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Quantocracy’s Daily Wrap for 09/25/2018

This is a summary of links featured on Quantocracy on Tuesday, 09/25/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Value and Momentum and Risk [Alpha Architect]

    Early in the summer, I was on a podcast with Corey Hoffstein discussing momentum investing. During the discussion, Corey asked me a question regarding risk versus mispricing, specific to the momentum anomaly. We frequently cite the behavioral explanation for momentuminvestors tend to underreact to new informationwhereby winning stocks do not go up by as much as they should, given the new
  • Portfolio Optimization and the Sharpe Multiplier [Invest ReSolve]

    Weve spent a great deal of time in past articles discussing the merits of portfolio optimization. In this article we will examine the merits and challenges of portfolio optimization in the context of one of the most challenging investment universes: Managed Futures. Futures exhibit several features that make them challenging from a portfolio optimization perspective. In particular, there can be

Quantocracy’s Daily Wrap for 09/24/2018

This is a summary of links featured on Quantocracy on Monday, 09/24/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Decomposing Trend Equity [Flirting with Models]

    We introduce the simple arithmetic of portfolio construction where a strategy can be broken into a strategic allocation and a self-financing trading strategy. For long/flat trend equity strategies, we introduce two potential decompositions. The first implementation is similar to equity exposure with a put option overlay. The second is similar to a 50% equity / 50% cash allocation with a 50%
  • Liquid Alternatives: Alternative Enough? [Factor Research]

    Liquid alternatives offer hedge fund strategies in mutual fund format The correlations to the S&P 500 have been high, even of market neutral funds Diversification benefits have therefore been limited DISRUPTING THE HEDGE FUND INDUSTRY Liquid alternatives have been heralded as hedge funds for Main Street as these investment vehicles offer typical hedge fund strategies in mutual fund format with

Quantocracy’s Daily Wrap for 09/22/2018

This is a summary of links featured on Quantocracy on Saturday, 09/22/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Listening to the Short Sellers [Alpha Scientist]

    To most investors, short selling is a shadowy, mysterious corner of the markets. Many do not make use of shorting – and I suspect a majority don't understand how to glean insights from trends in short selling activity. Over the past several years, I've traded short about as often as long and have consequently learned a great deal about the subtle differences between the long and short
  • A brief history of quantitative equity strategies [SR SV]

    Understanding quantitative equity investments means understanding a significant portion of market positions. Motivated by the apparent failure of the capital asset pricing model and the efficient market hypothesis, a large share of equity investors follows stylized factors that are expected to outperform the market portfolio in the long run. Yet, popularity and past performance of such

Quantocracy’s Daily Wrap for 09/21/2018

This is a summary of links featured on Quantocracy on Friday, 09/21/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Research Review | 21 September 2018 | Volatility [Capital Spectator]

    Hedging With Volatility Mario Alagoa (Sacred Heart University) May 9, 2018 A risk-averse investor with a long equity position is presumably interested in identifying a hedging strategy that protects the value of that investment. The common approach encompasses using either financial derivatives or holding assets (such as gold or Swiss francs) as portfolio hedges as they show negative correlation
  • Video Digest: A Trend Equity Primer [Flirting with Models]

  • Alpha Architect Weekly Research Recap (Jack & Ryan) [Alpha Architect]

    You can watch the video via the link below: Video Summary Ryan and I discuss three articles published on our blog this week. First, we examine a paper by Linda Zhang investigating the volatility of leveraged ETFs. Second, we discuss an article (and corresponding video and PPT slides from Wes) examining stock momentum strategies. The talk is titled Momentum Investing, Simple, but not Easy.

Quantocracy’s Daily Wrap for 09/20/2018

This is a summary of links featured on Quantocracy on Thursday, 09/20/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Market Timing The Credit Cycle [EconomPic]

    Over the last few years, youve likely heard the following competing narratives: Credit spreads are tight, a sign of exuberance among investors that are willing to overlook risk. This will end in tears. Credit spreads are tight, reflecting an environment of high economic growth and low default rates. This supports risk assets. This post will outline why both of the above comments
  • Practical TDD and numerical precision [Quant Dare]

    The Test Driven Development (TDD) philosophy improves your productivity and helps you write better code. But if you are new at it, you might find some trouble with its procedures. Lets dive into a simple example that (hopefully) will help you solve it. When applying TDD methodology, the objective is to have the most robust and reliable code. To do so, we would need to get all the tests passed,
  • SPX Near Monthly Highs With RUT Near Monthly Lows [Quantifiable Edges]

    I have spoken a fair amount lately about the split market, and how that has historically been followed by declines. But not all kinds of splits are bad. Wednesday we saw the SPX rise while the RUT closed lower. That is not unusual on a 1-day basis. But it has now been several weeks in which they have been heading in opposite directions. RUT closed in the bottom 25% of its 20-day range on

Quantocracy’s Daily Wrap for 09/19/2018

This is a summary of links featured on Quantocracy on Wednesday, 09/19/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Accelerating Dual Momentum [Allocate Smartly]

    This is a test of the tactical asset allocation strategy Accelerating Dual Momentum (ADM) from EngineeredPortfolio.com. ADM is especially aggressive strategy that ties together multiple concepts from other TAA models that we track. Results from 1990 to the present, net of transaction costs, follow. Read more about our backtests or let AllocateSmartly help you follow this strategy in near
  • StockCharts Technical Rank (SCTR) Rotation Strategy [Alvarez Quant Trading]

    My post last week on the analysis of SCTR produced lots of emails and comments with great ideas. One idea that I liked was a simple rotation strategy using SCTR. I mentioned in the post that maybe using SCTR as ranking method would produce different results. Normally I dont post this quickly but I wanted to share these new results because they give a different view of SCTR. The Test Date range:

Quantocracy’s Daily Wrap for 09/18/2018

This is a summary of links featured on Quantocracy on Tuesday, 09/18/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Momentum Investing, Like Value Investing, is Simple, but NOT Easy [Alpha Architect]

    Weve covered momentum investing extensively over the years, to include 94 posts, a book on the subject, and numerous discussions on various podcast outlets. There are a few things one notices after thinking about a topic for so long: You forgot half of the things you read and/or wrote (yes, we have redone research on specific ideas and realized after that fact that we had already done the same
  • Maximum Pain Theory [Only VIX]

    I think if you're reading this blog, you're probably already a knowledgeable options trader, and have heard of maximum pain theory – an idea that market moves in a path that hurts ( causes losses ) most amount of market participants. In options it is typically stated that simulating options expiration losses by open interest at different strikes will help you to divine its expiration

Quantocracy’s Daily Wrap for 09/17/2018

This is a summary of links featured on Quantocracy on Monday, 09/17/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Principal Component Momentum? [QuantStrat TradeR]

    This post will investigate using Principal Components as part of a momentum strategy. Recently, I ran across a post from David Varadi that I thought Id further investigate and translate into code I can explicitly display (as David Varadi doesnt). Of course, as David Varadi is a quantitative research director with whom Ive done good work with in the past, I find that trying to investigate
  • Beating the S&P500 Index with a Low Convexity Portfolio [Jonathan Kinlay]

    A primer on beta convexity and its applications is given in the following post: The essential idea is to evaluate the beta of stock during down-markets, separately from periods when the market is performing well. Beta convexity is a measure of how stable a stock beta is across market regimes, and by choosing a portfolio of stocks with low beta-convexity we seek to stabilize the overall risk
  • Leveraged ETFs and Volatility Jumps [Alpha Architect]

    The paper investigates the following research question: What has the absolute risk behavior of leveraged products been historically? Did they behave as intended by design? Is the leverage multiple a reliable indicator of the volatility multiple? Is the leverage multiple a reliable indicator over shorter horizons? What are the Academic Insights? By studying the empirical evidence of the top 10
  • Portfolio Optimization: Simple versus Optimal Methods [Invest ReSolve]

    Our whitepaper The Optimization Machine: A General Framework for Portfolio Choice presented a logical framework for thinking about portfolio optimization given specific assumptions regarding expected relationships between risk and return. We explored the fundamental roots of common portfolio weighting mechanisms, such as market cap and equal weighting, and discussed the rationale for several
  • A Trend Equity Primer [Flirting with Models]

    Trend-following strategies exploit the fact that investors exhibit behavioral biases that cause trends to persist. While many investment strategies have a concave payoff profile that reaps small rewards at the risk of large losses, trend-following strategies exhibit a convex payoff profile, one that pays small premiums with the potential of a large reward. By implementing a trend-following
  • Short-Term Momentum in Equity Factors [Factor Research]

    Short-term momentum persists in common equity factors The persistence is strong in Value and Dividend Yield However, these results conflict with short-term mean-reversion on equity index level INTRODUCTION When Trump won the US presidential election in November 2016, small and cheap stocks started rallying, which surprised most investors as the consensus was a risk-off positioning. As new trends
  • Visualizing Time Series Data [Eran Raviv]

    This post has two goals. I hope to make you think about your graphics, and think about the future of data-visualization. An example is given using some simulated time series data. A very quick read. In visualization, like in programming, presenting or any other skill, there is much to learn. Also like in other skills, there is no one best way of doing things. Rather, creating a good chart is
  • Our Extremely Split Market & What That Has Meant Historically [Quantifiable Edges]

    One indicator that has gotten some play in the news lately is the Hindenburg Omen. In last weekends subscriber letter I discussed the Hindenburg Omen signal in detail. (Click here for a free trial.) A core premise behind the Hindenburg Omen is that there are a large number of stocks hitting both new highs and new lows. This indicates a split market. When this has happened for multiple days
  • State of Trend Following in August [Au Tra Sy]

    A late edition of the State of Trend Following report, showing a strong return for August and a YTD figure back in the black. Please check below for more details. Detailed Results The figures for the month are: August return: 6.74% YTD return: 3.36% Below is the chart displaying individual system results throughout August: StateTF August And in tabular format: System August Return YTD Return

Quantocracy’s Daily Wrap for 09/16/2018

This is a summary of links featured on Quantocracy on Sunday, 09/16/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Law of Large Numbers – Part 2 [Robot Wealth]

    Even if youve never heard of it, the Law of Large Numbers is something that you understand intuitively, and probably employ in one form or another on an almost daily basis. But human nature is such that we sometimes apply it poorly, often to great detriment. Interestingly, psychologists found strong evidence that, despite the intuitiveness and simplicity of the law, humans make systematic

Quantocracy’s Daily Wrap for 09/15/2018

This is a summary of links featured on Quantocracy on Saturday, 09/15/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Predicting equity volatility with return dispersion [SR SV]

    quity return dispersion is measured as the standard deviation of returns across different stocks or portfolios. Unlike volatility it can be measured even for a single relevant period and, thus, can record changing market conditions fast. Academic literature has shown a clear positive relation between return dispersion, volatility and economic conditions. New empirical research suggests that return
  • How Leverage Constraints Effect Mutual Fund Risk Taking [Alpha Architect]

    The 2014 study by Andrea Frazzini and Lasse Heje Pedersen, Betting Against Beta, found strong support for low-beta strategies. Ive previously written on low-beta strategies here. This paper finds that, for U.S. stocks, the betting against beta (BAB) factor (a portfolio that holds low-beta assets, leveraged to a beta of 1, and that shorts high-beta assets, de-leveraged to a beta of 1)
  • Video: Alpha Architect Weekly Research Recap [Alpha Architect]

    You can watch the video via the link below: Video Summary Ryan and I discuss three articles published on our blog this week. First, we examine a summary by Larry Swedroe that highlights the Betting Against Beta (BAB) factor and dives into two new papers examining when the BAB factor performs well. Second, we discuss a paper titled The Conservative Formula: Quantitative Investing Made Easy