Quantocracy

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Quantocracy’s Daily Wrap for 05/10/2019

This is a summary of links featured on Quantocracy on Friday, 05/10/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Don’t Be A Value Hero [Quiet Quant]

    Lets imagine a world where value stocks actually provide some outperformance at some point In a world like that, are there any simple rules one could implement into their value system to help avoid falling knives? The optimist in me says yes, but the realist says nope. Turns out, it is probably somewhere in between. The test is pretty simple: U.S. Common Stocks (Top 50% of Market)
  • Going with the FX flow [Cuemacro]

    In this paper, we discuss using CLS intraday hourly flow data to understand FX markets. Using two different trading strategies (daily and hourly) against a generic trend model, we find that CLSs flow data relating to funds and non-bank financial firms (NBFIs) tends to have a positive contribution to spot returns when viewed on an aggregate contemporaneous basis. By contrast, flows from buy-side
  • Research Review | 10 May 2019 | Tail Risk [Capital Spectator]

    Tail Risk Management for Multi-Asset Multi-Factor Strategies David Chambers (University of Cambridge), et al. January 8, 2019 Multi-asset multi-factor portfolio allocation is typically centred around a risk-based allocation paradigm, often striving for maintaining equal volatility risk budgets. Given that the common factor ingredients can be highly skewed, we specifically incorporate the notion of
  • CBI Hits 10+ While $SPX is in a Long-Term Uptrend [Quantifiable Edges]

    It is notable that the Quantifiable Edges Capitulative Breadth Indicator (CBI) closed at 10 on Thursday. Below is a study that shows other times the CBI reached 10 while the SPX was above its 200ma. 2019-05-10 A very high percentage of instances closed higher when looking out 4 or more days. The numbers certainly seem to point to a bullish edge. Below is a profit curve that assumes a 5-day holding
  • State of Trend Following in April [Au Tra Sy]

    Positive month for the State of Trend Following index. YTD fighting back to the zero line Please check below for more details. Detailed Results The figures for the month are: April return: 2.89% YTD return: -1.6% Below is the chart displaying individual system results throughout April:

Quantocracy’s Daily Wrap for 05/09/2019

This is a summary of links featured on Quantocracy on Thursday, 05/09/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The True Cost of Hedging S&P Downside [Movement Capital]

    Hedging sounds like a smart thing to do. But has it actually worked? This post examines the historical costs and benefits of hedging stock exposure with SPY puts. Interest in hedging strategies tends to increase as market volatility rises. There are many ways to hedge, and a common method is to overlay SPY puts to protect existing stock exposure. Being long a put option offers limited downside and
  • Buying Stocks Trading Above 10x Sales-A Good Idea? [Alpha Architect]

    Early last week, Meb Faber included me on a conversation on buying stocks trading at 10x their companys revenue (sales). Is this a good idea and how did it do in the past? Given that most known factors have underperformed over the past 10 years, I was interested in seeing if a somewhat crazy strategy(1)buying stocks trading above 10x salesworked over the past 10 years. Of

Quantocracy’s Daily Wrap for 05/08/2019

This is a summary of links featured on Quantocracy on Wednesday, 05/08/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Trade Cost Optimisation [Scalable Capital]

    We discuss two major challenges when implementing a dynamic portfolio strategy in practice: Minimising trading costs and enforcing a no-fractional-dealing condition. To master these challenges, we present a flexible and efficient trade cost optimisation algorithm that can be combined with a wide variety of portfolio optimisation approaches. We explain what characterises a trade cost optimisation
  • Comparing Tactical Asset Allocation ETFs to Public TAA Strategies [Allocate Smartly]

    In this post we compare the performance of the 49 tactical asset allocation strategies that we track to 7 ETFs that provide all-in-one exposure to TAA. We were inspired by James Picernos Capital Spectator to run this analysis, so weve appropriated his list of 6 ETFs, and added Meb Fabers GAA (it would be a travesty not to include the godfather of modern TAA in the mix). Of the 7 ETFs,

Quantocracy’s Daily Wrap for 05/07/2019

This is a summary of links featured on Quantocracy on Tuesday, 05/07/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • F@ck Everything… We re Going 120/80 [EconomPic]

    Jeremy had spent most nights over the previous 30+ years on this earth in search of the next big ETF. After all, you dont aspire to be at the forefront of innovative ways for marrying the benefits of the exchange-traded fund structure with goals that are associated with active managers by sitting around and doing nothing. The problem was for as much as he searched and probed, the same
  • Democratize Quant 2019 Recap [Alpha Architect]

    We did it. We democratized quant for one more year. Last year, we suffered through a 50% drawdown in attendance due to a perfectly timed snow storm. This year the weather cooperated with us and we were able to get everyone there. Full access to presentation videos and the accompanying slides (when available) are available on the following recap website. (content is password-protected as per
  • Option-Based Strategies: Opt In or Opt Out? [Factor Research]

    Option-based strategies generated better risk-adjusted returns than the S&P 500 over the last 30 years Investors should be wary of buying options and focus on harvesting the volatility risk premium by writing options Option-based strategies are an interesting alternative to long-short equity hedge funds for reducing risk BUYING VERSUS SELLING OPTIONS The investment banking divisions of Goldman
  • Tax-Managed Factor Strategies [Alpha Architect]

    The authors decompose strategy returns into factor alpha, tax alpha, and residual return for 6 tax-managed versus and 6 tax-indifferent factor strategies and for one indexing strategy. In contrast to other studies, where the impact of starting date dependence is eliminated, this research generates a range of outcomes by initiating each strategy at regular intervals over a 10 year investment
  • SPX Straddle – 2018 Review [DTR Trading]

    In this post we'll look at how the SPX straddle has been performing since I last analyzed its results back in 2015 (here). For this article, we'll just look at the following variations and how they performed from January 2007 through December 2018: 59 DTE – (25:10) / 2 DTE – exit if the trade has a loss of 25% of its initial credit OR if the trade has a profit of 10% of its initial

Quantocracy’s Daily Wrap for 05/06/2019

This is a summary of links featured on Quantocracy on Monday, 05/06/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Buy & Hold Backtests are (Inherently) Wrong: Currentizing 16 Popular B&H Strategies [Better Buy And Hold]

    All tests of historical strategy performance (backtests) are imperfect reflections of the future. No one can say with certainty how stocks, bonds and other asset classes will perform in the coming years, but we have to root our analysis in something, and past performance is usually the best proxy. Theres a huge chunk of the market however that we do know, with certainty, will underperform
  • Tactical Portable Beta [Flirting with Models]

    In this commentary, we revisit the idea of portable beta: utilizing leverage to overlay traditional risk premia on existing strategic allocations. While a 1.5x levered 60/40 portfolio has historically out-performed an all equity blend with similar risk levels, it can suffer through prolonged periods of under-performance. Positive correlations between stocks and bonds, inverted yield curves, and
  • When QQQ Gaps Down Big From A High [Quantifiable Edges]

    Trumps tweets on Sunday have put the market in a state of disarray. After closing Friday at an all-time high, QQQ is set to gap down nearly 2% this morning. Below is a look at other times QQQ gapped down at least 1% to open the day after closing at a 200-day high the day before. 2019-05-6-12 Instances are quite low. It is very rare to see the market gap down such a substantial amount after
  • Compound Your Knowledge Ep. 11: ETFs, Manager Wealth, TLH, Value [Alpha Architect]

    In this weeks episode, we cover four articles published on our site. The first article, written by Ryan, examines the growth in assets of ETFs and Mutual Funds. The second article, summarized by Elisabetta, examines the performance of funds by differentiating the funds manager on his/her family wealth. The third article, written by Maneesh Shanbhag, examines the benefits of Tax-Loss

Quantocracy’s Daily Wrap for 05/05/2019

This is a summary of links featured on Quantocracy on Sunday, 05/05/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • When the Jobs Report Sparks the NASDAQ to Rally to a New High [Quantifiable Edges]

    The employment report was the catalyst for the big rally Friday, and the NASDAQ closed at a new high. The study below looks back at other instances where the NASDAQ spiked higher and closed at a new high on the day of an employment report. 2019-05-05 Employment-sparked momentum leading to new highs like we saw on Friday has seen positive short-term follow through in the past. This certainly
  • Bayesian Risk Forecasting [SR SV]

    Portfolio risk forecasting is subject to great parameter uncertainty, particularly for longer forward horizons. This simply reflects that large drawdowns are observed only rarely, making it hard to estimate their structural properties. Bayesian forecasting addresses parameter uncertainty directly when estimating risk metrics, such as Value-at-Risk or Expected Shortfall, which depend on

Quantocracy’s Daily Wrap for 05/03/2019

This is a summary of links featured on Quantocracy on Friday, 05/03/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • A Dead Simple 2-Asset Portfolio that Crushes the S&P500 (Part 3) [Black Arbs]

    This is an update to the original blog series that explored a simple strategy of being long UPRO and TMF in equal weight, inverse volatility and inverse-inverse volatility. This strategy crushed the cumulative and risk-adjusted returns of the benchmark SPY etf. However through our research we determined that this strategy is heavily dependent on the correlation between the two assets. This

Quantocracy’s Daily Wrap for 05/02/2019

This is a summary of links featured on Quantocracy on Thursday, 05/02/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Tops Wobble Before Falling Over [Quantifiable Edges]

    Ive shown numerous studies in the past that suggest uptrends often become choppy before they ultimately end. It is highly unusual for an uptrend that is showing strong persistence to abruptly top out. The study below demonstrates this concept. The persistent uptrend of late has kept SPX above its short-term moving averages for an extended period. Tuesday, after 22 consecutive closes above the
  • Deep Dive into the Value Factor [Alpha Architect]

    The financial equivalent of the famous Miller Lite, tastes great, less filling debate is the debate between traditional financial economics which uses risk theories to explain asset pricing and the newer behavioral finance field that uses human behavior to provide the explanations. Unfortunately, theres no consensus on which side of the debate is correct. My own view is that both have

Quantocracy’s Daily Wrap for 05/01/2019

This is a summary of links featured on Quantocracy on Wednesday, 05/01/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Tactical Asset Allocation in April [Allocate Smartly]

    This is a summary of the recent performance of a wide range of excellent Tactical Asset Allocation (TAA) strategies, net of transaction costs. These strategies are sourced from books, academic papers, and other publications. While we dont (yet) include every published TAA model, these strategies are broadly representative of the TAA space. Learn more about what we do or let AllocateSmartly help
  • Convexity Explains the High BitMEX ETH Funding Rate [Falkenblog]

    BitMEX offers swaps that make it easy to lever a long or short bitcoin (BTC) and ether (ETH). The main reason it trades so much is that they are based outside of US or EU control in the little archipelago-nation of Seychelles, and also that it transacts only in Bitcoin. This combination makes it difficult for regulators to attack. Their swap contracts are like futures contracts without expiry
  • Modified Hikkake Pattern | Trading Strategy (Filter & Exit) [Oxford Capital]

    Developer: Dan Chesler, CTM, CTA. Concept: Trading strategy based on false breakouts. Research Goal: Performance verification. Specification: Table 1. Results: Figure 1-2. Trade Setup: Long Trades: The modified bullish hikkake pattern (a.k.a. the bullish inside day false breakout) consists of two price bars. The first bar is an inside bar. The second bar has a lower close than the first bar.
  • Compound Your Knowledge Episode 10: Factor Investing & Hedge Fund Performance [Alpha Architect]

    In this weeks video, we discuss three posts. The first post discusses the new index analysis section on our site. The second post, written by Tommi, uses Hedge Funds past performance to identify if one can predict future Hedge Fund performance. The last post discusses Wes video examining an older articleFactor Investing is Simple, but Not Easy.

Quantocracy’s Daily Wrap for 04/29/2019

This is a summary of links featured on Quantocracy on Monday, 04/29/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Momentum Is Dead! Long Live Momentum! [Robot Wealth]

    In our inaugural Algo Bootcamp, we teamed up with our super-active community of traders and developed a long-only, always-in-the-market strategy for harvesting risk premia. It holds a number of different ETFs, varying their relative weighting on a monthly basis. Were happy with it. However, the perennial question remains: can we do better? As you might expect, we found evidence suggesting that
  • Asset Allocation Roundup [Allocate Smartly]

    Four recent asset allocation articles (tactical or otherwise) that you might have missed: 1. Bond ETFs in an Era of Rising Rates (Better Buy & Hold) This is our first post from our new platform BetterBuyAndHold.com. Bonds face stiff headwinds in the coming years, and many will underperform what investors have grown accustomed to. Thats not prognostication; its a mathematical certainty.
  • Style Surfing the Business Cycle [Flirting with Models]

    In this commentary, we ask whether we should consider rotating factor exposure based upon the business cycle. To eliminate a source of model risk, we assume perfect knowledge of future recessions, allowing us to focus only on whether prevailing wisdom about which factors work during certain economic phases actually adds value. Using two models of factor rotation and two definitions of business
  • Case Study: Quantpedia’s Composite Seasonal / Calendar Strategy [Quantpedia]

    Despite the economical theory states that financial markets are efficient and investors are rational, a large ammount of research is about anomalies, where the result is different from the theoretical expectation. At Quantpedia, we deal with anomalies in the financial markets and we have identified more than 400 attractive trading systems together with hundreds of related academic papers. This
  • 12 Books on Factor Investing by Asset Managers [Two Centuries Investments]

    Quantitative Portfolio Management by Edward Qian, Ronald Hua, Eric Sorensen Expected Returns by Antti Ilmanen Quantitative Value by Wesley Gray and Tobias Carlisle Quantitative Momentum by Wesley Gray and Jack Vogel Dual Momentum Investing by Gary Antonacci Little Book that Still Beats the Market by Joel Greenblatt Complete Guide to Factor Investing by Andrew Berkin and Larry Swedroe What Works on
  • Equity Factors & The Mighty US Dollar [Factor Research]

    The US dollar had a slightly negative relationship with the stock market since 1996 Some equity factors are more sensitive to changes in the US dollar than others On average the sensitivity is zero, but as often averages are misleading INTRODUCTION The Economists Big Mac Index measures if currencies are over- or undervalued by comparing the implied versus actual exchanges rates of foreign
  • The implicit subsidies behind simple trading rules [SR SV]

    Implicit subsidies are premia paid by large financial markets participants for reasons other than risk-return optimization (view post here). Their estimation requires skill and a strong quantamental system. However, implicit subsidies are behind the popularity and temporary success of many simple trading rules, including those based on variance risk premia, contract hedge value, short