Quantocracy

Quant Blog Mashup

Recent Quant Links from Quantocracy as of 09/22/2025

This is a summary of links recently featured on Quantocracy as of Monday, 09/22/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Leveraged ETFs in Low-Volatility Environments [Quantpedia]

    Leveraged ETFs (such as SPXL (Direxion Daily S&P 500 Bull 3X Shares) offer amplified exposure to the S&P 500, promising high returns but exposing investors to volatility drag caused by daily rebalancing. This effect can significantly erode performance over longer horizons, particularly during periods of elevated market volatility. Inspired by recent research, The Volatility Edge, A
  • When Trading Systems Break Down: Causes of Decay and Stop Criteria [Relative Value Arbitrage]

    Decay and Stop Criteria Subscribe to newsletter A key challenge in system development is that trading performance often deteriorates after going live. In this post, we look at why this happens by examining the post-publication decay of stock anomalies, and we address a practical question faced by every trader: when a system is losing money, is it simply in a drawdown or has it stopped working
  • What Drives the Excess Bond Premium? [Quantpedia]

    The Excess Bond Premium (EBP the portion of corporate bond spreads not explained by default risk), a key metric in quantitative finance for gauging credit spreads, has long been a subject of intense scrutiny. Recent research sheds new light on its dynamics, moving beyond traditional macroeconomic factors to explore the role of information flow. By analyzing news attention across 180 topics, a

Recent Quant Links from Quantocracy as of 09/17/2025

This is a summary of links recently featured on Quantocracy as of Wednesday, 09/17/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Robust optimization protocol [Trading the Breaking]

    Parameter optimization is where good ideas go to either earn their keep or quietly fail. Given a fixed modeling recipe, the optimizer will always return a winner; what it cannot tell youunless you force it tois whether that winner is real. Financial data are dependent, heteroskedastic, regime-prone, and thin on signal. In that environment, any single backtest split can crown a parameter
  • Weekly Research Recap [Quant Seeker]

    News Sentiment and Commodity Futures Investing (Yeguang, El-Jahel, and Vu) Media news sentiment is a priced factor in commodity futures. A weekly longshort strategy, buying commodities with the most positive sentiment and shorting those with the most negative, delivers an 8.3% annualized return with a Sharpe ratio of 0.45, after costs. The premium remains significant after controlling for
  • Macro trading factors: dimension reduction and statistical learning [Macrosynergy]

    Macro trading factors are information states of economic developments that help predict asset returns. A single factor is typically represented by multiple indicators, just as a trading signal often combines several factors. Like signal generation, factor construction can be supported by regression-based statistical learning. Dimension reduction is particularly useful for factor discovery. It is
  • Volatility Targeting Across Asset Pricing Factors and Industry Portfolios [Relative Value Arbitrage]

  • Profitably Trading the SPX Opening Range. Code Included. [Quantish]

    This promising strategy comes from Option Alphas comprehensive research on trading SPX breakouts with zero-day-to-expiration (0DTE) credit spreads selling one option while buying a further OTM option for protection, collecting premium with defined risk. If youre not famliar with Option Alpha, and are serious about trading options, I highly recommend you check them out! (Disclosure: Im
  • Weekly Research Recap [Quant Seeker]

    The trade imbalance network and currency returns (Hou, Sarno, and Ye) While past work links a countrys trade balance to predictability of FX returns, this study shows that its position in the global network of deficits and surpluses matters too. The authors create a centrality-based measure (CBC), finding that going long highly central currencies and shorting peripheral ones delivers a Sharpe

Recent Quant Links from Quantocracy as of 09/08/2025

This is a summary of links recently featured on Quantocracy as of Monday, 09/08/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Surprisingly Profitable Pre-Holiday Drift Signal for Bitcoin [Quantpedia]

    Cryptocurrency markets have matured into a distinct asset class characterized by extreme volatility, deep liquidity pools, and worldwide retail participation. Traditional equity and commodity markets exhibit a well-documented pre-holiday effect, where returns on trading days immediately preceding public holidays tend to outperform other days. Given that Bitcoin is often described as the archetypal
  • A Better Stock Rotation System [Financial Hacker]

    A stock rotation system is normally a safe haven, compared to other algorithmic systems. Theres no risk of losing all capital, and you can expect small but steady gains. The catch: Most of those systems, and also the ETFs derived from them, do not fare better than the stock index. Many fare even worse. But how can you make sure that your rotation strategy beats the index? There is a way. In the
  • PCA analysis of Futures returns for fun and profit, part deux [Investment Idiocy]

    In my previous post I discussed what would happen if you did the crazy thing of doing a PCA on the whole universe of futures across assets, rather than just within US equities or bonds like The Man would want you to. In this post I explore how we could do something useful with them. There is some messy code here, to run all of it you'll need psystemtrade, but you can exploit big chunks with
  • Skewness Premium in Managed Futures: A Practitioner’s Guide [Invest ReSolve]

    Skewness-based managed futures strategies offer a unique opportunity to enhance portfolio performance by exploiting the asymmetry of return distributions across diverse asset classes. By focusing on the third moment of return distributionsskewnessthese strategies seek to capitalize on the tendency of assets with negative skewness to offer higher expected returns as compensation for tail
  • Conditional Value at Risk [OS Quant]

    Value at Risk (VaR) is the industrys go-to portfolio risk metric. But, its a cutoff completely ignoring tail risk. It tells you how often youll breach a threshold, not how bad losses are when you do. Conditional Value at Risk (CVaR) looks at that damage. It measures the average of your worst days. In this article we recap VaR, build intuition for CVaR, estimate it from historical returns,
  • Equity duration and predictability [Alpha Architect]

    Since 1945, a silent revolution has taken place in the way equity markets move. The classic view of stock prices responding mainly to changes in expected dividends no longer holds. Instead, expected returns now dominate. This paper digs into the reason: equity duration has increased dramatically. As firms reinvest more and delay payouts to the future, asset prices become more sensitive to changes
  • Tail Risk Hedging Using Option Signals and Bond ETFs [Relative Value Arbitrage]

    Tail risk hedging plays a critical role in portfolio management. I discussed this topic in a previous article. In this post, I continue the discussion by presenting different techniques for managing tail risks. Hedging with Puts: Do Volatility and Skew Signals Work? Portfolio hedging remains a complex and challenging task. A straightforward method to hedge an equity portfolio is to buy put

Recent Quant Links from Quantocracy as of 09/03/2025

This is a summary of links recently featured on Quantocracy as of Wednesday, 09/03/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Bitcoin ETFs in Conventional Multi-Asset Portfolios [Quantpedia]

    Understanding how Bitcoin-related instruments can fit into traditional portfolios is increasingly relevant for investors. Some risk-averse investors do not like to hold cryptocurrencies in their portfolios strategically; however, they may be open to investing in crypto-linked assets on a tactical level. In this context, our goal is to explore how we can provide short-term Bitcoin exposure while
  • Weekly Research Recap [Quant Seeker]

    Global News Networks and Return Predictability (Freire, Moin, Quaini, and Soebhag) News sentiment, extracted from a massive global article dataset, predicts daily equity index returns across 14 developed markets. Local sentiment strategies nearly double buy-and-hold Sharpe ratios (e.g., U.S. 1.34 vs. 0.62), with net alphas of about 16% after trading costs and one-third smaller drawdowns. Adding
  • Stochastic Volatility Models for Capturing ETF Dynamics and Option Term Structures [Relative Value Arbitrage]

    The standard Black-Scholes-Merton model is valuable in both theory and practice. However, in certain situations, more advanced models are preferable. In this post, I explore stochastic volatility models. Stock and Volatility Simulation: A Comparative Study of Stochastic Models Stochastic volatility models, unlike constant volatility models, which assume a fixed level of volatility, allow

Recent Quant Links from Quantocracy as of 09/01/2025

This is a summary of links recently featured on Quantocracy as of Monday, 09/01/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Combinatorial Purged Cross Validation for Optimization [Trading the Breaking]

    Traditional grid or Bayesian searches conducted on a single path reward parameters that overfit to this specific historical path. This inflates performance metrics through selection bias and temporal leakage. Combinatorial Purged Cross-Validation (CPCV) addresses this flaw by generating a multitude of chronology-respecting train-test partitions. Crucially, it purges any overlapping information,
  • New open-source library: Conditional Gaussian Mixture Models (CGMM) [Sitmo]

    Ive released a small, lightweight Python library that learns conditional distributions and turns them e.g. into scenarios, fan charts, and risk bands with just a few lines of code. Its built on top of scikit-learn (fits naturally into sklearn-style workflows and tooling). Example usage: In the figure below, a non-parametric model is fit on VIX conditioned on the VIX level, so it naturally
  • The Reversal Tendency of Labor Day Week [Quantifiable Edges]

    In the subscriber letter over the last several years I have demonstrated that the performance during the week of Labor Day has been impacted by the performance in the month leading up to it. Interestingly, is has been somewhat of a momentum reversal week. When SPX has rallied up to Labor Day, then it has struggled that week. And declines into Labor Day have seen positive performance. Below is an

Recent Quant Links from Quantocracy as of 08/31/2025

This is a summary of links recently featured on Quantocracy as of Sunday, 08/31/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Volume Shocks and Overnight Returns [Quantitativo]

    Albert Einstein had a way of capturing deep truths in simple words. His quote is a reminder, especially relevant to us when building models. Stripping away unnecessary complexity is vital, but going too far risks oversimplification: a model that looks neat but fails to capture reality. This week, we will implement the idea from the paper Volume Shocks and Overnight Returns, by lvaro Cartea,
  • The 5 Point Trade Quality Scoring System [Paper to Profit]

    Often we have a trading system with a countless number of trades (in my case 70,000,000) with little to no way to understand actually what is going on. Sure, we get massive printouts and tear sheets with a ton of figures that quantify our strategy. But, what about on a trade-by-trade basis? What we really need is to understand the quality of our trading systems on a trade-by-trade basis. Its
  • DataFrame Rec Tests with Recx [OS Quant]

    Code changes. Data changes. Outputs change. Somewhere between the first analysis and an odd position in production, little mismatches creep in: a misstated value, off-by-one date ranges, rounding shifts, subtle drift in calculations, missing IDs. The most reliable way to catch them is to compare a new DataFrame to a previously validated onea reconciliation, or rec, test. recx is a lightweight
  • The (hidden) trading value of central bank liquidity information [Macrosynergy]

    Central banks regularly adjust the economys monetary base through foreign exchange interventions and open market operations. Point-in-time information on such intervention-based liquidity expansion has predictive power for asset returns. That is because such operations often come in longer-term trends, and there are lagged effects, for example, through private sector portfolio rebalancing.
  • Finding Edges [Robot Wealth]

    How do we find edges? First, we must be clear about what constitutes a good idea. It isnt as simple as it having to make money. The risk profile must also be tolerable. This is a personal preference. Next, we need to be able to trade it. Robinhood wont let you sell naked options. You cant trade the Indian markets or crypto derivatives from the US. Retail cant trade OTC. These

Recent Quant Links from Quantocracy as of 08/29/2025

This is a summary of links recently featured on Quantocracy as of Friday, 08/29/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Neural Nets and Factor Models [Falkenblog]

    Gu, Kelly, and Xiu (2020) – "Empirical Asset Pricing via Machine Learning" and Chen, Pelger, and Zhu (2019) – "Deep Learning in Asset Pricing" examine various machine learning and neural net algorithms. Both find significant improvements to standard factor models. Several hidden parameter choices are not directly learned during training but significantly impact model
  • How Can We Explain the Low-Risk Anomaly? [Quantpedia]

    The low-risk anomaly in financial markets has puzzled researchers and investors, challenging the traditional risk-return paradigm (higher risk->higher return). This phenomenon, where low-risk assets outperform their high-risk counterparts on a risk-adjusted basis, has been observed across various asset classes, including stocks and mutual funds. What may be the possible explanation?
  • Cross-Sectional Momentum: Results from Commodities and Equities [Relative Value Arbitrage]

    Momentum strategies can be divided into two categories: time series and cross-sectional. In a previous newsletter, I discussed time series momentum. In this post, I focus on cross-sectional momentum strategies. Cross-Sectional Momentum in the Commodity Market Momentum trading is often divided into 2 categories: time-series momentum and cross-sectional momentum. Time-series based trading strategies
  • Weekly Research Recap [Quant Seeker]

    Asymmetry and Crude Oil Returns (Liu, Zhang, and Bouri) This paper introduces a new distribution-based asymmetry factor (OIS) for crude oil that strongly predicts WTI futures returns. A one-standard-deviation rise in OIS, signaling right-tail clustering, forecasts a 3.15% drop in next-month returns (t3.1, R=4.1%). Out-of-sample, OIS achieves an R of 4.2%, far exceeding standard

Recent Quant Links from Quantocracy as of 08/24/2025

This is a summary of links recently featured on Quantocracy as of Sunday, 08/24/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Walk-Forward optimization [Trading the Breaking]

    I want to start by saying that the key is in the data, not in the model or its parameters. Therefore, if your data is garbage, no matter how much you parameterize it, the results will still be garbage. If you parameterize a model, it's to fine-tune something that already works. Period. Knowing that, we can proceed. The genesis of a strategy is often an elegant, compelling concept. This
  • Laurens Bensdorp – Building Strategies with Purpose [Algorithmic Advantage]

    Theres a special place in trading graveyards reserved for the back-test that looked gorgeous on paper and then detonated in production. Ive been there. If you trade long enough, you will too. We all know the over-fittings issues, and Ill get into that, but theres another reason why back-tests can fail: the initial purpose is not matched to the right method. If we ask the wrong thing of
  • The Best Strategies for FX Hedging [Quantpedia]

    Foreign exchange (FX) markets are a cornerstone of global finance, offering investors and corporations opportunities to manage currency risk, enhance returns, and optimize portfolio performance. Among the most critical challenges in FX is the design of robust hedging strategies to mitigate exposure to volatile currency movements. How does the financial industry deal with this task? We can draw
  • Unlocking REIT Returns: Real Estate Investment Factors [Alpha Architect]

    As of 2024, real estate investment trusts (REITs) have cemented their role as a $1.5 trillion segment within global capital markets, offering investors a liquid and regulated gateway to commercial real estate. With robust dividend mandates, leverage restrictions, and transparent operations, REITs continue to attract both institutional and individual investors seeking diversification and steady
  • Cesar Alvarez – A Novel Way to Combine Trend, Reversion, ETFs, Volatility & More [Algorithmic Advantage]

    When I sat down recently with Cesar Alvarez of Alvarez Quant Trading, I knew I'd be tapping into a deep reservoir of quantitative trading wisdom. Cesars journey into systematic trading began similarly to many of usstarting with discretionary trades, dabbling in mutual funds, and eventually stumbling into the quant world. From his early days at Connors Research to managing sophisticated

Recent Quant Links from Quantocracy as of 08/19/2025

This is a summary of links recently featured on Quantocracy as of Tuesday, 08/19/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Quantifying Global Real Estate Returns Over Centuries [Quantpedia]

    In the realm of quantitative finance, understanding the dynamics of real estate returns over extended periods is often overlooked, which is not good, as real estate constitutes a significant portion of investors portfolios. The article titled Global Housing Returns, Discount Rates, and the Emergence of the Safe Asset, 1465-2024 fills the gap and provides a comprehensive historical overview of
  • Correlation Matrix Generation using Object Oriented Python [Quant Start]

    In the last article Generating Synthetic Equity Data with Realistic Correlation Structure we discussed how to generate synthetic structured correlation matrices for the purposes of generating synthetic correlated equities data. This has a number of uses within systematic trading backtesting validation and machine learning model training. We mentioned in the Next Steps section that we would explore
  • Weekly Research Recap [Quant Seeker]

    Is Gold an Inflation Hedge? (Baur) Gold is not a consistent hedge against average inflation. Between 1971 and 2025, realized inflation explains less than 3% of golds price variation, and the hedge effect evident in the 1970s80s largely disappears thereafter. Gold does, however, respond strongly to extreme inflation shocks and especially to changes in inflation expectations: 1-year and 5-year
  • Predictive Information of Options Volume in Equity Markets [Relative Value Arbitrage]

    A lot of research in options literature has been devoted to the volatility risk premia and developing advanced pricing models. Much less attention has been given to volume. In this post, Ill discuss some aspects of options volume. Can Options Volume Predict Market Returns? Most of the research in equity and index options has been devoted to volatility and the volatility risk premium. Relatively

Recent Quant Links from Quantocracy as of 08/16/2025

This is a summary of links recently featured on Quantocracy as of Saturday, 08/16/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Cross-Sectional Alpha Factors in Crypto: 2+ Sharpe Ratio Without Overfitting [Unexpected Correlations]

    In the early 90s, the quant forefathers (Fama and French) introduced their now-canonical factor models: first three, then five, and eventually seven, explaining much of the variation in US equity returns. Today, these models are used to understand what easy-to-replicate risk factors managers are being exposed to. Allocators will want to pay for only the truly unique return sources that cant
  • Trading Signals in High Definition [Robot Wealth]

    Weve all used on/off type trading signals at some point. But you can nearly always extract more insight with a simple adjustment that focuses on using data efficiently. Let me show you how using a crypto trend example. The problem with binary signals Youve seen them everywhere. If price is above the 20-day moving average, be long. If its below, be short. Thats a binary signal.
  • Python Tooling in 2025 [OS Quant]

    Today, Pythons ecosystem offers an abundance of tooling to support every aspect of the development workflow. From dependency management to static analysis, from linting to environment setup, there are more options than ever. This article presents a modern, opinionated toolchain for Python development in quantitative research and development. The focus is code quality, ensuring that your
  • Research Review | 15 August 2025 | Forecasting [Capital Spectator]

    Partisan Bias in Professional Macroeconomic Forecasts Benjamin S. Kay (Federal Reserve), et al. June 2025 Using a novel dataset linking professional forecasters in the Wall Street Journal Economic Forecasting Survey to their political affiliations, we document a partisan bias in GDP growth forecasts. Republican-affiliated forecasters project 0.3-0.4 percentage points higher growth when Republicans
  • Systematic equity allocation across countries for dollar-based investors [Macrosynergy]

    This post demonstrates that country allocation with macroeconomic factors can materially enhance the returns on international equity portfolios in dollar terms. We identify a range of economic developments that, according to standard theory and in conjunction with market inattention, should predict the outperformance of countries either through exchange rate appreciation or higher local-currency