Quant Mashup
The VIX of Crypto and How Options Data Predicts BTC Price Swings [Unravel Markets]
The interactive version of this report can be found here; our previous report on exchange outflows’s predictive power here. With investor sentiment and risk premiums encapsulated in its options data, Bitcoin’s implied volatility is becoming an interesting predictive factor with its dual role as
- 2 days ago, 12 Feb 2025, 09:40pm -
Hedging Efficiently: How Optimization Improves Tail Risk Protection [Relative Value Arbitrage]
Tail risk hedging aims to protect portfolios from extreme market downturns by using strategies such as out-of-the-money options or volatility products. While effective in mitigating large losses, the challenge lies in balancing cost and long-term returns. In this post, we’ll discuss tail risk
- 2 days ago, 12 Feb 2025, 09:39pm -
Can Miner Economics Predict Bitcoin Returns? [Unravel Markets]
The Puell Multiple was invented by analyst David Puell, back in March 2019. He developed the metric as a way to quantify miner revenue in relation to historical averages: it compares the daily USD value of Bitcoin mined through block rewards to its 365-day moving average, directly meauring whether
- 3 days ago, 11 Feb 2025, 09:24pm -
What's the chance that a market effect is real? Monte Carlo permutation tests in Excel [Robot Wealth]
Let’s say you observe some effect in the market and quantify it with simple data analysis. A good question is, “What are the chances I’d see this effect solely due to chance?” And using simple Excel tools, we can answer this question without doing any formal statistics. Before we get into
- 3 days ago, 11 Feb 2025, 09:23pm -
Data Visualization - the Momentum Map [Grzegorz Link]
Dealing with multidimensional data in data visualization is tricky. You have to strike a balance between presenting a lot of useful information, but not cluttering charts too much. There are a lot of flashy and glimmery chart options. Yet it's easy to lose your audience by flooding them with
- 3 days ago, 11 Feb 2025, 09:22pm -
Weekly Recap [Quant Seeker]
Commodities Tail Risk Premium in the Crude Oil Market (Li and Li) While the variance risk premium has been widely studied in financial markets, this paper finds that the option-implied tail risk premium is a stronger predictor of crude oil futures returns. Short-term tail risks signal lower returns
- 3 days ago, 11 Feb 2025, 09:22pm -
Turn-of-the-Month Strategies: Do They Still Work? [Quant Seeker]
Decades of research have uncovered numerous market anomalies, persistent patterns in asset returns that cannot be fully explained by traditional risk-based models. Among the most enduring and well-documented of these is the turn-of-the-month (TOM) effect, characterized by abnormally high stock
- 5 days ago, 9 Feb 2025, 08:43pm -
Coding Trend Factor [Quantitativo]
"Every great developer you know got there by solving problems they were unqualified to solve until they actually did it." — Patrick McKenzie. Patrick McKenzie is a well-known software developer, entrepreneur, and writer, widely recognized for his work in the software industry,
- 5 days ago, 9 Feb 2025, 08:42pm -
How much should we get paid for skew risk? Not as much as you think! [Investment Idiocy]
A bit of a theme in my posts a few years ago was my 'battle' with the 'classic' trend followers, which can perhaps be summarised as: Me: Better Sharpe! Them: Yeah, but Skew!! My final post on the subject (when I realised it as a futile battle, as we were playing on different
- 1 week ago, 7 Feb 2025, 08:37am -
The Mathematics of Portfolio Return [Portfolio Optimizer]
Whether we manage our own investment assets or choose to hire others to manage the assets on our behalf we are keen to know how well our […] portfolio of assets is performing1 and the calculation of portfolio return is the first step in [that] performance measurement process1. Now, while the
- 1 week ago, 7 Feb 2025, 08:37am -
Better Backtesting [Anton Vorobets]
I recently wrote a post about naive backtesting of investment risk measures1, which is usually performed in the following way: Look at some historical data samples. Optimize portfolios using different risk measures. Crown the investment risk measure with the highest cumulative performance as “the
- 1 week ago, 7 Feb 2025, 08:36am -
The Low-Vol Effect in Crypto [Falkenblog]
Thirty years ago, I wrote my dissertation on the low-vol effect, which was really bad timing. This was just after various anomalies highlighted in the 70s and 80s were exposed as the effects of measurement error and selection bias (the low-price effect, the January effect). The small-cap effect was
- 1 week ago, 7 Feb 2025, 08:36am -
Taming Excessive "Timing Luck" in TAA by Tranching Strategies [Allocate Smartly]
Fair warning: this article is intended for advanced DIY Tactical Asset Allocation investors, i.e. nerds like us. First, a bit of background knowledge you’ll need to understand this discussion… Background knowledge: What is “timing luck”? Most Tactical Asset Allocation (TAA) strategies trade
- 1 week ago, 5 Feb 2025, 06:49pm -
US Stock Momentum Trading System for Retail Traders: Deep research [Cracking Markets]
I recently tested ChatGPT Pro’s Deep Research functionality (released on Monday, February 3, 2025)—currently priced at $200/month—using the latest o3-mini-high model. My objective? To evaluate how effectively it can assist in developing a US Stock Momentum Trading System for retail traders.
- 1 week ago, 4 Feb 2025, 08:45pm -
Join the Race Once Again: Quantpedia Awards Competition Is Back! [Quantpedia]
Hello everyone, Over the last few months, we have received numerous messages asking us if we plan to continue with our successful quant research competition in 2025. Last year, we promised our readers that the Quantpedia Awards would be back! And now it’s again time to unveil what we have prepared
- 1 week ago, 4 Feb 2025, 08:44pm -
ARTFIMA Model for Trading [Quant Insti]
The ARFIMA model is well suited for capturing long-range memory in financial time series. However, it’s not always the case the time series exhibits long memory in their autocorrelation. The ARTFIMA model comes to the rescue to capture not only the long memory but also its short one and the
- 1 week ago, 4 Feb 2025, 08:42pm -
Momentum Strategies: Profitability, Predictability, and Risk Management [Relative Value Arbitrage]
Momentum strategies have long been a cornerstone of investing, relying on the premise that past winners continue to outperform in the near future. This post explores the effectiveness of momentum strategies, analyzing their ability to generate abnormal returns and assessing their viability in
- 1 week ago, 4 Feb 2025, 08:42pm -
The Book is Out [Anton Vorobets]
The PDF version of the Portfolio Construction and Risk Management book is now publicly available. You can find links to the book and its accompanying Python code at the bottom of this newsletter. It contains many new perspectives and results that are exclusive to the book, showing you that there are
- 1 week ago, 2 Feb 2025, 09:09pm -
The Predictive Power of Dividend Yield in Equity Markets [Relative Value Arbitrage]
Dividend yield has long been a cornerstone of equity valuation. In this post, we explore how dividend yield predicts stock returns, its impact on stock volatility, and why it holds unique significance for mature, dividend-paying firms. Relationship Between Implied Volatility and Dividend Yield
- 1 week ago, 2 Feb 2025, 09:09pm -
Seasonality Patterns in the Crisis Hedge Portfolios [Quantpedia]
Building upon the established research on market seasonality and the potential for front-running to boost associated profits, this article investigates the application of seasonal strategies within the context of crisis hedge portfolios. Unlike traditional asset allocation strategies that may falter
- 2 weeks ago, 30 Jan 2025, 08:31pm -
Should You Buy A New Crypto Listing? [Quant Hedge]
Every Monday, I get an email from CMC with the new Crypto listings and top trending coins. Here’s the one from this past Monday. I usually give it a quick look and then delete it, but not so long ago, I started wondering: should I give a #@%! about this? It bugged me so I decided to look into it.
- 2 weeks ago, 26 Jan 2025, 08:28pm -
Dr Ernest Chan - The Breakthrough Uses of Machine Learning in Risk Management [Algorithmic Advantage]
We’re back! It’s 2025 and we are planning a cracker of a year! Stay tuned! It was strangely comforting talking to Ernie Chan. Whilst I was completely out of my depth talking about AI and Machine Learning, I came away broadly reinforced in my own belief that great trading still requires a human
- 2 weeks ago, 26 Jan 2025, 08:28pm -
Portfolio Construction and Risk Management Book [Anton Vorobets]
The PDF version of the Portfolio Construction and Risk Management book is freely available online at the bottom of this post. The accompanying code to the book is available on GitHub at https://github.com/fortitudo-tech/pcrm-book1. The book has been written through a crowdfunding campaign that you
- 3 weeks ago, 23 Jan 2025, 10:59pm -
Iterative PSD Shrinkage (IPS) [CSS Analytics]
In the previous post the framework for Generalized Downside Implied Correlations was introduced. You can use this correlation matrix derived from joint risk metrics to replace or augment/blend with traditional correlations for use in analysis or optimization. The challenge is that the resulting
- 3 weeks ago, 21 Jan 2025, 04:34pm -
Monte Carlo Simulations: Pricing Weather Derivatives and Convertible Bonds [Relative Value Arbitrage]
Monte Carlo simulations are widely used in science, engineering, and finance. They are an effective method capable of addressing a wide range of problems. In finance, they are applied to derivative pricing, risk management, and strategy design. In this post, we discuss the use of Monte Carlo
- 3 weeks ago, 21 Jan 2025, 04:33pm -
Artificial Intelligence and the Risks of Harking (Hypothesizing After-the-Fact) [Alpha Architect]
Academics have long been aware of the risks of data mining—torturing the data until it confesses. The concern is that correlation of variables doesn’t imply that the correlation is a result of causation. That is the reason that the prevailing academic standard for researchers is that they should
- 3 weeks ago, 21 Jan 2025, 04:33pm -
Research Review | 17 January 2025 | Risk Premia [Capital Spectator]
An Investigation into the Causes of Stock Market Return Deviations from Real Earnings Yields Austin Murphy (Oakland University), et al. December 2024 This research demonstrates that the simple difference between the current earnings yield on the S&P500 and the long-term real TIPS yield has
- 3 weeks ago, 21 Jan 2025, 04:32pm -
Intraday Momentum for ES and NQ [Quantitativo]
"If I have seen further, it is by standing on the shoulders of giants.” Sir Isaac Newton. First of all, Happy New Year! When I started Quantitativo a few months ago, I could never expect to gather such an amazing group of like-minded people in such a short time. Your enthusiasm, curiosity,
- 4 weeks ago, 16 Jan 2025, 08:34pm -
Factor Investing Clearing the Air – Datamining and the Antidotes [5th Horizon Research]
Factor Investing Origins and Implications The roots of factor investing can be traced to work published in the early 1990s by two academics: Ken French and Eugene Fama. In two of their publications[1], they identified a set of risk factors priced to consistently and robustly provide a return
- 4 weeks ago, 16 Jan 2025, 08:34pm -
Out-of-Sample Test of Formula Investing Strategies [Quantpedia]
Can we simplify the complexities of the stock market and distill them into a simple set of quantifiable metrics? A lot of academic papers suggest this, and they offer formulas that should make the life of a stock picker easier. Some of the most compelling methodologies within this realm are the
- 4 weeks ago, 16 Jan 2025, 08:33pm -
Detecting Wash Trading in Major Crypto Exchanges [Quantpedia]
The general acceptance of cryptocurrencies, especially Bitcoin, was a blessing from Wall Street, which institutionalized them as ETFs for comprehensive access by the general public and institutional investors. There is little to no denying now that this new asset class is becoming more traditional,
- 1 month ago, 13 Jan 2025, 09:14pm -
PCA in Action: From Commodity Derivatives to Dispersion Trading [Relative Value Arbitrage]
Principal Component Analysis (PCA) is a dimensionality reduction technique used to simplify complex datasets. It transforms the original variables into a smaller set of uncorrelated variables called principal components, ranked in order of their contribution to the dataset’s total variance. In
- 1 month ago, 13 Jan 2025, 09:13pm -
Training Machine Learning Models For Return Prediction [Alpha Architect]
Machine learning models have proven effective in predicting stock returns using lagged stock characteristics, but their success is influenced by a wide range of modeling choices. One critical, yet often overlooked, choice is how stocks are weighted in the objective function during training, with
- 1 month ago, 13 Jan 2025, 09:13pm -
Refining ETF Asset Momentum Strategy [Quantpedia]
Today’s research introduces a refined ETF asset momentum strategy by combining a correlation filter with selective shorting. While traditional long-short momentum strategies usually yield suboptimal results, the long leg proves effective on its own, and the correlation filter demonstrates
- 1 month ago, 12 Jan 2025, 09:08pm -
Piard's Annual Seasonality [Allocate Smartly]
This is a test of two stock market seasonality strategies from Fred Piard’s book Quantitative Investing: Strategies to Exploit Stock Market Anomalies for All Investors. Strategy results from 1970 follow. Results are net of transaction costs – see backtest assumptions. Learn about what we do and
- 1 month ago, 9 Jan 2025, 09:04pm -
Drawdown Implied Correlations Part 2: Generalized Downside Implied Correlations [CSS Analytics]
In the previous post I introduced a Drawdown Implied Correlation (DIC) that is a joint time-series measurement which converts maximum drawdowns into a correlation coefficient using a simple formula derived from portfolio math. The DIC had some unique features such as a “point-in-time” reference
- 1 month ago, 9 Jan 2025, 09:03pm -
CAPM, WACC, and Beyond: Beta’s Application in Arbitrage [Relative Value Arbitrage]
Beta is a measure of an asset’s sensitivity to market movements, indicating how much its price is expected to change in relation to the overall market. Beta is often used in CAPM and the calculation of WACC. However, it can also be applied in trading, specifically in arbitrage. In this post,
- 1 month ago, 9 Jan 2025, 09:03pm -
Do less liquid assets trend better or is that they are just more diversified? [Investment Idiocy]
As most of you know, one of the many projects / things I am involved with is the TTU Systematic Investor podcast series where I'm one of the rotating cast of co-hosts. On a recent episode (at 24:05) we discussed the reasons why 'alt' CTAs tend to do better than traditional CTAs.
- 1 month ago, 7 Jan 2025, 08:58pm -
Stocks aren’t always the best in the long-run [Alpha Architect]
By examining data going back to 1792, McQuarrie’s study comes up with a surprising observation : stocks are not as dominant as once thought. The variability of the performance of stocks vs. bonds across various time periods is dramatic. So buckle up, stocks do not invariably outperform bonds.
- 1 month ago, 7 Jan 2025, 08:58pm -
Hundreds Of Quant Papers From #QuantLinkADay In 2024 [Turnleaf Analytics]
I tweet a lot (from @saeedamenfx and at BlueSky at @saeedamenfx.bsky.social)! In amongst, the tweets about burgers, I tweet out a quant paper or link every day under the hashtag of #QuantLinkDay, mostly around FX, rates, economics, machine learning etc. Some are directly relevant to what we’re
- 1 month ago, 4 Jan 2025, 05:22pm -
Investigating Simple Formulaic Investing [Alpha Architect]
Investing formulas are simple, easy-to-implement, systematic, stock screeners that provide instructions on how to outperform the total stock market. Marcel Schwartz and Matthias Hanauer, authors of the December 2024 study, “Formula Investing,” evaluated the effectiveness of four such popular
- 1 month ago, 4 Jan 2025, 04:52am -
What the last day of the year can teach us about research and trading [Quantifiable Edges]
Overall, the last day of the year used to be consistently bullish for the market. But that has changed since the turn of the century. This is true across a number of indices. The most dramatic example is the NASDAQ, which I highlighted a few years ago. I have updated the chart below. NASDAQ last day
- 1 month ago, 4 Jan 2025, 04:51am -
What the Index Effect’s Disappearance means for Market Efficiency [Alpha Architect]
This paper investigates the puzzling decline in the price impact of S&P 500 index additions and deletions over the past four decades, despite the rapid growth of passive investing. It explores potential explanations, including changes in market liquidity and efficiency, shifts in the composition
- 1 month ago, 4 Jan 2025, 04:51am -
Top Ten Blog Posts on Quantpedia in 2024 [Quantpedia]
The year 2024 is nearly behind us, so it’s an excellent time for a short recapitulation. In the previous 12 months, we have been busy again (as usual) and have published over 70 short analyses of academic papers and our own research articles. The end of the year is a good opportunity to summarize
- 1 month ago, 30 Dec 2024, 06:20pm -
A "New" Way to Smooth Price [Dekalog Blog]
Rather than describe it, I'll just paste the "help" description below:- "This function takes an input series and smooths it by projecting a 5 bar rolling linear fit 3 bars into the future and using these 3 bars plus the last 3 bars of the rolling input to fit a FIR filter with a
- 1 month ago, 30 Dec 2024, 06:19pm -
From Gold to Bitcoin: Exploring the Oldest and Newest Asset Classes [Relative Value Arbitrage]
Gold, one of the oldest and most enduring asset classes, had an exceptional run in 2024, capturing attention across financial markets. Its role in investment portfolios continues to spark interest, acting as a hedge against uncertainty. On the other end of the spectrum, cryptocurrencies represent
- 1 month ago, 30 Dec 2024, 06:18pm -
Linear Congruential Generators in Python [Quant Start]
Some years ago we wrote a range of articles on random number generation (RNG) using C++. These techniques are primarily used for Monte Carlo simulations that underpin modern derivatives pricing methods. The articles included one that implemented a particular algorithm known as a Linear Congruential
- 1 month ago, 29 Dec 2024, 12:36am -
Drawdown Implied Correlations (Part 1) [CSS Analytics]
Diversification is a concept that is critical to most asset managers and traders. The foundation of this body of research is built upon the Pearson correlation coefficient, which is the most popular metric to determine whether adding an asset to a portfolio might enhance diversification. Despite its
- 1 month ago, 23 Dec 2024, 02:57am -
Intangibles and the Performance of the Value Factor [Alpha Architect]
Systematic factor-driven value strategies have underperformed broad market indices (such as the S&P 500) over the past 15+ years. That has led many to question whether intangible assets, such as patents and proprietary software, are properly treated. Current accounting standards, which require
- 1 month ago, 23 Dec 2024, 02:57am -
Front Running Commodity Seasonality [Allocate Smartly]
This is an independent test of a series of interesting studies from Quantpedia (here and here) related to seasonality in commodity ETFs. We’ve more than doubled the length of the author’s original test using relevant index data (1). Test #1: Front running commodity seasonality In all of our
- 1 month ago, 20 Dec 2024, 08:07am -