Quantocracy

Quant Blog Mashup

ST

Quantocracy’s Daily Wrap for 03/22/2018

This is a summary of links featured on Quantocracy on Thursday, 03/22/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Machine Learning Modelling in R Cheat Sheet [R Trader]

    I came across this excellent article lately Machine learning at central banks which I decided to use as a basis for a new cheat sheet called Machine Learning Modelling in R. The cheat sheet can be downloaded from RStudio cheat sheets repository. As the R ecosystem is now far too rich to present all available packages and functions, this cheat sheet is by no means exhaustive . Its rather a
  • Momentum Everywhere, Including in Factors [Alpha Architect]

    Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. In 1997, Mark Carhart, in his study, On Persistence in Mutual Fund Performance, was the first to use momentum, together with the three FamaFrench factors (market beta, size and value), to explain mutual fund
  • Liquidity Creation in a Short-Term Reversal Strategies and Volatility Risk [Quantpedia]

    We show, both theoretically and empirically, that liquidity creation induces negative exposure to volatility risk. Intuitively, liquidity creation involves taking positions that can be exploited by privately informed investors. These investors' ability to predict future price changes makes their payoff resemble a straddle (a combination of a call and a put). By taking the other side,
  • When NDX Has Closed At A Multi-Week Low On A Fed Day [Quantifiable Edges]

    As far as Fed Days go, Wednesday was a disappointment. Not only did it fail to rally, but it also left SPX and NDX at 10-day lows. With Fed Days typically bullish, finishing at a 10-day low is quite unusual. The results table below is part of a larger examination I did in last nights Subscriber Letter (click here for free trial). It looks at prior Fed Day instances of 10-day low closes for NDX

Quantocracy’s Daily Wrap for 03/21/2018

This is a summary of links featured on Quantocracy on Wednesday, 03/21/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • New Book from Marcos Lopez de Prado: Advances in Financial Machine Learning [Amazon]

    Machine learning (ML) is changing virtually every aspect of our lives. Today ML algorithms accomplish tasks that until recently only expert humans could perform. As it relates to finance, this is the most exciting time to adopt a disruptive technology that will transform how everyone invests for generations. Readers will learn how to structure Big data in a way that is amenable to ML algorithms;
  • Review: Advances in Financial Machine Learning [Mathematical Investor]

    Two of the most talked-about topics in modern finance are machine learning and quantitative finance. Both of these are addressed in a new book, written by noted financial scholar Marcos Lopez de Prado, entitled Advances in Financial Machine Learning. In this book, Lopez de Prado strikes a well-aimed karate chop at the naive and often statistically overfit techniques that are so prevalent in the

Quantocracy’s Daily Wrap for 03/20/2018

This is a summary of links featured on Quantocracy on Tuesday, 03/20/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Newfound 2018 March Madness: Sweet 16 Update [Flirting with Models]

    We outlined the full set of rules for the Newfound 2018 March Madness Brackets here. We have two rounds in the bag in this years March Madness bracket competition, and what a wild ride its been: 16 seed UMBC made history by beating 1 seed Virginia, edging them out by a mere 20 points The highest seed left in the South is 5 seed Kentucky paving a (possibly) easy route to the Final Four.
  • Stock Buybacks are Bad? What About the Alternative [Alpha Architect]

    Recently there has been a fairly active discussion within the financial media on the topic of stock buybacks, or share repurchases. This is probably due to the recent tax reform, which has caused many to question where companies will spend their additional profits now that firms (on average) will be spending less on federal tax payments. Non-academic articles are generally against stock buybacks,
  • Fed Day Performance In Rising vs Falling Rate Environments [Quantifiable Edges]

    The Fed holds policy meetings 8 times per year. Many times since starting Quantifiable Edges in 2008, I have discussed the (primarily bullish) edge that exists on the final day of these meetings when the Fed releases its statement and announces any new policy changes. One question I often get about Fed Days is whether it matters if we are in a rising-rate environment, or a declining-rate

Quantocracy’s Daily Wrap for 03/19/2018

This is a summary of links featured on Quantocracy on Monday, 03/19/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • You Are Not a Monte-Carlo Simulation [Flirting with Models]

    Even when an investment has a positive expected average growth rate, the experience of most individuals may be catastrophic. By focusing on the compound average growth rate, we can see the median realizations which account for risk are often more crucial decision points than ensemble averages, which are the focal point of Monte Carlo analysis. These arguments also provide a simple
  • Factor Portfolios: Turnover Analysis [Factor Research]

    Some ETF investors claim that passive index products are superior to actively managed funds due to lower turnover and therefore less transaction costs. While this is partially true, most investors are unlikely to be familiar that indices such as the S&P 500 have a relatively high amount of turnover. The average tenure in the S&P 500 has decreased from 33 years in 1964 to 24 years in 2016,
  • When Bullish Opex Weeks Fail To Play Out [Quantifiable Edges]

    I discussed last weekend that monthly option expiration (opex) week is typically a bullish week, especially during the months of March, April, October, and December. Obviously, the bullish tendency did not play out this past week. So does this mean the bullish tendency may be delayed a week? Or is the market not doing what it is supposed to a sign that it is likely to continue lower? Or

Quantocracy’s Daily Wrap for 03/18/2018

This is a summary of links featured on Quantocracy on Sunday, 03/18/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Interest rate swap returns: empirical lessons [SR SV]

    Interest rate swaps trade duration risk across developed and emerging markets. Since 2000 fixed rate receivers have posted positive returns in 26 of 27 markets. Returns have been positively correlated across virtually all countries, even though low yield swaps correlated negatively with global equities and high-yield swaps positively. IRS returns have posted fat tails in all markets, i.e. a

Quantocracy’s Daily Wrap for 03/17/2018

This is a summary of links featured on Quantocracy on Saturday, 03/17/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Does indexing threaten the market? [Mathematical Investor]

    Index investing has grown significantly over the past 30 years. Back in 1990, few were even aware of the option for indexing, and options were limited mostly to a handful of conventional mutual funds tracking the U.S. S&P 500 index. In 1993, Bostons State Street Global Advisors launched the first S&P 500 index-tracking exchanged traded fund (ETF), with ticker SPY. Today this ETF

Quantocracy’s Daily Wrap for 03/15/2018

This is a summary of links featured on Quantocracy on Thursday, 03/15/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Is The US Stock Market Overvalued? Depends on which Model You Ask [Alpha Architect]

    When stock prices reach a new high, investors start asking the question: Are stocks overvalued? To answer this question, investors have developed several alternative equity valuation models. Typically, each of this models compares the stock markets current price level to a benchmark. Among practitioners, two of the leading equity valuation models are the Shiller CAPE model and the so-called Fed
  • Volume and Volatility: A Tale of Two Vols [Quant Fiction]

    Outside of price action, two of the most popular market characteristics analyzed are volume and volatility. Volatility is often used to determine market regime, while the traditional use for volume is to confirm price movement. This post will investigate the relationship between these two characteristics, and whether using both of them may be redundant. First Look To investigate the effects of the

Quantocracy’s Daily Wrap for 03/14/2018

This is a summary of links featured on Quantocracy on Wednesday, 03/14/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Do Relative-Value Strategies Beat Traditional Systematic Value Investing Strategies? [Alpha Architect]

    Readers often send us great questions related to different ideas on systematic value strategies. The outcome of years of back and forth with readers and internal discussions is several books and hundreds of blog posts on the subject of value investing. SoWhat have we learned? Weve learned a lot, but despite our best research efforts we havent changed our core systmeatic value model. We
  • Demystifying the Hurst Exponent with Cryptocurrencies [Quant Dare]

    Is the bitcoin market (Ethereum, Dash and Litecoin) efficient? After reading the paper, Persistence in the cryptocurrency market, which tries to answer that question, I was challenged by a colleague to replicate its results. This led me to write this post to highlight the great variability of the Hurst exponent estimation, not only between implementations but between series, and how risky it
  • Profiling Correlations For The Major Asset Classes [Capital Spectator]

    The case for holding a portfolio thats diversified across markets and asset classes is built on the assumption that return correlations will remain below 1.0 (perfect positive correlation) by more than a trivial degree. To the extent that you own assets that move independently of one another youll reap the rewards of diversification, which is widely celebrated as the only true free lunch in
  • Is Equity Pairs Trading Profitable Due to Cointegration? [Quantpedia]

    We study the theoretical implications of cointegrated stock prices on the profitability of pairs trading strategies. If stock returns are fairly weakly correlated across time, cointegration implies very high Sharpe ratios. To the extent that the theoretical Sharpe ratios are "too large," this suggests that either (i) cointegration does not exist pairwise among stocks, and pairs trading

Quantocracy’s Daily Wrap for 03/13/2018

This is a summary of links featured on Quantocracy on Tuesday, 03/13/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • News Buzz Impacts Stock Returns [Raven Pack]

    To bridge the gap between the quantitative community and discretionary investors, RavenPack launched the latest edition of its self-service data and visualization platform back in Fall 2017 – making it easier to create custom daily indicators on top of RavenPacks granular data. Indicators which can be used as signals to inform trading decisions. As part of our most recent research, we presented
  • Three Trading “Truths” Quantified [Build Alpha]

    I want to discuss three trading truths that I often heard but when I finally got into testing ideas found them to be myths. These discoveries were instrumental in turning my trading around. For those that know my story, it was not all roses and rainbows what trading story is?!? I actually learned like a lot of traders from online sources, chat rooms, webinars, and eventually found
  • Newfound’s 2018 March Madness Bracket Challenge [Flirting with Models]

    Bracket templates can be downloaded here. Bracket submissions must be sent here with a subject of "March Madness 2018" by 11:59PM Eastern time on Wednesday March 14, 2018. On the heels of ReSolves past four years of progressive March Madness bracket challenges, we are pleased to take over the reins for the 2018 go-around, and we invite you to participate. Weve learned a lot over

Quantocracy’s Daily Wrap for 03/12/2018

This is a summary of links featured on Quantocracy on Monday, 03/12/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Tactical Asset Allocation and Taxes [Allocate Smartly]

    Tactical asset allocation, by its nature, generates more transactions than buy & hold. Investors trading in taxable accounts would be justifiably concerned that the negative tax consequences of that might outweigh the benefits of TAA by shifting returns to less advantageous short-term capital gains. Our newest member feature responds to those concerns. We track more than 40 TAA strategies in
  • Worried about extreme down markets? Consider formal portfolio risk models [Alpha Architect]

    Are there variations in the methods that funds use to manage risk? Do hedge funds practicing risk management outperform other funds during periods of financial crisis? Are there differences in the type of risk management practices in terms of performance? Are there competing explanations that may also explain the outperformance of risk-managed hedge funds? What are the Academic Insights? YES. The
  • March Madness for Investors [Flirting with Models]

    Over the past few years, ReSolve Asset Management has progressively worked to develop new and exciting rules for the March Madness bracket tournament. While the stakes may be much lower than in investing, many of the lessons we have learned translate well to portfolio construction and strategy development. Knowing the rules, diversifying appropriately, developing robust models, making wise
  • Algorithmic trading is here to stay [R Trader]

    A foreword for the regular reader: this article has nothing to do with R With the increase of market electronification, algorithmic trading is becoming more and more popular. As a result, the regulator has paid a particular attention to this activity in the MIFID II regulation, designing a brand new set of rules. Market participants are now operating within a more rigorous and stringent
  • Equity Factors and GDP Growth [Factor Research]

    Economic cycles have a clear impact on factor performance Some factors show pro-cyclical while others highlight anti-cyclical characteristics Given that real GDP is not published in real-time, it is unlikely effective for factor selection INTRODUCTION Financial commentators frequently explain a rising stock market by the strength of the economy, which is rather intuitive. If the economy grows,
  • Today s Employment-Sparked NASDAQ Rally Appears To Be A Short-Term Bullish Indication [Quantifiable Edges]

    The employment report has helped to spark a big rally today, and the NASDAQ is hitting new all-time highs. I looked back at other instances where the NASDAQ spiked higher and closed at a new high on the day of an employment report. The results I saw were compelling. Here are the list of instances along with their 5-day returns: 2018-03-10 With the only loser closing down 0.06%, the stats are