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Quantocracy’s Daily Wrap for 12/21/2018

This is a summary of links featured on Quantocracy on Friday, 12/21/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • ReSolve 12 Days of Christmas [Invest ReSolve]

    This holiday season, ReSolve is offering a gift in podcast-form: a 12-episode mini-series, where we will explore, from first principles, timeless investment wisdom that will help you maximize your long-term success. From universe selection to portfolio construction, our aim is to offer you a comprehensive framework for a more thoughtful investment approach, for yourselves and your clients.
  • Machine Learning Classification Methods and Factor Investing [Alpha Architect]

    In the last post in our machine learning series, we showed how nonlinear regression algos might improve regression forecasting relative to plain vanilla linear regression (i.e., when underlying reality is nonlinear with complex interactions). In this piece, well first review machine learning for classification, a problem which may be less familiar to investors, but fundamental to machine

Quantocracy’s Daily Wrap for 12/20/2018

This is a summary of links featured on Quantocracy on Thursday, 12/20/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Position Sizing for Practitioners Part 3: A Portfolio Approach [Quant Fiction]

    Diversification is the Only Free Lunch Im sure everyone has heard this old adage at some point in their trading career. Most people probably shrug it off and go back to watching The Big Short and dreaming of putting on that one career-making trade. Or maybe theyre still trying to figure out how to pick every single top and bottom on one instrument, thinking all they need is that one
  • What to do when you find the Holy Grail [Alvarez Quant Trading]

    As I have mentioned in several interviews, I am always looking for new strategies. One area that fascinates me is stock options. Because it is difficult to get good data and to do backtests, I believe that there are good edges here to be found. A few weeks ago, I found myself with lots of time and having read presentations on options, I went into a testing frenzy. After lots of work, I found a

Quantocracy’s Daily Wrap for 12/19/2018

This is a summary of links featured on Quantocracy on Wednesday, 12/19/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Cash or Bonds at Low Yields and a Flat Yield Curve? [EconomPic]

    While there have been a few cyclical periods of rising rates over the past 40 years, we've largely been in one large downtrend… meaning that it has consistently paid to own bonds vs cash / take duration risk for nearly my / many investment lives. Now that we've moved away from a zero interest rate policy on cash in the U.S. and the yield curve is essentially flat, this post is an
  • Algorithmic Trading Regulations – European Union [Quant Insti]

    A game of cat and mouse. Technological development more often than not stays ahead of regulators. Each new technological advance or disruption carries risks for the stability of things and advantages for those who are at the forefront. Regulators try to set rules and good practices that limit possible abuses and bring transparency to the participants. In this post, we will review the European
  • Data Science is Revolutionizing Investment Practice [Alpha Architect]

    What are the Research Questions? This editorial introduces data science to the wider investment community and highlights some of the advantages (and potential pitfalls as discussed yesterday) it can bring to everyday investment practice. The paper answers two apparently simple questions: What is data science? How can data science help advance investing practice? What are the Academic Insights?

Quantocracy’s Daily Wrap for 12/18/2018

This is a summary of links featured on Quantocracy on Tuesday, 12/18/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Overlooked Half of the Global Stock Market [Quant Rocket]

    The US stock market is the largest and most liquid stock market in the world and tends to get all the attention. Many brokers and trading platforms are US-only, and many traders focus exclusively on the US market. This post compares the number of stock listings in each of 17 countries to quantify what traders miss out on by ignoring the rest of the world. The Countries I compare 17 countries which

Quantocracy’s Daily Wrap for 12/17/2018

This is a summary of links featured on Quantocracy on Monday, 12/17/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • What do portfolios and teacups have in common? [Flirting with Models]

    Portfolio risk is often measured as the variance of returns over time. Another form of risk is the variance of terminal wealth that can arise from small variations in strategy inputs or asset returns. Strategies or portfolios that are more sensitive to small changes in inputs are inherently fragile. Fragile strategy design makes it difficult to rely upon backtests or historical results in
  • Factor Investing Made In China [Factor Research]

    This research note was originally published by the CAIA Associations AllAboutAlpha blog. Here is the link. SUMMARY Common equity factors generated attractive risk-adjusted returns in the Chinese stock market Factor performance in China often mirrors global factor performance Indicates common factor drivers that permeate even emerging and isolated markets INTRODUCTION Economic news like changes
  • A Protocol to Prevent “Quants Gone Wild” [Alpha Architect]

    What are the Research Questions? Data mining in finance has long been a concern for academic researchers. Campbell Harvey, one of the authors on this paper, is leading the effort to ensure the integrity of empirical finance research. For example, see here for a post on his address to the AFA. The concerns associated with data mining arent going away. A monster increase in affordable computing
  • Weekly Recap: Value Performance & ETFs’ impact on correlations & liquidity [Alpha Architect]

    This week Ryan and I discuss two posts. First, we examine a guest post by Matthew Bartolini of State Street Global Advisors, discussing the underperformance of Value and its outlook for 2019. Second, we examine a guest post by Elisabetta on a recent JPM paper examining the effects that ETFs have had on Correlations, Liquidity, and Alpha Opportunities. Paper Links: After a Lost Decade, Will Value

Quantocracy’s Daily Wrap for 12/15/2018

This is a summary of links featured on Quantocracy on Saturday, 12/15/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Modern backtesting with integrity [SR SV]

    Machine learning offers powerful tools for backtesting trading strategies. However, its computational power and convenience can also be corrosive for financial investment due to its tendency to find temporary patterns while data samples for cross validation are limited. Machine learning produces valid backtests only when applied with sound principles. These should include [1] formulating a logical

Quantocracy’s Daily Wrap for 12/14/2018

This is a summary of links featured on Quantocracy on Friday, 12/14/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Portfolio construction through handcrafting: implementation [Investment Idiocy]

    This post is all about handcrafting; a method for doing portfolio construction which human beings can do without computing power, or at least with a spreadsheet. The method aims to achieve the following goals: Humans can trust it: intuitive and transparent method which produces robust weights Can be easily implemented by a human in a spreadsheet Can be back tested Grounded in solid theoretical
  • The Most Wonderful Week of the Year 2018 edition [Quantifiable Edges]

    Over several time horizons op-ex week in December has been the most bullish week of the year for the SPX. The positive seasonality actually has persisted for up to 3 weeks. Ive shown the study below in the blog many times since 2008. It looks back to 1984, which was the first year that SPX options traded. The table is updated again this year. 2018-12-14-1 The stats are extremely strong. This
  • Estimating the Bid-Ask Spread [Dekalog Blog]

    Below I provide a vectorised Octave function to estimate the bid-ask spread from high, low and close prices according to "A Simple Way to Estimate Bid-Ask Spreads from Daily High and Low Prices," (Corwin and Schultz, 2012). The paper can be downloaded from one of the author's homepage at https://www3.nd.edu/~scorwin/, where one can also find a spreadsheet which shows the
  • Random Walk Simulation Of Stock Prices Using Geometric Brownian Motion [Quant Insti]

    In this blog on random walk simulation, we will learn how to simulate stock prices. Future stock prices are very hard to predict and are dependent on the past trend and volatility. While simulating the stock prices one has to give reasonable weightage to these two parameters. The random walk model helps incorporate these two features of a stock and simulate the stock prices in a very clear and
  • Does the Sunspot Cycle Predict Grain Prices? [CXO Advisory]

    As a follow-up to Sunspot Cycle and Stock Market Returns a reader asked: Sunspot activity does have a direct relationship to weather. Could one speculate on the agriculture market using the sunspot cycle? To investigate, we relate sunspot activity to the fairly long U.S. Producer Price Index (PPI) for grains. Using monthly averages of daily sunspot counts and monthly PPI for grains
  • Sunspot Cycle and Stock Market Returns [CXO Advisory]

    A reader asked whether Charles Nenner, self-described as the talk of Wall Street since accurately predicting some of the biggest moves in the Markets over the past few years, accurately forecasts equity and commodity markets. We consider the following: In his July 2007 discussion of the Nenner Methodology at the Bloomberg Studio, Charles Nenner cites sunspot activity as a specific key

Quantocracy’s Daily Wrap for 12/12/2018

This is a summary of links featured on Quantocracy on Wednesday, 12/12/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • More examples in Financial Visualisation [Quant Dare]

    In line with the previous post Group Funds with the Sun we continue exploring new ways to visualise and analyse financial data. We will take annual data from the current components of Dow Jones Industrial with data going back to 2000 to play around. Animated Risk Return scatter Risk-Return scatter is one of the most widely used plots in finance. The plot below shows the relationship between

Quantocracy’s Daily Wrap for 12/11/2018

This is a summary of links featured on Quantocracy on Tuesday, 12/11/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Mechanical Turk [Financial Hacker]

    We can see thinking machines taking over more and more human tasks, such as car driving, Go playing, or financial trading. But sometimes its the other way around: humans take over jobs supposedly assigned to thinking machines. Such a job is commonly referred to as a Mechanical Turk in reminiscence to Kempelens famous chess machine from 1768. In our case, a Mechanical Turk is an automated
  • After a Lost Decade, Will Value Get its Groove back in 2019? [Alpha Architect]

    Borne in academia and raised by fund managers seeking to outperform, value style mutual funds and ETFs today hold close to $2 trillion(1). But with poor returns over the past decade, the question of whether value is dead has become a popular topic of conversation.(2) The search term is value investing dead generates over 23 million results in less than 0.38 seconds! For comparison,
  • ETFs Have NOT Screwed Up Correlations, Liquidity, and Alpha Opportunities [Alpha Architect]

    What are the Research Questions? The paper investigates the following research question: Have ETFs flows affected the correlation structure of returns? Have ETFs flows affected the liquidity of underlying securities? Have ETFs flows affected the ability of managers to generate alpha? What are the Academic Insights? By examining these issues empirically, considering the longer historical and
  • Using Metals to Trade Bonds [System Trader Success]

    Sometimes things in the financial markets are pretty obvious if one is willing to see them. Despite all of the angst that has been exhausted since July of 2016 when the S&P 500 Index broke out to a new all-time high regarding the 2016 election, the economy, interest rates and the ultimate effect that all of it may have the stock market the market has just kept chugging

Quantocracy’s Daily Wrap for 12/10/2018

This is a summary of links featured on Quantocracy on Monday, 12/10/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Risk in the Risk-Free Rate [Flirting with Models]

    The risk-free rate is an important concept in financial theory, but the risk-free rate accessible to most investors can vary significantly in level. The variation in risk-free rate not only has an important impact on the theoretically optimal portfolio, but it can have a very real impact upon portfolio returns. We demonstrate that recent generational lows in short-term Treasuries had made this
  • Factor Optimisation [Factor Research]

    Equity factors exhibit sector biases and exposures to other common factors A factor optimisation process allows investors to create pure factors Risk-adjusted returns do not increase, but pure factors are attractive from analytical, risk and allocation perspectives INTRODUCTION When large quantities of organisms like zooplankton and algae are buried underneath sedimentary rock and subjected to
  • Commodity carry [SR SV]

    Across assets, carry is defined as return for unchanged prices and is calculated based on the difference between spot and futures prices (view post here). Unlike other markets, commodity futures curves are segmented by obstacles to intertemporal arbitrage. The costlier the storage, the greater is the segmentation and the variability of carry. The segmented commodity curve is shaped prominently by