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Quantocracy’s Daily Wrap for 07/05/2024

This is a summary of links featured on Quantocracy on Friday, 07/05/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Robustness of the 2.11 Sharpe Mean Reversion Strategy [Quant Trading Rules]

    As for me, all I know is that I know nothing. Socrates. I love this quote. Humility is such an important virtue, especially in trading. If someone already knows something, their curiosity is gone. Their desire to learn is weak or non-existent. After I published the first article, some people questioned the strategy's robustness. Some affirmed, just by looking at the equity curve, that
  • Macroeconomic announcements: how do they impact spending? [Alpha Architect]

    This paper explores several key aspects related to household consumption behavior during the Great Financial Crisis of 2008-2009, with a focus on the impact of salient adverse macroeconomic announcements. Spending Less After (Seemingly) Bad News Garmaise, Levi and Lustig Journal of Finance, 2024 A version of this paper can be found here Want to read our summaries of academic finance papers? Check

Quantocracy’s Daily Wrap for 06/29/2024

This is a summary of links featured on Quantocracy on Saturday, 06/29/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • A Few Thoughts on Pragmatic Asset Allocation [Quantpedia]

    One of the main reasons why the Pragmatic Asset Allocation Model was designed is to give investors a tax-efficient possibility to invest in a global equity portfolio with a lower risk than the passive buy&hold approach. Therefore, the PAA model is not the absolute return model but rather the tactical model that prefers to invest in the equity risk premium and move to the hedging
  • U.S. Companies Have Outperformed Japanese Companies, or Have They? [Alpha Architect]

    Over the period January 2000-March 2024, the S&P 500 Index returned 7.4% per annum, outperforming the return of 2.2% per annum of Japanese large stocks (MSCI/Nomura data) by 5.2 percentage points per annum. The outperformance has been even greater since 2010, with the S&P 500 Index returning 13.7% per annum, outperforming the 6.5% per annum return of Japanese large stocks by 7.2 percentage

Quantocracy’s Daily Wrap for 06/26/2024

This is a summary of links featured on Quantocracy on Wednesday, 06/26/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Rolling regime [OSM]

    Our last post finished up examining the three different methods used to predict market regimes in the Gold Miners ETF, GDX namely, clustering, Gaussian Mixture Methods (GMMs), and Hidden Markov Models (HMMs). We found GMMs performed the best in terms of proof-of-concept. But there was a lot of work to do to go from backtest to viable trading strategy. In the next few posts, well look at
  • Volatility Forecasting: HAR Model [Portfolio Optimizer]

    Among the different members of the family of volatility forecasting models by weighted moving average1 like the simple and the exponentially weighted moving average models or the GARCH(1,1) model, the Heterogeneous AutoRegressive (HAR) model introduced by Corsi2 has become the workhorse of the volatility forecasting literature3 on account of its simplicity and generally good forecasting

Quantocracy’s Daily Wrap for 06/25/2024

This is a summary of links featured on Quantocracy on Tuesday, 06/25/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Art of Financial Illusion: How to Use Martingale Betting Systems to Fool People [Quantpedia]

    The Internet (and especially the part related to finance, trading, and cryptocurrencies) can be dangerous and full of offers of guaranteed returns, pictures of forever-growing bank accounts, and guys with golden rings swimming in the bathtub filled with cash. The truth is usually less rosy. Lucrative frauds, so-called white color crimes, have always been there, but with new technologies, they can
  • Rebalancing: can trading costs and market frictions be mitigated? [Alpha Architect]

    The focus of this paper is to test an effective rebalancing method that prioritizes trades with the strongest signals to capture more of the factor premium while reducing turnover and trading costs. The authors coined the term smart rebalancing which involves prioritizing trades based on the strength of their signals in order to minimize costs and turnover while retaining much of the factor

Quantocracy’s Daily Wrap for 06/22/2024

This is a summary of links featured on Quantocracy on Saturday, 06/22/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Hidden Dangers of Writing an OMS [Mark Best]

    Writing an OMS for an HFT platform is a really difficult task that is often taken for granted. It is made more difficult in crypto because the exchange infrastructure is unreliable. It is not uncommon to simply be told go away and come back later when trying to call api functions. There is also often a hidden danger when writing an OMS which I have not seen discussed. This article is about
  • Investigation of Lead-Lag Effect in Easily-Mistyped Tickers [Quantpedia]

    Our new study aims to investigate the lead-lag effect between prominent, widely recognized stocks and smaller, less-known stocks with similar ticker symbols (for example, TSLA / TLSA), a phenomenon that has received limited attention in financial literature. The motivation behind this exploration stems from the hypothesis that investors, especially retail investors, may inadvertently trade on
  • Short Positions – do investors underreact due to illiquidity? [Alpha Architect]

    The important role played by short sellers, who, through their actions, keep prices efficient by preventing overpricing and the formation of price bubbles in financial markets, has received increasing academic attention in recent years. Research into the information contained in short-selling activity for example the 2023 study, Swim with Sharks: Are Short Sellers More Informed than their

Quantocracy’s Daily Wrap for 06/18/2024

This is a summary of links featured on Quantocracy on Tuesday, 06/18/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Return based quality factor on Warsaw Stock Exchange [Mateusz Dadej]

    Recently I ran across an interesting paper published by National Bureau of Economic Research entitled Return Based Measue of Firm Quality. I happen to have a suitable data and thought why not reproduce it on data from polish stock exchange in the free time. It turned out not so bad and thanks to being not filled with boring mathematical formulae I guess its also pretty accessible. At the
  • Downloading Dukascopy Tick Data with Node Library [Dekalog Blog]

    As part of my investigations into forex news trading I have found it necessary to obtain forex tick level data for back testing purposes and below I provide code to achieve this using Dukascopy's Node library, being called from Octave and using some system calls. A useful youtube video about the Dukascopy Node library will give readers some background information. function [ first_days ,
  • How to Track Retail Investor Activity in TAQ [Alpha Architect]

    This paper explores the effectiveness of the BJZZ algorithm, developed by Boehmer, Jones, Zhang, and Zhang (2021), in identifying and signing retail trades executed off exchanges with subpenny price improvements. A (Sub)penny For Your Thoughts: Tracking Retail Investor Activity in TAQ Barber, Huang, Jorion, Odean and Schwarz Journal of Finance ,2024 A version of this paper can be found here Want
  • Diversifying via Time Zones [Finominal]

    Funds providing the same exposures trade similarly, regardless of where they trade On paper, investors can achieve benefits by diversifying via time zones In reality, this represents a form of volatility laundering like private equity INTRODUCTION On the 24th of January 2023, Hindenburg Research, an activist investor, published a research report on the Adani Group that accused the Indian

Quantocracy’s Daily Wrap for 06/16/2024

This is a summary of links featured on Quantocracy on Sunday, 06/16/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

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