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Quantocracy’s Daily Wrap for 07/21/2018

This is a summary of links featured on Quantocracy on Saturday, 07/21/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The importance of volatility of volatility [SR SV]

    Options-implied volatility of U.S. equity prices is measured by the volatility index, VIX. Options-implied volatility of volatility is measured by the volatility-of-volatility index, VVIX. Importantly, these two are conceptually and empirically different sources of risk. Hence, there should also be two types of risk premia: one for the uncertainty of volatility and for the uncertainty of variation

Quantocracy’s Daily Wrap for 07/20/2018

This is a summary of links featured on Quantocracy on Friday, 07/20/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Complex Backtesting in Python Part II Zipline Data Bundles [Following the Trend]

    In the last article on Python backtesting, we looked at how to install the Zipline library and get a basic simulation going. But what we did not touch upon was how to get your own data hooked up. If you are reading this, there is a good chance that you take your backtesting and trading simulation quite seriously. And in that case, you probably have your own preferred data source and your own local
  • Which Investment Factors Drive Corporate Bond Returns [Alpha Architect]

    What are the research questions The presence of historical prices impacting future returns, i.e., momentum, has been well researched in the equity market, which weve covered here. Weve also closely looked at momentum in bond markets here, here, and here. What the Bali, Subrahmanyam, & Wen are exploring is whether momentum shows up in the corporate bond market, and if so where? Does the

Quantocracy’s Daily Wrap for 07/19/2018

This is a summary of links featured on Quantocracy on Thursday, 07/19/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • New Strategy Added: Vigilant Asset Allocation Balanced [Allocate Smartly]

    Vigilant Asset Allocation from Dr. Keller and JW Keuning is one of the most popular tactical asset allocation strategies that we track (click for the full list). The authors original paper includes multiple variations of the strategy, based on the number of assets held at any given time and how aggressively the strategy moves to defensive assets during periods of market stress. Up to this point
  • A Very Influential Paper About Tether-Bitcoin Relationship (Manipulation?) [Quantpedia]

    This paper investigates whether Tether, a digital currency pegged to U.S. dollars, influences Bitcoin and other cryptocurrency prices during the recent boom. Using algorithms to analyze the blockchain data, we find that purchases with Tether are timed following market downturns and result in sizable increases in Bitcoin prices. Less than 1% of hours with such heavy Tether transactions are

Quantocracy’s Daily Wrap for 07/18/2018

This is a summary of links featured on Quantocracy on Wednesday, 07/18/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Stock Prediction with ML: Walk-forward Modeling [Alpha Scientist]

    Key Takeaways: Traditional methods of validation and cross-validation are problematic for time series prediction problems The solution is to use a "walk-forward" approach which incorporates new information as it becomes available. This approach gives us a more realistic view of how effective our model would truly have been in the past, and helps to avoid the overfitting trap. It's
  • Our Conversation with Tobias Carlisle (@Greenbackd) [Flirting with Models]

    This post covers our conversation with Tobias Carlisle, which you can listen to here. 2:09 – Toby starts at the beginning: with school classes that included sheering sheep in Australia. Corey Hoffstein ("CH"): I was so taken aback by this introduction that I was totally caught off-guard. I knew Toby had grown up in a fairly remote town in Australia (he likes to joke he's the only
  • 10 Reasons for loving Nearest Neighbors algorithm [Quant Dare]

    I fell in love with k-Nearest Neighbors algorithm at first sight, but it isnt blind love. I have plenty of reasons to be mad about it. 1. Its pretty intuitive and simple Given that all you need to do is to compare samples, the Nearest Neighbors (k-NN) algorithm is a perfect first step to introduce Machine Learning. Its very simple to understand, easy to explain and perfect to demonstrate

Quantocracy’s Daily Wrap for 07/16/2018

This is a summary of links featured on Quantocracy on Monday, 07/16/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Momentum’s Magic Number [Flirting with Models]

    In HIMCOs May 2018 Quantitative Insight, they publish a figure that suggests the optimal holding length of a momentum strategy is a function of the formation period. Specifically, the result suggests that the optimal holding period is one selected such that the formation period plus the holding period is equal to 14-to-18 months: a somewhat magic result that makes little intuitive,
  • A look at SOMA changes influence on SPX since Quantitative Tightening began [Quantifiable Edges]

    The chart below is from this weekends QE subscriber letter. It is one I have updated frequently the last few months. It looks at compound performance of two opposing strategies. The blue line represents a strategy that is invested in the market during weeks that the Feds SOMA account value rises. During weeks where the SOMA declines, the blue line is sidelined (earning no interest). The red
  • Portfolio Craftsmanship is Just as Important as Choosing an Investment Style [Alpha Architect]

    This is an important article for practitioners because it brings specific investing decisions that are often treated as afterthoughts, to the forefront in style-based investing. The authors propose that decisions made beyond the initial decision to invest in a style, such as value or momentum, are alpha-generating. The authors label this, Craftsmanship Alpha. Although the same style labels
  • Stock Portfolio Optimization [Factor Research]

    Portfolios frequently contain stocks representing duplicate factor risks or insignificant weights An optimisation process focused on factor exposure can increase the portfolio efficiency Increasing or decreasing factor exposure requires a view on expected factor performance and risks INTRODUCTION Gardens tend to lose their curated design quickly, if not cared for constantly, as grass, bushes and
  • Sell in May and Go Away? [Alpha Scientist]

    Most investors have heard the adage "Sell in May and go away" which reflects the common wisdom that markets perform less well during the summer months than during the winter. This anomaly is well described here. Many widely held beliefs go away, precisely because they're widely held and get priced into the market. I'd like to test the "sell in May" myth to see how

Quantocracy’s Daily Wrap for 07/12/2018

This is a summary of links featured on Quantocracy on Thursday, 07/12/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Stock Prediction with ML: Feature Selection [Alpha Scientist]

    This is the third post in my series on transforming data into alpha. If you haven't yet see the data management and guide to feature engineering, please take a minute to read those first… This post is going to delve into the mechanics of feature selection to help choose between the many variations of features created in the feature engineering stage. By design, many of the features
  • Announcing Defensive Asset Allocation (DAA) [TrendXplorer]

    Defensive Asset Allocation (DAA) builds on the framework designed for Vigilant Asset Allocation (VAA) For DAA the need for crash protection is quantified using a separate canary universe instead of the full investment universe as with VAA DAA leads to lower out-of-market allocations and hence improves the tracking error due to higher in-the-market-rates In our brand new SSRN-paper Breadth
  • Deconstructing the Low Volatility/Low Beta Anomaly [Alpha Architect]

    One of the big problems for the first formal asset pricing model developed by financial economists, the Capital Asset Pricing Model (CAPM), was that it predicts a positive relationship between risk and return. However, the historical evidence demonstrates that, while the slope of the security market line is generally positive (higher-beta stocks provide higher returns than low-beta stocks), it is

Quantocracy’s Daily Wrap for 07/11/2018

This is a summary of links featured on Quantocracy on Wednesday, 07/11/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Excerpt, Part II: Quantitative Investment Portfolio Analytics In R [Capital Spectator]

    A couple of weeks back I published the first part of a full-chapter excerpt from my new book, Quantitative Investment Portfolio Analytics In R: An Introduction To R For Modeling Portfolio Risk and Return. Heres the second half of this two-part excerpt of Chapter 5, which reviews the basics for factor analysis via R code. The chapter sample below focuses on additional analytics, including a
  • Our Conversation with Adam Butler [Flirting with Models]

    This post is the first of a series where we will be providing some of our own thoughts and commentary the conversations we had in the first season of our new podcast. This post covers our conversation with Adam Butler, which you can listen to here. 1:57 – Corey introduces Adam via a blog post Adam wrote about his experience with the emerging market and commodity super cycle theory of the early
  • Multiple Managers vs A Single Manager: Return Predictability [Rayner Gobran]

    This is the seventh in my Hedge Fund Hacks series. It is a natural follow-up to my sixth hack on Hedge Fund Return Predictability in which I identified the following conundrum: You need a track record of 8+ years of monthly data to have reasonable confidence in a managers expected returns. The longer the track record you demand, the fewer managers you will have to choose from. A long track
  • Hierarchical Risk Parity [Quant Dare]

    Building profitable portfolios has been giving investment managers headaches for decades. Many approaches have been used up until now, some of the most well-known being Markowitzs Efficient Frontier and Risk Parity. Today, we are presenting a brand new approach to this recurrent problem developed by Dr. Marcos Lpez de Prado applying Modern Graph Theory and Machine Learning techniques. Lpez
  • Impact of Single Stocks On Factor Returns [Factor Research]

    Factor portfolios are typically created by equal weighting stocks The impact of single stocks is therefore reduced compared to market-cap weighted indices The FAANG stocks impacted factors differently INTRODUCTION The famous FAANG quintet of Facebook, Amazon, Apple, Netflix, and Google has driven much of the performance of the Nasdaq 100 in 2018 and currently accounts for approximately 35% of the
  • Double Gaps and Hens Teeth [Throwing Good Money]

    I looked at the chart for SPY just now, and thought, Huhtwo days in a row that have gapped up. Wonder if thats significant in any way? By gap, I mean that todays low was higher than yesterdays high. When this happens two days in a row, does it mean we should use quintuple leverage to buy everything we can? Sell at the opening bell and hide under a rock? Something else?

Quantocracy’s Daily Wrap for 07/10/2018

This is a summary of links featured on Quantocracy on Tuesday, 07/10/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Do Fundamentals Still Drive Market Prices? Or Have ETFs Taken Over? [Alpha Architect]

    What causes a stocks price to move? A great question, and one that puzzles most market observers every day. Since this is puzzling, it is an entertaining topic to discussenter CNBC and the financial media. In the short-run, stocks prices can move for a variety of reasons noise trading, announcements from the FED, and 6 A.M. tweets from the President :). Kidding aside, short-run moves in
  • How Does VelocityShares ZIV Work? [Six Figure Investing]

    Just about anyone whos looked at a multi-year chart for a long volatility fund like Barclays VXX has thought about taking the short side side of that trade. VelocityShares ZIV is an Exchange Traded Product (ETP) that allows you to hold a short volatility position while avoiding some of the issues associated with a direct short position in VXX. Because ZIV is tied to VIX futures with at
  • Arbitrage Opportunities in Cryptocurrency Markets [Quantpedia]

    This paper studies the efficiency and price formation of bitcoin and other cryptocurrency markets. First, there are large recurrent arbitrage opportunities in cryptocurrency prices relative to fiat currencies across exchanges that often persist for several days or weeks. These price dispersions exist even in the face of significant trading volumes on many of the exchanges. The total size of

Quantocracy’s Daily Wrap for 07/09/2018

This is a summary of links featured on Quantocracy on Monday, 07/09/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Simulating Variable FX Swaps in Zorro and Python [Robot Wealth]

    One of the ongoing research projects inside the Robot Wealth community involves an FX strategy with some multi-week hold periods. Such a strategy can be significantly impacted by the swap, or the cost of financing the position. These costs change over time, and we decided that for the sake of more accurate simulations, we would incorporate these changes into our backtests. This post shows you how
  • Vol Targeting and Trend Following [Investment Idiocy]

    I was moved to write this by a post on LinkedIn, which you can find here, and which is worth quoting (and thanks to Helder Palaro for pointing me at this): "Volatility tends to cluster. Recent high(low) volatility is followed by high(low) volatility in the near-term (ARCH). VT says lever the portfolio during low-vol regimes & scale-down leverage during high-vol regimes. Target
  • Artificial Intelligence and Value Investing [Alpha Architect]

    The paper investigates the following research question: Can machines allocate capital in the classic style of a value investor like Benjamin Graham or Warren Buffett? What are the Academic Insights? By connecting two broad and disparate areas (the innovative AI domain and the more old-fashioned value investing), the author speculates: YES- With the right kind of AI it will be possible. The author
  • Is Friday s Sharp Drop in VXO Meaningful? [Quantifiable Edges]

    The rally on Friday was accompanied by a sizable drop in the VIX (and even more so for the VXO, which is the old calculation for the VIX). This triggered some old studies for me in which I noted that big drops in the VXO have had much different connotations depending on whether SPX is in a long-term uptrend or downtrend (as defined by its proximity to the 200ma). I decided to review those studies,
  • State of Trend Following in June [Au Tra Sy]

    Slight positive uptick in the State of Trend Following Performance report last month, leaving the YTD performance in negative territory at half-time. Please check below for more details. Detailed Results The figures for the month are: June return: 0.25% YTD return: -2.67% Below is the chart displaying individual system results throughout June: StateTF June And in tabular format: System June Return
  • Factor Crowding Model [Factor Research]

    Crowded factors exhibit higher drawdowns than uncrowded factors A multi-metric approach can be successfully applied to measure factor crowding Effective in reducing factor drawdowns and volatility, but less meaningful for returns INTRODUCTION Architects devoted to creating large public facilities like sports stadiums are tasked with finding a good balance between aesthetics, commercialism and
  • On Performance Commentary [Flirting with Models]

    With the end of another quarter, the time of performance commentaries is upon us. We generally find most performance commentaries to be devoid of much substance, taking a heads Im skilled, tails Im unlucky mentality to describing short-term results. While quants may be reluctant to offer any substantial reasoning as to why performance occurred, quants can offer radical transparency

Quantocracy’s Daily Wrap for 07/08/2018

This is a summary of links featured on Quantocracy on Sunday, 07/08/2018. To see our most recent links, visit the Quant Mashup. Read on readers!