Quant Mashup
Podcast: Rigged markets and corrupt regulators with @NanexLLC [Chat With Traders]
A big guest on the podcast this week—a man who for many won’t need any introduction, he is; Eric Scott Hunsader. Eric started out as an algorithmic trader in the early 80’s, soon after became a self-taught programmer, and since then he’s written many software applications for financial data.
- 7 years ago, 4 May 2016, 07:29pm -
Making new equity highs. It happens less than you think [Alvarez Quant Trading]
A reader sent me a link to presentation, Robert Frey – 180 years of Market Drawdowns, about drawdowns and the time that a strategy is underwater. I highly suggest you watch it. I wanted to perform my own analysis on how often a buy and hold strategy on the S&P500 index is making new equity
- 7 years ago, 4 May 2016, 07:28pm -
Indexed Annuity: Masking Risk, Not Destroying It [Flirting with Models]
In recent conversations with current and potential clients, we have seen an uptick in the use of indexed annuities as a tool for risk management. For the uninitiated, Fidelity succinctly described an indexed annuity in a recent blog post: "An indexed annuity is a contract issued and guaranteed
- 7 years ago, 4 May 2016, 07:27pm -
Bogle Says Indexing Destined To Win The Battle Of The Quants [Capital Spectator]
Vanguard founder John Bogle gave a powerful speech last month at the Q Group’s Spring Seminar that lays out the case (again) for favoring basic indexing and shunning complexity in matters of portfolio design and management. As Morningstar’s John Rekenthaler points out, Bogle wields the weapon of
- 7 years ago, 4 May 2016, 11:23am -
Quantopian Paper About In vs Out-of-Sample Performance of Trading Algorithms [Quantpedia]
When automated trading strategies are developed and evaluated using backtests on historical pricing data, there exists a tendency to overfit to the past. Using a unique dataset of 888 algorithmic trading strategies developed and backtested on the Quantopian platform with at least 6 months of
- 7 years ago, 4 May 2016, 11:22am -
The Impact of Index Investing [Philosophical Economics]
The prior piece received a much stronger reaction than I expected. The topic is complicated, with ideas that are difficult to adequately express in words, so I’m going use this piece as a follow-up. I’m going to look at the specific example of the Tech Bubble, which is a clear case in which the
- 7 years ago, 4 May 2016, 04:22am -
Backtesting Strategies with R (h/t algotrading Reddit) [Tim Trice]
This book is designed to not only produce statistics on many of the most common technical patterns in the stock market, but to show actual trades in such scenarios. Test a strategy; reject if results are not promising Apply a range of parameters to strategies for optimization Attempt to kill any
- 7 years ago, 3 May 2016, 10:08pm -
Get Rich Slowly [Financial Hacker]
Most trading systems are of the get-rich-quick type. They exploit temporary market inefficiencies and aim for annual returns in the 100% area. They require maintenance, supervision, and regular adaption to market conditions. Their expiration is often accompanied by large losses. But what if you’ve
- 7 years ago, 3 May 2016, 06:35pm -
Further dip in April for Trend Following [Wisdom Trading]
Another down month for the index, with a slight loss. Two mild down months after two strong up months keep the index in positive territory for 2016. Below is the full State of Trend Following report as of last month. Performance is hypothetical. Chart for April: WSTF-201604-Index And the 12-month
- 7 years ago, 3 May 2016, 06:35pm -
Forecast averaging example [Eran Raviv]
Especially in economics/econometrics, modellers do not believe their models reflect reality as it is. No, the yield curve does NOT follow a three factor Nelson-Siegel model, the relation between a stock and its underlying factors is NOT linear, and volatility does NOT follow a Garch(1,1) process,
- 7 years ago, 3 May 2016, 02:34am -
Index Investing Makes Markets and Economies More Efficient [Philosophical Economics]
U.S. equity index funds have grown dramatically in recent decades, from a negligible $500MM in assets in the early 1980s to a staggering $4T today. The consensus view in the investment community is that this growth is unsustainable. Indexing, after all, is a form of free-riding, and a market can
- 7 years ago, 1 May 2016, 07:50pm -
What You Should Remember About the Markets [Dual Momentum]
Because I have been an investment professional for more than 40 years, I sometimes get asked my opinion about the markets. These questions usually come from those who invest without a systematic approach toward investing. Here are some typical questions and answers: Question: How much do you think
- 7 years ago, 28 Apr 2016, 10:20pm -
Facts, Fiction, and Merger Arbitrage [Alpha Architect]
Investors love to chase after the “next big thing,” as investment strategies and styles come in and go out of vogue. The latest object of investor infatuation may be a revitalized interest in merger arbitrage. Consider this bloomberg headline: “Hedge Fund Investors Have Fallen in Love with
- 7 years ago, 28 Apr 2016, 05:25pm -
“K-Means never fails”, they said… [Quant Dare]
It is known that data mining algorithms are not perfect and they can fail under certain conditions. K-Means is an example of that triviality but there is a good alternative, K-Medoids. In a previous post, “Machine Learning: A Brief Breakdown” we already mentioned that K-Means is the cluster
- 7 years ago, 28 Apr 2016, 11:07am -
How Different Are These Things From One Another? [Blue Event Horizon]
In an earlier post I was looking at distance measures for clustering. In a still earlier post I had referred to analyzing hedge fund regulatory data using clustering to try to put the funds into groups by inferred strategy. I had to solve a problem with clustering that has being bothering me for a
- 7 years ago, 28 Apr 2016, 11:06am -
Optimum Asset Allocation using Correlation [Milton FMR]
The concept of diversification is based on the concept that a trader can reduce his risk exposure by entering several positions at the same time. The success of a traders portfolio is therefore based on reducing risk rather than maximizing returns. A trader should be able to withstand a string of
- 7 years ago, 28 Apr 2016, 11:06am -
Block Bootstrapped Monte Carlo – in R [Open Source Quant]
A few weeks back i wrote a post including the source code for a Monte Carlo simulation function in R. The idea was to randomly sample daily returns produced by a backtest and build a confidence interval distribution of the middle 50% and 90% of returns. Since then Brian Peterson got in touch with me
- 7 years ago, 26 Apr 2016, 05:33pm -
A New Analysis of Commodity Momentum Strategy [Quantpedia]
Conventional momentum strategies rely on 12 months of past returns for portfolio formation. Novy-Marx (2012) shows that the intermediate return momentum strategy formed using only twelve to seven months of returns prior to portfolio formation significantly outperforms the recent return momentum
- 7 years ago, 26 Apr 2016, 05:33pm -
Is tactical broken? [Flirting with Models]
Summary Many tactically risk-managed strategies use trend following to manage the risk of severe drawdowns, but in sideways markets, like those experienced in 2011 and 2015, trend following ends up lagging the market by buying high and selling low. As with insurance policies or static allocations to
- 7 years ago, 25 Apr 2016, 04:06pm -
How the day of the week affects stock market anomalies [Alpha Architect]
This paper documents a new empirical fact. Long-short anomaly returns are strongly related to the day of the week. Anomalies for which the speculative leg is the short (long) leg experience the highest (lowest) strategy returns on Monday. The exact opposite pattern is observed on Fridays. The
- 7 years ago, 25 Apr 2016, 04:06pm -
Measurement error bias [Eran Raviv]
What is measurement error bias? Errors-in-variables, or measurement error situation happens when your right hand side variable(s); your x in a y_t = \alpha + \beta x_t + \varepsilon_t model is measured with error. If x represents the price of a liquid stock, then it is accurately measured because
- 7 years ago, 25 Apr 2016, 04:42am -
Best Links of the Last Two Weeks [Quantocracy]
The best quant mashup links for the two weeks ending Saturday, 04/23 as voted by our readers: Lossless Compression Algorithms and Market Efficiency? [Turing Finance] You can’t beat all the chimps [Following the Trend] My Year-Long Experience as the Fastest Form-4 Trader [Greg Harris] Are 3-year
- 7 years ago, 24 Apr 2016, 04:49am -
Minimum volatility: what's in a name? [Factor Investor]
Mad Men watchers may recognize the name Bernbach from the quote above. Bernbach is referred to in the second season as the innovative competitor firm that challenges Sterling Cooper's orthodoxy. Bill Bernbach was the brain behind several successful campaigns, including Avis' We Try Harder
- 7 years ago, 22 Apr 2016, 02:52pm -
The Moving Average Research King: Valeriy Zakamulin [Alpha Architect]
Some weekend reading for trend-followers who want to question their beliefs. Valeriy Zakamulin is an animal when it comes to generating research on moving averages. We’ve done a lot of the same work, but we’re too lazy to tabulate the results in an academic paper format. king of ma The king of
- 7 years ago, 22 Apr 2016, 02:52pm -
Research Review | 22 Apr 2016 | Risk Analysis [Capital Spectator]
The Market Portfolio is NOT Efficient: Evidences, Consequences and Easy to Avoid Errors Pablo Fernandez (University of Navarra), et al. March 16, 2016 The Market Portfolio is not an efficient portfolio. There are many evidences that tell us that: the equal weighted indexes have beaten their
- 7 years ago, 22 Apr 2016, 02:51pm -
Introducing fidlr: FInancial Data LoadeR [R Trader]
fidlr is an RSutio addin designed to simplify the financial data downloading process from various providers. This initial version is a wrapper around the getSymbols function in the quantmod package and only Yahoo, Google, FRED and Oanda are supported. I will probably add functionalities over time.
- 7 years ago, 22 Apr 2016, 04:37am -
50% Returns Coming for Commodities and Emerging Markets? [Meb Faber]
If history is any guide, we’re standing at the edge of 40%–96% returns over the next two years. This isn’t wishful thinking or wild speculation. I’m not selling anything. Rather, I’m just reporting historical gains from a market set-up that’s repeating itself right now. So what’s going
- 7 years ago, 22 Apr 2016, 04:37am -
PDF: Combining Value and Momentum [Gerstein Fisher]
This paper considers several popular portfolio implementation techniques that maximize exposure to value and/or momentum stocks while taking into account transaction costs. Our analysis of long-only strategies illustrates how a strategy that simultaneously incor- porates both value and momentum
- 7 years ago, 22 Apr 2016, 04:36am -
Get ready for R/Finance 2016 [Revolutions]
R/Finance 2016 is less than a month away and, as always, I am very much looking forward to it. In past years, I have elaborated on what puts it among my favorite conferences even though I am not a finance guy. R/Finance is small, single track and intense with almost no fluff. And scattered among the
- 7 years ago, 21 Apr 2016, 12:50pm -
Sentiment Analysis in Trading Explained Using R [Quant Insti]
In this post we discuss sentiment analysis in brief and then present a basic sentiment analysis model in R. Sentiment analysis is the analysis of the feelings (i.e. attitudes, emotions and opinions) which are expressed in the news reports/blog posts/twitter messages etc., using natural language
- 7 years ago, 21 Apr 2016, 12:50pm -
Kaufman's Market Efficiency Model [Milton FMR]
The trend following model by Kaufman says that trading by the direction of the trend is a conservative approach to the markets. Kaufman’s Market Efficient Model states that longer trends are the most reliable but they respond rather slowly to changing market conditions. The main argument of the
- 7 years ago, 20 Apr 2016, 07:32pm -
Information Content of Pre- and Post-Market Trading Sessions [Jonathan Kinlay]
I apologize in advance for this rather "wonkish" post, which is aimed chiefly at the high frequency fraternity, or those at least who trade intra-day, in the equity markets. Such minutiae are the lot of those engaged in high frequency trading. I promise that my next post will be of more
- 7 years ago, 20 Apr 2016, 11:04am -
What is the difference between Bagging and Boosting? [Quant Dare]
Bagging and Boosting are both ensemble methods in Machine Learning, but what is the key behind them? Bagging and Boosting are similar as they are both ensemble techniques, where a set of weak learners are combined to create a strong learner that obtains better performance than a single one. So,
- 7 years ago, 20 Apr 2016, 11:03am -
CAPE 10 Ratio In Need Of Context [Larry Swedroe]
The Shiller cyclically adjusted (for inflation) price-to-earnings ratio—referred to as the CAPE 10 because it averages the last 10 years’ earnings and adjusts them for inflation—is a metric used by many to determine whether the market is undervalued, fairly valued or overvalued. Employing a
- 7 years ago, 20 Apr 2016, 11:02am -
Analysis of US Dollar Carry Trades in the Era of 'Cheap Money' [Quantpedia]
In this paper, we employ a unique dataset of actual US dollar (USD) forward positions against a number of currencies taken by so-called Commodity Trading Advisors (CTAs). We investigate to what extent these positions exhibit a pattern of USD carry trading or other patterns of currency trading over
- 7 years ago, 20 Apr 2016, 11:02am -
Machine Learning Section Added to Our Library with Robot Wealth [Quantocracy]
Jacques Joubert of Quants Portal, curator extraordinaire of the books at Quantocracy, has collaborated with Robot Wealth to add the humble beginnings of a Machine Learning section to our library. Denizens of Quantocracy know Robot Wealth well. Within months of launching his blog, RW had already
- 7 years ago, 19 Apr 2016, 08:42pm -
A Better Way To Run Bootstrap Return Tests: Block Resampling [Capital Spectator]
Developing confidence about a portfolio strategy’s track record (or throwing it onto the garbage heap), whether it’s your own design or a third party’s model, is a tricky but essential chore. There’s no single solution, but a critical piece of the analysis for estimating return and risk,
- 7 years ago, 19 Apr 2016, 11:23am -
A Closer Look At Growth and Value Indices [Flirting with Models]
In a commentary a few weeks ago entitled Growth Is Not “Not Value,” we discussed a problem in the index construction industry in which growth and value are often treated as polar opposites. This treatment can lead to unexpected portfolio holdings in growth and value portfolios. Specifically, we
- 7 years ago, 19 Apr 2016, 11:23am -
How Changing our Brand Supercharged Our Growth on Twitter [Quantocracy]
This is not quant related, but I found it interesting and thought it worth sharing for the benefit of our friends in the quant blogosphere. Long-time readers remember that we rebranded from The Whole Street to Quantocracy at the start of April, 2015. The rebranding came with changes to our site, but
- 8 years ago, 18 Apr 2016, 06:58pm -
Lossless Compression Algorithms and Market Efficiency? [Turing Finance]
In Hacking The Random Walk Hypothesis we applied the NIST suite of cryptographic tests for randomness to binarized daily market returns. Overall the NIST suite failed on the data. This result was taken to mean that markets are not quite the "coin flipping competition" famously posited by
- 8 years ago, 18 Apr 2016, 02:21pm -
QuantStart April 2016 News [Quant Start]
This is a quick update to let the QuantStart community know what has been happening in the last few months as it has been an exciting time "behind the scenes" of the site. Firstly, I spoke at the Quantopian QuantCon conference in New York last week. The conference was absolutely fantastic,
- 8 years ago, 18 Apr 2016, 02:21pm -
Should We Embrace the "Dark Side" of Factors? [Flirting with Models]
Factors are a way to identify unique alpha sources. Factors often have a “light” and “dark” side. While the light side is expected to outperform the dark side, often the light side also outperforms the market and the dark side underperforms the market. The outperformance and underperformance
- 8 years ago, 18 Apr 2016, 02:20pm -
Are R^2s Useful In Finance? [QuantStrat TradeR]
This post will shed light on the values of R^2s behind two rather simplistic strategies - the simple 10 month SMA, and its relative, the 10 month momentum (which is simply a difference of SMAs, as Alpha Architect showed in their book DIY Financial Advisor. Not too long ago, a friend of mine named
- 8 years ago, 18 Apr 2016, 05:32am -
Probability of Black Swan Events at NYSE [Quant at Risk]
The prediction of extreme rare events (EREs) in the financial markets remains one of the toughest problems. Firstly because of a very limited knowledge we have on their distribution and underlying correlations across the markets. Literally, we walk in dark, hoping it won’t happen today, not to the
- 8 years ago, 18 Apr 2016, 05:32am -
Interview with Nitesh Khandelwal of @QuantInsti [Better System Trader]
Backtesting and execution are such key parts of algorithmic trading so choosing the wrong platform can have a huge impact on our trading. There are loads of trading platforms available and a lot of considerations which need to be made when choosing one that suits our needs, so in this episode
- 8 years ago, 17 Apr 2016, 01:51pm -
Benchmarks – why using a Buy-Hold strategy as a benchmark is probably doing it wrong [Open Source Quant]
Comparing a strategy’s performance to a Buy-and-Hold strategy is quick and easy. But there is a good chance it might not be appropriate and adds as much value as the time it took to research…zero. So when i see an article comparing a particular strategy to its Buy-and-Hold equivalent dating back
- 8 years ago, 17 Apr 2016, 01:50pm -
Benchmark Plus [Systematic Investor]
To install Systematic Investor Toolbox (SIT) please visit About page. The overlay strategy is the market neutral strategy that can be applied to benchmark to improve benchmark's performance. The new strategy weights are equal to benchmark weights plus the overlay weights. Below I will present a
- 8 years ago, 16 Apr 2016, 03:36am -
Taleb: Silent Risk, Section 1.3 [Blue Event Horizon]
Towards the end of this section, Taleb inserts a sidebar as follows: Consider the right tail K^{+}\in \mathbb{R}^{+} and the left tail K^{-}\in \mathbb{R}^{-} . Without specifying the support of the distribution: Definition 1.3 (Probability swamps payoff (thin tails)). \lim_{K^{+ }\rightarrow\infty
- 8 years ago, 16 Apr 2016, 03:35am -
You can't beat all the chimps [Following the Trend]
It is a long established fact that a reasonably well behaved chimp throwing darts at a list of stocks can outperform most professional asset managers. While there would be obvious advantages with hiring chimps over hedge fund traders, such as lower salaries and better manners, there are also a few
- 8 years ago, 15 Apr 2016, 06:03am -
The 5 Mistakes Every Investor Makes [Meb Faber]
The 5 Mistakes Every Investor Makes is a recent book I read by Peter Mallouk, the #1 Investment Advisor in America. (I’m not poking fun, that’s just what it says on the cover.) In general it is an easy to read book that it quite reasonable it its advice, and you can get a free copy from their
- 8 years ago, 15 Apr 2016, 02:51am -