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Quantocracy’s Daily Wrap for 06/13/2024

This is a summary of links featured on Quantocracy on Thursday, 06/13/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Quantpedia Composite Seasonality in MesoSim [Quantpedia]

    The Efficient Market Hypothesis (EMH), theory developed in the 1960s, states that stock prices reflect all available information, making it impossible to consistently earn above-average returns using this information. Nevertheless, numerous studies challenge this view by documenting anomalies that suggest markets may not be fully efficient. One group of such anomalies, known as calendar anomalies,
  • Sell in August and Go Away [Alvarez Quant Trading]

    I was going through some old issues of Technical Analysis of Stocks & Commodities looking for some ideas to test. In the November 2019 issue, I came across Stock Market Seasonality: A Global Phenomenon by Jay Kaeppel. The basic idea was that global markets share the same buy in November and sell in May phenomenon as the US market. This got me thinking about how markets have changed

Quantocracy’s Daily Wrap for 06/11/2024

This is a summary of links featured on Quantocracy on Tuesday, 06/11/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Complexity is a virtue in return prediction [Alpha Architect]

    Finance has seen unprecedented growth in the use of artificial intelligence, specifically in machine learning models. Applications have included portfolio construction, stock analysis and in this case, the prediction of stock market returns. This paper discusses the benefits of using complex models as found in AI, over simple models such as ordinary least squares for predicting market returns. The
  • Bonds versus CTAs for Diversification [Finominal]

    Although yields are higher, bonds have also become riskier Bonds and CTAs have generated similar diversification benefits since 1999 Applying a trend following overlay for equities was accretive in Europe and Japan INTRODUCTION In May 2021 we made the case that bonds have become less useful in asset allocation given low to negative expected returns based on low yields, and could be replaced with

Quantocracy’s Daily Wrap for 06/04/2024

This is a summary of links featured on Quantocracy on Tuesday, 06/04/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Combating Volatility Laundering: Unsmoothing Artificially Smoothed Returns [Portfolio Optimizer]

    It is common knowledge that returns to hedge funds and other alternative investments [like private equity or real estate] are often highly serially correlated1. This results in apparently smooth returns that have artificially lower volatilities and covariations with other asset classes2, which in turn bias [portfolio] allocations toward the smoothed asset classes2. In this blog post, I will detail
  • Active vs. Passive Life Cycle Savings Strategies [Quantpedia]

    The main goal of our new article is to explore the efficacy of passive versus active management strategies in the context of savings for long-term financial goals. By analyzing the performance of nine distinct asset classes, including Double Leveraged ETFs and an implementation of the Pragmatic Asset Allocation (PAA) strategy, over an almost-century-long horizon, we simulate and compare the
  • Measuring Performance Chasing [Finominal]

    Performance chasing can be measured via extreme excess returns Abnormal negative returns lead to subsequent outperformance While abnormal positive returns lead to subsequent underperformance INTRODUCTION Morningstar recently published a list highlighting the top 10 fund management companies that destroyed the most wealth in the decade ending in 2023, which includes boutique firms like Roundhill

Quantocracy’s Daily Wrap for 05/31/2024

This is a summary of links featured on Quantocracy on Friday, 05/31/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Is Month-End Still the Best Time to Trade Tactical Strategies? [Allocate Smartly]

    Most Tactical Asset Allocation (TAA) strategies trade just once per month. Strategy developers almost always assume trades are executed on the last trading day of the month. A unique feature of our platform is the ability to follow these strategies on any other day of the month as well. Were not simply executing the same signal on other dates; were recalculating the strategys entire
  • Revisiting Overnight vs Intraday Equity Returns [Robot Wealth]

    Back in May 2020, in the eye of the Covid storm, we looked at overnight vs intraday returns in US equities. Intuitively, wed probably expect to see higher average returns overnight when the market is closed because its much more difficult to hedge and manage our exposures when the cash market is closed, so we might expect to get paid a premium, on average, for taking that risk. And
  • Talking VIX Trading and my NAAIM whitepaper with @BetterSysTrade [Quantifiable Edges]

    I had the pleasure of joining Andrew Swanscott on the Better System Trader podcast on Wednesday afternoon. We had a detailed discussion about VIX trading and my recent whitepaper that won the NAAIM Founders Award. It had been a long time since I was last on Andrews podcast, but he is always a fun person to speak with! I hope you enjoy it.
  • Quality, Factor Momentum, and the Cross-Section of Returns [Alpha Architect]

    Of the hundreds of equity factors identified in the financial literature, there were only five that met the criteria Andrew Berkin and I established in our book Your Complete Guide to Factor-Based Investing. To be considered for investment, a factor must have provided a premium that was persistent across long periods and different economic regimes; pervasive across countries, regions, sectors, and

Quantocracy’s Daily Wrap for 05/30/2024

This is a summary of links featured on Quantocracy on Thursday, 05/30/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Hidden miners [OSM]

    We conclude our discussion of market regime detection by examining Hidden Markov Models (HMMs). Recall this series was inspired by a post from PyQuant News that highlighted a longer article from the London Stock Exchange Group (LSEG). Those who took the CFA exams probably forgot using HMMs in the quant section. Whatever the case, the intuition behind them is clever. HMMs use observable data to
  • New Volatility Based Trading Techniques with Rob Hanna (@QuantifiablEdgs) [Better System Trader]

    Could traders be using the VIX wrong? Is there an even better way to time the markets and reduce risk? In this episode, discover the new secrets of volatility-based trading with Rob Hanna. Rob shares his award-winning insights into using the VIX and SPX to time the market, challenging conventional wisdom and uncovering new strategies for volatility trading. Whether youre an advanced trader or
  • Crypto Perpetual Contract Pair Trading [Quant Insti]

    Statistical arbitrage is a classic quantitative trading strategy, and pairs trading is one of them. Digital currency perpetual contracts are non-delivery perpetual futures. This project describes using data from the Binance exchange to find perpetual contract pairs whose pairing spreads conform to the mean reversion trend. Based on this backtest, find the relatively optimal trading parameters.
  • Unlock the Secrets of Seasonal Trading [Milton FMR]

    Seasonal trading strategies are grounded in the belief that certain patterns repeat over specific periods due to predictable events and behaviors. These strategies can be a powerful tool for traders, helping them to capitalize on regular market trends. This article will delve deeper into the world of seasonal trading, providing 15 more examples of seasonal patterns, including the presidential

Quantocracy’s Daily Wrap for 05/28/2024

This is a summary of links featured on Quantocracy on Tuesday, 05/28/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Quantpedia Awards 2024 – Winners Announcement [Quantpedia]

    Hello all, Welcome to the Quantpedia Awards 2024 winners announcement. This is the moment we all have been waiting for, and today, we would like to acknowledge the accomplishments of the researchers behind innovative studies in quantitative trading. So, what do the top five look like, and what will the authors of the papers receive? 5th Place Soroush Ghazi, Mark Schneider, Jack Strauss:
  • Carry versus Trend Following [Finominal]

    The carry strategy has become more attractive given higher yields However, the strategy is highly correlated to equities in periods of market stress CTAs are better diversifiers INTRODUCTION Carry strategies were widely popular before the global financial crisis in 2009, but less thereafter given a substantial drawdown during the crisis when investors reversed their positions and fled to safe but

Quantocracy’s Daily Wrap for 05/25/2024

This is a summary of links featured on Quantocracy on Saturday, 05/25/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Using Oanda’s API to Place Entry Orders [Dekalog Blog]

    Since my last post about end of initial testing I have been working on Oanda API functions in Octave to programmatically place entry orders and associated take profit and stop orders for a future possible forex news trading system. The reason for this is simple – it would be next to impossible to manually place a series of entry orders in the last few moments before a news release, so this would
  • Momentum Top N with Docker, Jupyter and QSTrader [Quant Start]

    In the previous tutorial we set up a backtesting environment using the QSTrader backtesting framework inside a Jupyter Notebook. We isolated this research environment and its dependencies using Docker, with Docker Compose. In this article we will show you how to implement one of the example strategies for QSTrader, the Momentum Top N tactical asset allocation strategy. In order to follow along
  • Momentum Everywhere, Even Cross-Country Factor Momentum [Alpha Architect]

    Among the many factors cited in academic research, only a handful have been sufficiently reliable for use in asset pricing models. One of those is momentum. The evidence has been robust for not only cross-sectional (relative) and time-series (absolute or trend) momentum, but also for factor momentum, which has received much attention from researchers. The empirical research on factor momentum,

Quantocracy’s Daily Wrap for 05/21/2024

This is a summary of links featured on Quantocracy on Tuesday, 05/21/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Gaussian gold [OSM]

    Our previous post, used hierarchical clustering to identify market regimes in the gold miners ETF, GDX. This was inspired by a post from PyQuant News that highlighted a longer article from the London Stock Exchange Group (LSEG). In this post, well continue looking at identifying market regimes and using those predictions as signals for a simple trading strategy. As noted, the LSEG article
  • How to easily improve your Sharpe ratio (in no time) [PyQuant News]

    Systematic risk affects the entire market and impacts the Sharpe ratio. Any trading strategy must consider the impact of systematic risk. While a strategy must involve some risk to make money, systematic risk cannot be diversified away. So, we need to build a hedge to get rid of it. By hedging systematic risk, we can better protect our strategies and ultimately outperform the market. After having
  • Skewness of Funds – Friend or Foe? [Finominal]

    Some funds exhibit strong skewness profiles Skewness is highly time-varying and not necessarily a negative criteria Should be measured but unlikely managed INTRODUCTION The trouble with investing in emerging markets is that they are quite different, which requires extensive due diligence on each of them, and they also can change quickly. For example, take Argentina versus China. The former has

Quantocracy’s Daily Wrap for 05/17/2024

This is a summary of links featured on Quantocracy on Friday, 05/17/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Tactical Asset Allocation and Taxes: FIFO vs LIFO Deep Dive [Allocate Smartly]

    This is a deep dive into which share disposal method FIFO or LIFO would have been more tax advantageous for the 80+ asset allocation strategies we track. When selling shares FIFO (first in, first out), the oldest shares held are sold first. When selling LIFO (last in, first out), the most recently purchased shares are sold first. We find that the investors share disposal method would
  • Is There Alpha in Borrow Fees? [Quant Rocket]

    Borrow fees reflect how likely short sellers think a stock is to decline. Can this information be incorporated into trading strategies as an alpha factor? This article uses Alphalens to explore the relationship between borrow fees and forward returns and uses Moonshot and Zipline to demonstrate ways to incorporate borrow fees into long or short strategies. Summary High borrow fees are an
  • Golden clusters [OSM]

    We recently saw a post from PyQuant News that piqued our interest, compelling us to dust off the old blog files and get back into the saddle. The post highlights a longer article from the London Stock Exchange Group (LSEG) on how to use different machine learning models to identify and forecast market regimes. That article uses Refinitiv, a market data service like Bloomberg, which we dont have
  • Ehlers Ultimate Smoother [Financial Hacker]

    In TASC 3/24, John Ehlers presented several functions for smoothing a price curve without lag, smoothing it even more, and applying a highpass and bandpass filter. No-lag smoothing, highpass, and bandpass filters are already available in the indicator library of the Zorro platform, but not Ehlers latest invention, the Ultimate Smoother. It achieves its tremendous smoothing power by subtracting
  • Social Media: The Value of Seeking Alpha s Recommendations [Alpha Architect]

    The increased popularity of social media as a forum for market participants to post and exchange opinions has been accompanied by heightened interest from academic researchers who have sought to determine if there is valuable information in the postings. For example, the June 2020 study Do Individual Investors Trade on Investment-related Internet Postings? investigated whether social media
  • Research Review | 17 May 2024 | Market Analytics [Capital Spectator]

    Regime-Based Strategic Asset Allocation Eric Bouy and Jerome Teiletche (World Bank) April 2024 What should investors do in the presence of economic regimes? Researchers and practitioners usually address this topic from a tactical asset allocation point of view. In this article, we depart from the literature by tackling the issue strategically and analytically. Modeling economic regimes as a

Quantocracy’s Daily Wrap for 05/13/2024

This is a summary of links featured on Quantocracy on Monday, 05/13/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Message Arrival Rates and Latency [Mark Best]

    There is a common debate when people are discussing code optimisation that relates to how fast code needs to be. A recent Twitter post about parsing binance BBA messages stated processing times of around 200ns. This is, in my admission, very fast. To put it into perspective, Serde is a common rust deserialization library and is incredibly easy to use. It is however, a lot slower than the optimised
  • Maximum Ulcer Performance Index (UPI) Portfolios [Allocate Smartly]

    Weve added a new objective to the Portfolio Optimizer. Members can now find the combination of TAA strategies that would have maximized the Ulcer Performance Index (UPI), aka the Martin Ratio. Members: begin exploring the Max UPI portfolios now. UPI is a measure of return relative to drawdowns (i.e. losses). It captures both the length and severity of all drawdowns, not just the single
  • Rob Hanna Wins the 2024 NAAIM Founders Award [Quantifiable Edges]

    It was an exciting week here at Quantifiable Edges as it was officially announced that Rob Hanna won the National Association of Active Investment Managers (NAAIM) Founders Award, which is its annual white paper competition. The paper: Chicken & Egg: Should you use the VIX to time the SPX? Or use the SPX to time the VIX? challenges prevailing market wisdom by suggesting that S&P 500 Index
  • Options Trading with Cross-Sectional Volatility Factors [Robot Wealth]

    A few years ago, I got deep into the idea of constructing a long/short equity options portfolio based on the kind of simple factor sorts that had been so successful in quant equity. My original intention was to set up an index and license it to fund managers. Of course, there are many reasons why this is a very hard business problem so I never really got off the ground with it. But I do keep
  • How Volatility and Turnover Affect Return Reversals [Alpha Architect]

    In the research reviewed here, the authors analyze the relationship of aggregate market liquidity to the time-series performance of reversal strategies. The strength and persistence of reversals and reversal driven strategies appear to be different depending on specific risk features of those providing market liquidity to the stock. Reversals and the Returns to Liquidity Provision Wei Dai, Mamdouh
  • Using Machine Learning Programs to Forecast the Equity Risk Premium [Alpha Architect]

    The ability to predict stock returns and the equity risk premium (ERP) is of great interest to academics, financial practitioners, and investors, as future estimated returns have implications for asset allocations. To date, the best metric we have for forecasting future equity returns and the ERP is current valuations (whether using current P/E ratios or some cyclically-adjusted average such as