Quant Mashup
What Happened to the Value Premium? [EconomPic]
Eugene Fama and Kenneth French released their seminal white paper 'The Cross-Section of Expected Stock Returns' in June 1992 which added value (as well as size) as explanatory factors that drove market (out)performance. Per Investopedia: Fama and French attempted to better measure market
- 5 years ago, 31 Mar 2015, 07:38pm -
Daily Academic Alpha: The Dong Lou Showcase [Alpha Architect]
Dong Lou splashed on the academic scene in 2009 and boy has he been busy! Prof Lou has some great papers out there that have inspired a lot of research and investing ideas at Alpha Architect. A few of our favorites: 'Consistent' Earnings Surprises We hypothesize that analysts with a
- 5 years ago, 31 Mar 2015, 07:37pm -
The Lazarus Trade - Mean Reversion in the S&P500 Index At Easter [Jonathan Kinlay]
A perennial favorite with investors, presumably because they are easy to understand and implement, are trades based on a regularly occurring pattern, preferably one that is seasonal in nature. A well-known example is the Christmas effect, wherein equities generally make their highest risk-adjusted
- 5 years ago, 31 Mar 2015, 10:28am -
Special Offer: Python for Quants. Volume I [Quant at Risk]
To All my Readers and Followers of QuantAtRisk.com I have a very special offer today: subscribe now to the book’s mailing list and pay 15% more per book before its Official Premiere in April. Just click and explore. This is a 1-day Special Offer!
- 5 years ago, 31 Mar 2015, 10:28am -
A Shift In “1st of the Month” Market Behavior [Quantifiable Edges]
Wednesday will be the 1st day of a new month. A couple of months ago I shared a chart that showed that the first day of the month has weakened substantially in recent years. Today I will use a couple of other charts to show just how drastic the change in market character has been. These charts
- 5 years ago, 31 Mar 2015, 09:11am -
T Distribution vs S&P 500 [John Orford]
98% of the last 65 year's daily stock returns are explained by one simple formula: tinv ( dof ) * Stdev.s * [ ( dof - 2 ) / dof ] ^ 0.5 The t distribution is a wonderful thing. Plus the original paper from 'Student' himself is an easy read! Why is the t-distribution so good? My hunch
- 5 years ago, 31 Mar 2015, 08:25am -
Conditional Restricted Boltzmann Machine [Dekalog Blog]
I have recently been looking at using a Conditional Restricted Boltzmann Machine, and in particular Graham Taylor's thesis paper, Composable Distributed-State Models for High-Dimensional Time Series and the associated code available from here. My adaptation of this is very much a work in
- 5 years ago, 30 Mar 2015, 08:39pm -
How to Trade the MACD: A High-level Analysis of the MACD Line Feature [Inovance]
Moving Average Convergence Divergence (MACD) is one of the most popular technical indicators used by traders. It is a flexible indicator that can be used for determining the strength and direction of a trend. It has three distinct features and in this first post we are going to do a high-level
- 5 years ago, 30 Mar 2015, 08:39pm -
Stock Returns Around Easter [CXO Advisory]
Does the seasonal change marked by the Easter holiday, with the U.S. stock market closed on the preceding Good Friday, tend to produce anomalous returns? To investigate, we analyze the historical behavior of the S&P 500 Index before and after the holiday. Using daily closing levels of the
- 5 years ago, 30 Mar 2015, 12:00pm -
RUT Iron Condor - Dynamic Exit - 52 DTE - 8 Delta [DTR Trading]
In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 8 delta short strikes, with different profit and loss exits. This is a non-directional options trading strategy that seeks to profit from a market that stays within in a range
- 5 years ago, 30 Mar 2015, 11:56am -
Negative Probabilities [John Orford]
Ireland is at the center of most maps of the world. In China however, you'll find the 'middle land' exactly where every Chinese person would expect. If only Australia could shake off its colonial status once and for all and produce an 'upside down' map. The mercator
- 5 years ago, 30 Mar 2015, 04:19am -
Bitcoin, In its own Universe? [Tr8dr]
Investors are often looking for uncorrelated returns so as to better diversify. If one looks at world indices & equities, there is much less diversity between assets than there was a decade ago, indeed the cross-market correlations are remarkably high. On the other hand, from a trading
- 5 years ago, 29 Mar 2015, 08:57pm -
Momentum Rotation Strategies and Data - Part 4 [DTR Trading]
In the last three posts (Part 1, Part 2, Part 3), we looked at how dividend adjusted data and non-dividend adjusted data generate different results with Momentum Rotation Strategies. We also looked at a hybrid approach using the signals generated from the non-dividend adjusted series, combined with
- 5 years ago, 29 Mar 2015, 08:57pm -
Combining Momentum and Mean Reversion Strategies [Jonathan Kinlay]
For many years now the “gold standard” in factor models has been the 1996 Fama-French 3-factor model: Fig 1 Fig 5Here r is the portfolio’s expected rate of return, Rf is the risk-free return rate, and Km is the return of the market portfolio. The “three factor” β is analogous to the
- 5 years ago, 27 Mar 2015, 08:08pm -
Sustainable Momentum Investing: Doing Well By Doing Good [Dual Momentum]
Socially Responsible Investing (SRI), also known as sustainable or responsible investing, is the application of ethical as well as financial considerations in making investment decisions. SRI therefore recognizes and incorporates societal needs and benefits. SRI may first date back to the Quakers
- 5 years ago, 27 Mar 2015, 08:08pm -
Site Changes [CXO Advisory]
We have made the following changes to CXOadvisory.com: We added a new Value Strategy to the main menu to track the performance of the strategy described in “Simple Asset Class ETF Value Strategy” on a quarterly basis. We intend this new strategy to complement Momentum Strategy. We retired the
- 5 years ago, 27 Mar 2015, 04:00pm -
Your Bond Allocation Doesn't Matter as Much as You Think [EconomPic]
Quick... which of the three allocations A, B, or C is 60% S&P 500 Index / 40% Barclays U.S. Aggregate Bond Index, 55% S&P 500 Index / 45% Barclays U.S. Corporate Bond Index, or 62% S&P 500 Index / 38% Barclays Treasury Bond Index going back all the way to the inception of the Barclays
- 5 years ago, 27 Mar 2015, 12:41pm -
Book Review -- Global Asset Allocation: A Survey of the World’s Top Asset Allocation Strategies [Alpha Architect]
Book Overview One of the most fundamental choices for any investor is their approach to strategic asset allocation. What are the major asset classes to consider, and how much should be allocated to each asset class? For example, at a simplistic level, how much should one invest in stocks versus
- 5 years ago, 27 Mar 2015, 12:41pm -
Trend Following Wizards – February [Au Tra Sy]
Not a great month. Neither for the Wizards or for this blog, with such a long delay publishing this month’s report. Apologies for reporting the February figures so close to… April. For various reasons I was unable to get to this earlier than now. Here it is finally. A negative return, but only
- 5 years ago, 27 Mar 2015, 07:25am -
Setup Your First MySQL Stock Database [Godel's Market]
Today we’re going to setup a MySQL database, populate it with some data, and run a simple query. More complicated stuff to come, but this is a great start for those who have never used a relationship database management system (RDBMS) before. (Note: Sign up for the new Gödel’s Market Newsletter
- 5 years ago, 27 Mar 2015, 03:17am -
Javascript & Finance [John Orford]
The 90's. Microsoft and Netscape are throwing features at their browsers seeing what will stick. Javascript was originally envisioned as a simple language for amateurs while the pros would develop client side Java applets. Javascript was created in 10 days! Bastardised Broken at birth (10
- 5 years ago, 27 Mar 2015, 03:16am -
How to Combine Value and Momentum Investing Strategies [Alpha Architect]
We are probably most well known for our quantitative value investing strategies. The heart of our strategy is detailed in Wes' book, Quantitative Value (a reader's digest version is here). In the development of the Quantitative Value system there is no mention of the concept of
- 5 years ago, 26 Mar 2015, 09:36pm -
High / Low Timing Patterns, Part 2 [Only VIX]
Comment from reader Rich on yesterday's post prompted me to run a quick investigation - does adjusting bars helps to bring distribution of highs and lows closer to theory? The answer is definitely yes, but as everything else in life the reality is complicated. Here's what I found: Using
- 5 years ago, 26 Mar 2015, 09:36pm -
Size Effect Anomaly [Quant Dare]
There are some anomalies that shake the assumption of efficient market. One of the most studied is related to the size of the companies. Some authors have demonstrated that smaller companies (that is, the ones with smaller market capitalization) tend to outperform larger firms. What could be the
- 5 years ago, 26 Mar 2015, 09:36pm -
Daily Academic Alpha: Crowdsourced Alpha? [Alpha Architect]
Crowdsourcing — when a task normally performed by employees is outsourced to a large network of people via an open call — is making inroads into the investment research industry. We shed light on this new phenomenon by examining the value of crowdsourced earnings forecasts. Our sample includes
- 5 years ago, 26 Mar 2015, 11:06am -
What happens after a big down day in stocks? [Adam H Grimes]
So the stock market sold off hard yesterday. If you were living under a big enough rock you might have missed it, but now the doom and gloomers, the technicians pointing at broken “levels” and trendlines, and the permabears will probably be saturating the media for a few days. This is ok, and
- 5 years ago, 26 Mar 2015, 11:05am -
Matrix-Matrix Multiplication on the GPU with Nvidia CUDA [Quant Start]
In the previous article we discussed Monte Carlo methods and their implementation in CUDA, focusing on option pricing. Today, we take a step back from finance to introduce a couple of essential topics, which will help us to write more advanced (and efficient!) programs in the future. In subsequent
- 5 years ago, 26 Mar 2015, 11:05am -
New related paper to #12 - Pairs Trading with Stocks and #55 - Pairs Trading with Country ETFs [Quantpedia]
#12 - Pairs Trading with Stocks #55 - Pairs Trading with Country ETFs Authors: Leung, Li Title: Optimal Mean Reversion Trading with Transaction Costs and Stop-Loss Exit Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2222196 Abstract: Motivated by the industry practice of pairs trading, we
- 5 years ago, 26 Mar 2015, 11:04am -
Is there a best day of the week to trade? [Quantlab.co.za]
I've seen studies in the past that suggest that there's an optimal day of the week to trade. One well know trader in particular, Larry Williams (famous for trading $10K to $1.1 mill in a single year with real funds in a global trading competition) , discusses
- 5 years ago, 26 Mar 2015, 11:03am -
Best Undergraduate Degree Course For Becoming A Quant? [Quant Start]
I'm often asked by individuals in high-school or sixth-form (for those of us in the UK!), as well as those contemplating heading back to university, as to what the most appropriate degree course is to take in order to become a quant. If I had to pick one course to cover all aspects of quant
- 5 years ago, 26 Mar 2015, 04:03am -
Smokin' Out Good Strategies [John Orford]
My other half and I are considering moving to Beijing. The big smoke. A polluted day is the equivalent to between one sixth and 21 cigarettes per day. I don't smoke, but I'd rather a regulated cigarette than a week of breathing polluted air. Nevertheless the analogy is helpful.
- 5 years ago, 26 Mar 2015, 04:02am -
Using Cross-Validation to Optimise a Machine Learning Method - The Regression Setting [Quant Start]
One of the most problematic areas of quantitative trading is optimising a forecasting strategy to improve its performance. Seasoned quant traders realise that it is all too easy to generate a strategy with stellar predictive ability on a backtest. However, some backtests can mask the danger of an
- 5 years ago, 25 Mar 2015, 07:25pm -
Univariate Volatility Forecast Evaluation [Eran Raviv]
Univariate Volatility Forecast Evaluation Regression based test - Mincer Zarnowitz regression Pairwise Comparison - Diebold Mariano test Jarque-Bera test References and credits Why this post? Open-source software is constantly evolving and improving. Code related to some of my previous posts is not
- 5 years ago, 25 Mar 2015, 07:25pm -
Momentum Research: Main Embarrassment of the FF 3-Factor Model [Alpha Architect]
Previous work shows that average returns on common stocks are related to firm characteristics like size, earnings/price, cash flow/price, book-to-market equity, past sales growth, long-term past return, and short-term past return. Because these patterns in average returns apparently are not
- 5 years ago, 25 Mar 2015, 07:20pm -
Speaking at the 2015 ATAA conference [Alvarez Quant Trading]
I will be speaking at the 2015 Australian Technical Analysts Association on May 15 to 17, 2015. My topics are “The development of an S&P500 stock weekly rotation strategy” and “From Internet Article to Trading Strategy: An ETF Monthly Rotation Strategy.” For more information about the
- 5 years ago, 25 Mar 2015, 10:43am -
Trading the Odds’ Optimized VRP Strategy [Volatility Made Simple]
This is a test of another “Volatility Risk Premium” (VRP) strategy from the always excellent Trading the Odds (1). The strategy is similar to the Brute Force VRP, DDN’s VRP, and original TTO’s VRP strategies that we’ve shared previously in that it compares implied and historical volatility
- 5 years ago, 25 Mar 2015, 10:09am -
High / Low Timing Patterns [Only VIX]
Just few days ago stock.nu published a post with charts showing that empirical distribution of daily lows follows a U-shaped pattern, i.e. daily low is not equally likely to happen at any time during the trading day, rather low is more likely to occur near the open or the close. Similar (symmetric)
- 5 years ago, 25 Mar 2015, 10:08am -
Simulation and relative performance [Shifting Sands]
There’s been some nice posts on randomness the last week or so, in particular here and here. I would like to look at how we can use simulations to get a better understanding of how some aspect of a trading system holds up relative to a bunch of random trades. In this example, I look at entries on
- 5 years ago, 25 Mar 2015, 01:35am -
Investing in High Dividend Yield Stocks: a Sucker Bet? [Alpha Architect]
Beware of focusing an investment decision on "yield." In this piece we want to highlight that investing in high dividend yield stocks--without considering the valuation--is probably a BAD idea. We've noticed that many market participants point to the historical performance of high
- 5 years ago, 24 Mar 2015, 10:09pm -
Bad Timing [John Orford]
The Sharpe of a Meb-Faber-esque Timing model over the whole of the last 10+ years has been 1.12. Of course that doesn't tell the whole story. You can see the wild swings. So there it is. A timing model whose S
- 5 years ago, 24 Mar 2015, 10:09pm -
Extended pattern in US Dollar warns of regime shift $UUP [@NautilusCap]
Extended pattern in US Dollar warns of regime shift $UUP
- 5 years ago, 24 Mar 2015, 10:08pm -
NYSE Advance – Decline Volume above 1000 (3 year high) [RRSP Strategy]
3 year high for $NYUD: significant money flow, especially into large caps: https://rrspstrategy.wordpress.com/charts/ Statistics for last 3 years 1 month return after $NYUD > 500 1.8% 1 month return (all) 1.2%
- 5 years ago, 24 Mar 2015, 04:31pm -
A comparison of investor sentiment indicators [Behavioural Quant]
My last post dealt with the characteristics and the potential usefulness of the aggregate social media sentiment in the U.S. stock market. As we know, social media is only one of the many possible proxies of the investor mood. I will look below at some of the alternative indicators from a
- 5 years ago, 24 Mar 2015, 06:19am -
Factor Evaluation in Quantitative Portfolio Management [R Trader]
When it comes to managing a portfolio of stocks versus a benchmark the problem is very different from defining an absolute return strategy. In the former one has to hold more stocks than in the later where no stocks at all can be held if there is not good enough opportunity. The reason for that is
- 5 years ago, 23 Mar 2015, 09:42pm -
99 Problems But A Backtest Ain’t One [Quantum Financier]
Backtesting is a very important step in strategy development. But if you have ever went through the full strategy development cycle, you may have realized how difficult it is to backtest a strategy properly. People use different tools to implement a backtest depending on their expertise and goals.
- 5 years ago, 23 Mar 2015, 09:42pm -
S&P500 Daily low [Stockdotnu]
Statistics for daily low and where its been located during intraday in the last 2 years. First graph is divided into hours and presents frequency and percentage. Big picture has three graphs on same row and it is in 5 min interval and begins with Frequency, Percentage and CDF. First row All
- 5 years ago, 23 Mar 2015, 09:42pm -
New related paper to #44 - Paired Switching [Quantpedia]
#44 - Paired Switching Authors: Schizas, Thomakos Title: Market timing using asset rotation on exchange traded funds: a meta-analysis on trading performance Link: http://businessperspectives.org/journals_free/imfi/2013/imfi_en_2013_02cont_Schizas.pdf Abstract: The ultimate goal of any “paper”
- 5 years ago, 23 Mar 2015, 09:41pm -
Visualising Strategy Drawdowns [Quanttech]
Along with the Sharpe Ratio, the drawdown of a trading strategy is one of the most common indicators you will see used to evaluate its performance. The drawdown is simply the decline in value of a strategy at a point in time since a previous high. It's important as it gives you an indication of
- 5 years ago, 23 Mar 2015, 09:41pm -
Individual Investors and the Moving Average Rule [Alpha Architect]
We use a comprehensive dataset from a German discount brokerage firm to investigate both the prevalence and effects of moving average trading heuristics among individual investors. We document an abnormal increase of 30% in individuals’ trading volume on signal days. More than one in 10 investors
- 5 years ago, 23 Mar 2015, 12:12pm -
The Benefit of Slowing Down the Rebalancing Process [EconomPic]
One of the top Google “rebalance free lunch” results is an article quoting one of the brightest minds in finance, Clifford Asness, that I think most investors would agree with: "Rebalancing is one of the few free lunches out there," said Clifford Asness, managing principal of New York
- 5 years ago, 23 Mar 2015, 12:10pm -