alpha [Flirting with Models]
SUMMARY We have previously discussed many problems associated with the measurement of alpha. Measurement uncertainty, the choice of model risk factors, and the analysis timeframe can all have significant impacts on the calculation and applicability of alpha, and investors are often hard-pressed to
- 7 years ago, 29 Aug 2016, 12:01pm -
March for the Fallen. Come Join the Alpha Architect Team! [Alpha Architect]
Looking for a great challenge on a Saturday morning on September 24th? 2016-08-26 14_58_14-March for the Fallen Come join some members of the Alpha Architect team and our tribe of friends/clients when we take part in the “March for the Fallen” on Saturday, September 24, 2016. We’re aiming to
- 7 years ago, 26 Aug 2016, 04:02pm -
Research Review | 26 August 2016 | The Business Cycle [Capital Spectator]
Do Stock Market Trading Activities Forecast Recessions? Ujjal Chatterjee (University of Wisconsin-Milwaukee, American University of Sharjah) August 9, 2016 This paper re-examines the existing recession forecasting models with stock market liquidity as an additional forecasting variable. We
- 7 years ago, 26 Aug 2016, 01:02pm -
Tactical Asset Allocation Software [Meb Faber]
I used to update an old post on free data sources and stock screeners for investors. I thought I’d summarize a handful of websites that focus on tactical asset allocation software, tools, and backtesters. For a long time I was going to build this on tacticalassetallocation.com, but there are now
- 7 years ago, 25 Aug 2016, 03:42am -
Cesar's Ask Me Anything Webinars [Alvarez Quant Trading]
To those on my new blog notification list, I sent out the opportunity to join me in a one hour webinar where people could ask me anything about trading. I had a ton of fun answering lots of great questions. See the bottom of the post for links to download the mp3 files of the webinars. Some
- 7 years ago, 25 Aug 2016, 03:41am -
Managed Futures: Understanding a Misunderstood Diversification Tool [Alpha Architect]
In my two previous blog posts (here and here), I analyze the performance of bonds during really bad months for US stocks (“Crisis Alpha” months), and I analyze the performance of US stocks during really bad months for US bonds. A quick summary of the results from those prior studies: Bonds have
- 7 years ago, 25 Aug 2016, 03:41am -
Tactical Asset Allocation Performance in July [Allocate Smartly]
This is a summary of the recent performance of a number of excellent asset allocation strategies. These strategies are sourced from books, academic papers, and other publications. They range from simple, static portfolio allocations, to complex and dynamic portfolio optimization. AllocateSmartly is
- 7 years ago, 24 Aug 2016, 10:07am -
The folly of panic selling [Mathematical Investor]
Mark Hulbert has compiled an interesting list of recent market panics: August 2015: Concerns about the Chinese economy and stock market led to panic selling, with the Shanghai index plunging 8.5% in one day. Soon after in the U.S., on August 24, 2015, the DJIA plunged over 1,000 points in just a few
- 7 years ago, 24 Aug 2016, 12:44am -
Client -1- Intro [Algorythmn Trader]
After I covered some basics about WCF Services and setup a server, we need to connect a client. In this post I want explain a little more the overall design philosophy. Than in followup posts we come closer to coding and bring it all up. First, lets talk about some basic design stuff. There are many
- 7 years ago, 24 Aug 2016, 12:41am -
Equity Anomalies Persist in International Markets [Quantpedia]
Motivated by McLean and Pontiff (2016), we study the pre- and post-publication return predictability of 138 anomalies in 39 stock markets. Based on more than a million anomaly country-months, we find that the United States is the only country with a statistically significant and economically
- 7 years ago, 24 Aug 2016, 12:33am -
Optimizing Mean Variance Optimization [Alpha Architect]
In the 1950s, Harry Markowitz proposed a method to identify the optimal trade-off between risk and return for a portfolio. The theory is broadly termed, “Mean-Variance Optimization (MVO).” Sam Wittig, a Drexel graduate I advised and who did some research for Alpha Architect, shared with us his
- 7 years ago, 22 Aug 2016, 01:07pm -
Importing CSV Data in Zipline for Backtesting [Quant Insti]
In our previous article on Introduction to Zipline package in Python, we created an algorithm for moving crossover strategy. Recall, Zipline is a Python library for trading applications and to create an event-driven system that can support both backtesting and live-trading. In the previous article,
- 7 years ago, 22 Aug 2016, 01:07pm -
Are Stocks Actually Undervalued? [Flirting with Models]
Summary We have noticed the market reaching a broad consensus that equities are overvalued, implying a drag on forward expected returns as valuation multiples contract. While there is often great wisdom in the crowd, there can also be great madness. We believe it is prudent to consider how the crowd
- 7 years ago, 22 Aug 2016, 01:06pm -
Beginner's Guide to Decision Trees for Supervised Machine Learning [Quant Start]
In this article we are going to consider a stastical machine learning method known as a Decision Tree. Decision Trees (DTs) are a supervised learning technique that predict values of responses by learning decision rules derived from features. They can be used in both a regression and a
- 7 years ago, 22 Aug 2016, 04:40am -
Metal Logic [Jonathan Kinlay]
Precious metals have been in free-fall for several years, as a consequence of the Fed’s actions to stimulate the economy that have also had the effect of goosing the equity and fixed income markets. All that changed towards the end of 2015, as the Fed moved to a tightening posture. So far, 2016
- 7 years ago, 22 Aug 2016, 04:39am -
PyFolio Performance Reporting in Python [Largecap Trader]
Pyfolio is a Python library that takes a return series of an asset, hedge fund, trading strategy, anything with daily returns and automatically generates some really cool statistics and charts. There is a LOT of cool stuff to explore in the library, have fun! Performance statistics Backtest
- 7 years ago, 22 Aug 2016, 02:49am -
Use Caution With Low Vol Strategies [Larry Swedroe]
As we have discussed before, one of the major problems for the first formal asset pricing model developed by financial economists, the capital asset pricing model (CAPM), was that it predicts a positive relation between risk and return. But empirical studies have found the actual relation to be
- 7 years ago, 22 Aug 2016, 02:48am -
Finding Alpha pdf [Falkenblog]
My book The Missing Risk Premium is a steal at only $15, but my first book, Finding Alpha, is a $65, which is a bit much for anyone not expensing their books. Finding Alpha goes over why the current asset pricing model fails, with lots of evidence, explains why economists still like it, and then in
- 7 years ago, 21 Aug 2016, 08:26pm -
Dealing with Delistings: A Critical Aspect for Stock-Selection Research [Alpha Architect]
Eric Crittenden was recently on Meb Faber’s podcast and he tells a compelling story about the perils of survivor bias in backtesting. Eric’s story begins when he is an undergraduate working on a project for a quantitative finance course. The professor asked that the students develop a systematic
- 7 years ago, 19 Aug 2016, 11:24am -
Trading strategy: Making the most of the out of sample data [R Trader]
When testing trading strategies a common approach is to divide the initial data set into in sample data: the part of the data designed to calibrate the model and out of sample data: the part of the data used to validate the calibration and ensure that the performance created in sample will be
- 7 years ago, 19 Aug 2016, 08:54am -
Taleb: Silent Risk, Section 1.4.4 Mean Deviation vs Standard Deviation [Blue Event Horizon]
We are going to play around with a mixture distribution made up of a large proportion of ~N(0, 1) and a small proportion of ~N(0, 1+a). The wider distribution is "polluting" the standard normal distribution. We are going to see that mean absolute deviation is a more efficient estimator of
- 7 years ago, 19 Aug 2016, 08:53am -
Dividend income investing – this is what really works [Quant Investing]
Is your high dividend investment strategy based on buying companies with a high dividend yield and high dividend cover? Saving_chalkIf so you can do a lot better. In this article I summarise an interesting research paper that found the normal way most investors look at dividend income investing is
- 7 years ago, 19 Aug 2016, 08:53am -
DIY Quants [Largecap Trader]
With the recent announcement at Point72 of a $250MM investment in quantitative trading platform Quantopian and a recent FT article, there has been a surge in interest in Do-It-Yourself quant strategies. Here’s one from WSJ. There are some significant challenges for these startups in my opinion*:
- 7 years ago, 18 Aug 2016, 07:28am -
Risk Parity isn't the Problem, it's the Solution [GestaltU]
Bank of America Merrill Lynch recently released a research note suggesting that Risk Parity investment strategies currently represent a substantial source of systematic risk in global markets. The note was picked up breathlessly by several media outlets and posted under sensationalist headlines
- 7 years ago, 17 Aug 2016, 12:50pm -
Surprise! Size, Value and Momentum Anomalies Survive After Trading Costs [Alpha Architect]
Anyone who has spent time reading this blog has become familiar with research involving asset pricing anomalies that generate excess returns. In particular, the academic literature has addressed the following: “size,” or a portfolio of small minus big stocks (SMB) (see here for background)
- 7 years ago, 17 Aug 2016, 12:50pm -
Podcast: Market behavior with Adam Grimes [Better System Trader]
Today's guest is a trader that has been requested quite a few times actually, I've had a lot of requests to have this person as a guest on the show, and the guest is Adam Grimes. Adam has two decades of experience in the industry as a trader, analyst and system developer and is currently
- 7 years ago, 16 Aug 2016, 10:39am -
Low Volatility in Not Low Risk [Flirting with Models]
Summary Low volatility equity ETFs have seen huge inflows this year, driven by both a compelling story (risk-managed equity investing) and significant outperformance. Critics have raised concerns that short-term performance chasers have driven up the valuations of these strategies, increasing the
- 7 years ago, 15 Aug 2016, 10:55am -
Dynamic Time Warping [Jonathan Kinlay]
History does not repeat itself, but it often rhymes – Mark Twain You certainly wouldn’t know it from a reading of the CBOE S&P500 Volatility Index (CBOE:VIX), which printed a low of 11.44 on Friday, but there is a great deal of uncertainty about the prospects for the market as we move
- 7 years ago, 15 Aug 2016, 10:54am -
Two Recent Papers Related to FX Carry Strategy [Quantpedia]
In this paper, we analyse the relationship between the currency carry return and volatility and liquidity risk factors. We find that both categories of risk factors are relevant to understanding and explaining carry return, with an outperformance for volatility ones especially the global FX
- 7 years ago, 15 Aug 2016, 10:54am -
Should You Build Your Own Backtester? [Quant Start]
This post relates to a talk I gave in April at QuantCon 2016 in New York City. QuantCon was hosted by Quantopian and I was invited to talk about some of the topics discussed on QuantStart. I decided to talk about whether it is worth building your own backtesting system. This post goes into more
- 7 years ago, 15 Aug 2016, 01:23am -
Better Strategies 5: Developing a Machine Learning System [Financial Hacker]
It's time for the 5th and final part of the Build Better Strategies series. In part 3 we've discussed the development process of a model-based system, and consequently we'll conclude the series with developing a data-mining system. The principles of data mining and machine learning
- 7 years ago, 12 Aug 2016, 01:56pm -
A Regime Switching Model: Momentum vs Mean Reversion [MKTSTK]
Today I wanted to share a link to my first post on Quantopian, in which I describe a strategy that uses social data to switch between mean reversion and momentum based trading regimes. This feat is accomplished using a new social factor I’ve created. I believe this strategy presents a novel
- 7 years ago, 12 Aug 2016, 01:56pm -
Asset Pricing with-and without-garbage [Alpha Architect]
If you are into consumption-based asset pricing theory and the associated empirical attempts to reconcile the theory with the data from the realized equity premium, garbage is a fascinating subject. So let’s talk about asset pricing both with–and without–garbage. garbage First the original
- 7 years ago, 12 Aug 2016, 01:55pm -
Why bad trading strategies may perform well [Eran Raviv]
You probably know that even a trading strategy which is actually no different from a random walk (RW henceforth) can perform very well. Perhaps you chalk it up to short-run volatility. But in fact there is a deeper reason for this to happen, in force. If you insist on using and continuously testing
- 7 years ago, 12 Aug 2016, 02:59am -
Shorting at High: Algo Trading Strategy in R [Quant Insti]
Milind began his career in Gridstone Research, building earnings models and writing earnings notes for NYSE listed companies, covering Technology and REITs sectors. Milind has also worked at CRISIL and Deutsche Bank, where he was involved in modeling of Structured Finance deals covering Asset Backed
- 7 years ago, 11 Aug 2016, 11:55am -
Low Vol Benefits Fading [Larry Swedroe]
Low-volatility strategies have quickly become the darling of many investors, thanks largely to trauma caused by the bear market that arose from the 2008-2009 financial crisis combined with academic research showing that the low-volatility anomaly exists in equity markets around the globe. Earlier
- 7 years ago, 11 Aug 2016, 11:55am -
Taming the Momentum Investing Roller Coaster: Fact or Fiction? [Alpha Architect]
Intermediate-Term Price momentum, originally researched by Jegadeesh and Titman in 1993, documented a how recent stock returns tended to continue in the future. Stocks that were past winners (on average) continue to do well, while stocks that were past losers (on average) continue to perform poorly.
- 7 years ago, 10 Aug 2016, 10:29pm -
What if Factors Rarely Matter? [EconomPic]
Back in December I wrote that It's Generally Smart to Avoid Credit Risk outlining that more than 100% of credit's excess performance over time has come when the level of credit spread was extreme. What if the same were true for well known investment factors? Taking a Look at the Small Cap
- 7 years ago, 9 Aug 2016, 10:28pm -
Can Investors Replicate the Dorsey Wright Focus 5 ETF Strategy? [Alpha Architect]
A long-time reader asked that we examine the performance and process associated with the Dorsey Wright Focus Five ETF (ticker: FV). For those who are unfamiliar with the product, FV is a $3B+ sector rotation fund. The fund is designed to provide targeted exposure to five sector- and industry-based
- 7 years ago, 9 Aug 2016, 10:28pm -
Optimal Data Windows for Training a Machine Learning Model for Financial Prediction [Robot Wealth]
It would be great if machine learning were as simple as just feeding data to an out-of-the box implementation of some learning algorithm, then standing back and admiring the predictive utility of the output. As anyone who has dabbled in this area will confirm, it is never that simple. We have
- 7 years ago, 9 Aug 2016, 04:55am -
Low Vol Advantage Not What You’d Expect [Larry Swedroe]
One of the problems for the first formal asset pricing model developed by financial economists, the Capital Asset Pricing Model (CAPM), was that it predicted a positive relationship between risk and return. However, empirical studies have found the actual relationship to be flat, or even negative.
- 7 years ago, 9 Aug 2016, 04:19am -
Machine Learning Trading Systems [Jonathan Kinlay]
The SPDR S&P 500 ETF (SPY) is one of the widely traded ETF products on the market, with around $200Bn in assets and average turnover of just under 200M shares daily. So the likelihood of being able to develop a money-making trading system using publicly available information might appear to be
- 7 years ago, 9 Aug 2016, 12:36am -
When is a "Value" Company not a Value? (h/t Abnormal Returns) [Investing Research]
Value has broadly been accepted as an investing style, and historically portfolios formed on cheap valuations outperformed expensive portfolios. But value comes in many flavors, and the factors(s) you choose to measure cheapness can determine your long-term success. In particular, several operating
- 7 years ago, 8 Aug 2016, 11:36am -
Finding 7.5% Returns [Flirting with Models]
This blog post is available as a PDF here. Summary Over the last year, we’ve written about how low interest rates and high equity valuations point to a low return rates for traditionally allocated portfolios. In a State Street survey of over 400 institutional investors, the expected return rate
- 7 years ago, 8 Aug 2016, 11:35am -
Maximum Likelihood Estimation for Linear Regression [Quant Start]
The purpose of this article series is to introduce a very familiar technique, Linear Regression, in a more rigourous mathematical setting under a probabilistic, supervised learning interpretation. This will allow us to understand the probability framework that will subsequently be used for more
- 7 years ago, 8 Aug 2016, 03:19am -
Backtests for VelocityShares' BSWN, LSVX, and XIVH [Six Figure Investing]
I have generated simulated end-of-day close indicative share values (4:15 PM ET) for VelocityShares' BSWN, LSVX, and XIVH Exchange Traded Notes (ETNs) from March 31st, 2004 through July 14th, 2016. BSWN VelocityShares VIX Tail Risk ETN LSVX VelocityShares VIX Variable Long/Short ETN XIVH
- 7 years ago, 8 Aug 2016, 03:19am -
Using Fundamentals to Improve Pairs Trading Strategy [Quantpedia]
Pairs trading strategy’s return depends on the divergence/convergence movements of a selected pair of stocks’ prices. However, if the stable long term relationship of the stocks changes, price will not converge and the trade opened after divergence will close with losses. We propose a new model
- 7 years ago, 8 Aug 2016, 03:19am -
Simple Moving Average Filter | Trading Strategy [Oxford Capital]
I. Trading Strategy Source: Kaufman, P. J. (2013). Trading Systems and Methods. New Jersey: John Wiley & Sons, Inc. Concept: Trend following trading strategy based on Simple Moving Average (SMA) filters. Research Goal: To benchmark the Simple Moving Average (SMA) against the Hull Moving Average
- 7 years ago, 5 Aug 2016, 02:29pm -
SEBI Releases Paper on Algorithmic Trading & Co-Location [Quant Insti]
SEBI issued a discussion paper today with inputs from all stakeholders such as investors, infrastructure institutions and intermediary to understand how Algorithmic Trading has led to fairness, concerns and changes in market quality in recent years. It states that more than 80% of the orders placed
- 7 years ago, 5 Aug 2016, 02:28pm -