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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

Quantocracy’s Daily Wrap for 03/06/2018

This is a summary of links featured on Quantocracy on Tuesday, 03/06/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Thinking in Long/Short Portfolios [Flirting with Models]

    Few investors hold explicit shorts in their portfolio, but all active investors hold them We (re-)introduce the simple framework of thinking about an active portfolio as a combination of a passive benchmark plus a long/short portfolio. This decomposition provides greater clarity into the often confusing role of terms like active bets, active share, and active risk. We see that while active share
  • Macroeconomic factors and Tactical Asset Allocation [Alpha Architect]

    The literature shows that macroeconomic factors can drive asset returns, however, economists and investment teams operate independently. In this paper, the authors attempt to bring macroeconomic discipline to tactical asset allocation by highlighting macroeconomic dashboards: The authors suggest that a macroeconomic dashboard try and answer the following question: If an investor has a one
  • Cryptocurrencies with Python eBook: Apr 15 [Quant At Risk]

    It is my pleasure to deliver a long-awaited QaR ebook on the introduction to blockchain and cryptocurrencies with Python on April 15, 2018. In the book we will cover inter alia the fundamental aspects of blockchain in general; the craze around cryptocoins like Bitcoin, Ether, LiteCoin, etc.; their time-series analysis and statistical modeling using Python; key aspects of cryptocurrency risk

Quantocracy’s Daily Wrap for 03/05/2018

This is a summary of links featured on Quantocracy on Monday, 03/05/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Testing the Efficiente Index [Allocate Smartly]

    This test is based on the Efficiente Index from JP Morgan. A variation of this strategy is available via the ETF EFFE. The strategy uses traditional mean-variance optimization (aka the Efficient Frontier) to trade a broad basket of asset classes, but its actually a momentum strategy in disguise. The strategy hasnt generated huge returns, but it has had success managing losses, reducing
  • Dividend Yield Combinations [Factor Research]

    According to MorningStar assets under management of smart beta products breached $1 trillion in 2017 and more than half of the assets were invested in just three factors: Value, Growth and Dividend Yield. Naturally there is a significant amount of empirical evidence that suggests Value stocks generate positive excess returns across time, but much less evidence for the latter two factors. We

Quantocracy’s Daily Wrap for 03/03/2018

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

  • The New Short Volatility Instrument Landscape [QuantStrat TradeR]

    This post will discuss the consequences of ProShares decision to change the investment objective of SVXY, and possible alternatives that various investors can use to try and create an identical exposure if their strategy calls for such an instrument. So, to begin with, Proshares recently decided to make SVXY
  • Hidden Markov Modelling of Synthetic Periodic Time Series Data [Dekalog Blog]

    I am currently working on a method of predicting/projecting cyclic price action, based upon John Ehlers' sinewave indicator code, and to test it I am using Octave's implementation of a Hidden Markov model in the Octave statistics package hosted at Sourceforge. Basically I measure the dominant cycle period ( using either the above linked sinewave indicator code or autocorrelation
  • SPX Performance After Three 1% Down Days [Quantifiable Edges]

    Last night I looked at 3-day pullbacks a number of ways in relation to current market conditions. I thought blog readers might find the following interesting. I noted that SPX closed lower by greater than 1% for the 3rd day in a row on Thursday. In the past, that has often been followed by gains the next day. But times where is wasntwell, take a look at the chart below.

Quantocracy’s Daily Wrap for 03/01/2018

This is a summary of links featured on Quantocracy on Thursday, 03/01/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Tactical Asset Allocation in February [Allocate Smartly]

    This is a summary of the recent performance of a wide range of excellent tactical asset allocation strategies. These strategies are sourced from books, academic papers, and other publications. While we dont (yet) include every published TAA model, these strategies are broadly representative of the TAA space. Learn more about what we do or let AllocateSmartly help you follow these strategies in

Quantocracy’s Daily Wrap for 02/28/2018

This is a summary of links featured on Quantocracy on Wednesday, 02/28/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Excess VIX: A Predictive Volatility Model [Quant Fiction]

    The events of the past month, most notably the implosion of XIV, has focused public interest on volatility as an asset class. Theyve also illustrated that short vol as a strategy might be a little more risky than advertised (gasp!). The VIX is supposed to serve as a gauge of how much uncertainty exists in the market. For the long-form, math-heavy definition of this, the CBOE lays it out here.
  • Size and Value Factor Performance in Pakistan Stock Exchange [Azam Yahya]

    The main objective is to identify and understand cross-sectional patterns in expected stock returns in PSX(Pakistan Stock Exchange). Our reasons for doing so are simple. First, to effectively execute empirical asset pricing research, it is important to have a deep understanding of the characteristics of the sample and data being used. The main objective of this blog is to empirically investigate
  • XIV Barbell Strategy [Alvarez Quant Trading]

    Well that was fun! I have been telling my trading buddy and anyone else that would listen that I fully expected XIV to open at zero one day. Now I did not expect it to happen so soon or the way it did. I trade a strategy that can be long XIV or long VXX or in cash. Because of the very likely possibility of XIV blowing up, I had constructed my portfolio using ideas from the barbell portfolio and
  • Retail Short Sellers: Trading Skill or Insider Trading? [Alpha Architect]

    What are the research questions? This study uses a new classification system for informed vs. uninformed retail trades: short selling stocks without options available indicates more informed trading than short selling stocks with options available. Is there a difference in returns between shorted stocks without listed options and shorted stocks with listed options available? Using account level
  • Is a 4% Down Day a Black Swan? [Relative Value Arbitrage]

    wn Day a Black Swan? On February 5, the SP500 experienced a drop of 4% in a day. We ask ourselves the question: is a one-day 4% drop a common occurrence? The table below shows the number of 4% (or more) down days since 1970. 4% down 4% down and bullish From 1970 40 5 On average, a 4% down day occurred each 1.2 years, which is probably not a rare occurrence. We next counted the number of days when
  • A Two-Day SPY Pattern Suggesting A Bullish Edge For Wednesday [Quantifiable Edges]

    SPY gapped up and closed lower Tuesday after leaving an unfilled up gap on Monday. This triggered a simple study that I have examined a number of times over the years in the subscriber letter. The study can be found below. 2018-02-28 The numbers here all look solidly bullish, suggesting a potential 1-day upside edge. Traders may want to keep this in mind toda

Quantocracy’s Daily Wrap for 02/26/2018

This is a summary of links featured on Quantocracy on Monday, 02/26/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Diversification Dangers of DIY Tactical [Flirting with Models]

    After 2008, tactical ETF strategies rose in popularity. We often come across advisors who self-implement their own tactical strategies, using simple measures of momentum and trend. We believe that thoughtful implementation of tactical strategies requires admission that tactical choices will be wrong from time-to-time, and therefore advocate for the prudent use of diversification to manage
  • Factor Construction: Portfolio Rebalancing [Factor Research]

    Factor portfolios do not benefit significantly from intra-month rebalancing However, too infrequent rebalancing leads to lower risk-return ratios The robustness of factor performance at different rebalancing periods is one of the advantages of factor investing INTRODUCTION Creating factor portfolios requires investors to make a number of decisions regarding portfolio design and can be considered
  • The Negative Impact Of Friday s Low Volume [Quantifiable Edges]

    I mentioned in a Tweet on Friday that the low volume on Fridays rally was a bit concerning. The study below is one I featured in the subscriber letter this weekend. It examined other times substantial rallies occurred during uptrends on very light volume. 2018-02-25 Stats here suggest a downside edge. Perhaps not a huge edge, but in my view one that appears strong enough to warrant some