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Quantocracy’s Daily Wrap for 02/19/2018

This is a summary of links featured on Quantocracy on Monday, 02/19/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Mixture Model Trading (Part 5 – Algorithm Evaluation with pymc3) [Black Arbs]

    See . This research demonstrates a systematic trading strategy development workflow from theory to implementation to testing. It focuses on the concept of using Gaussian Mixture Models as a method for return distribution prediction and then using a simple market timing strategy to take advantage of the predicted asset return outliers. Chapter Goals Demonstrate how to extract algorithm portfolio
  • Sequential Model: Sorting by 5 Factors [Factor Research]

    The sequential model ranks stocks by factors sequentially Allows investors to prioritise factors and results in concentrated portfolios However, the factor sequence matters and only a few factors can be considered INTRODUCTION In a recent research report we showed how investors can combine factors into a multi-factor portfolio by ranking for several factors simultaneously (please see

Quantocracy’s Daily Wrap for 02/18/2018

This is a summary of links featured on Quantocracy on Sunday, 02/18/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Sunday Marks the Quantifiable Edges Subscriber Letter s 10th Anniversary [Quantifiable Edges]

    Sunday Feb 18th marks the 10th anniversary of the Quantifiable Edges Subscriber Letter. I can hardly believe I have been writing it for 10 years, but it is true. A few highlights and anecdotes from the last 10 years When the letter began, there was not even a website just a blogspot blog and a Paypal button. My 1st subscriber was Mr. Norwood. I remember distinctly, because my wife
  • A Closer Look At The Links For Stocks, Interest Rates, And Inflation [Capital Spectator]

    Does history offer a reason to be cautious on the outlook for stocks if inflation and interest rates are rising? Yes, sort of, according to a New York Times article published on Thursday. Hedging just a bit, the Times piece relates that its long been a truism that higher inflation and its close cousin, higher interest rates, are deadly for stock prices. But in the wake of this months
  • Spx Low Vol Streak, Update [Voodoo Markets]

    Spx had a rather long streak of low volatility. There is no predictive value or signal here, i just wanted to eyeball & visualize how long the low vol streak lasted and how it compared to other low vol streaks. Here are all the Spx low vol streaks (close to close change > +/-1%) that lasted more than 42 days, since the 50s

Quantocracy’s Daily Wrap for 02/14/2018

This is a summary of links featured on Quantocracy on Wednesday, 02/14/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Trading the Equity Curve [Alvarez Quant Trading]

    A popular method for determining if a strategy should be kept trading is trading the equity curve. What this means we apply an indicator, say 200-day moving average, to the equity curve. When the equity curve falls below this value we stop trading. We then continue to paper trade the strategy until it gets above the moving average and then trade it live again. The general idea being that you get
  • The Kelly Criterion [Quant Dare]

    Forecasting the market or the outcome of a gamble is important. Deciding how much to invest or bet based on how confident you are about the prediction is similarly as important. But dont let the pressure get to you; the Kelly criterion is here to help us make this decision. Betting with the Kelly criterion Imagine you are invited to place bets on an indefinite sequence of coin tosses with fair
  • Price Overreactions in the Cryptocurrency Market [Quantpedia]

    This paper examines price overreactions in the case of the following cryptocurrencies: BitCoin, LiteCoin, Ripple and Dash. A number of parametric (t-test, ANOVA, regression analysis with dummy variables) and non-parametric (MannWhitney U test) tests confirm the presence of price patterns after overreactions: the next-day price changes in both directions are bigger than after normal days.

Quantocracy’s Daily Wrap for 02/12/2018

This is a summary of links featured on Quantocracy on Monday, 02/12/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Should You Dollar-Cost Average? [Flirting with Models]

    Dollar-cost averaging (DCA) versus lump sum investing (LSI) is often a difficult decision fraught with emotion. The historical and theoretical evidence contradicts the notion that DCA leads to better results from a return perspective, and only some measures of risk point to benefits in DCA. Rather than holding cash while implementing DCA, employing a risk managed strategy can lead to better DCA
  • Value Factor – Intra vs Cross-Sector [Factor Research]

    Intra versus cross-sector Value portfolios share the major trends Neutralising the sector exposure increases the risk-return ratio of the Value factor However, the benefits are marginal and come with higher operational complexity INTRODUCTION 2018 started almost identical to 2017 in terms of factor performance in the US Momentum, Growth and Quality gained while Value lost. Investors with a
  • What SPY s Gap Up, Reverse Down & Rebound Back Up From Friday Suggest For This Week [Quantifiable Edges]

    The sizable gap up, pullback, and then move back higher on Friday triggered an old Quantifinder study for the 1st time in a long time. Below is the full list of trades with a 5-day holding period. 2018-02-11 All 8 instances saw run-ups of at least 1%, and they all closed positive. While instances are low, the initial inclination appears quite bullish. This study may be worth some consideration
  • Short Sellers Profitably Trade Prior to Credit Rating Agency Announcements [Alpha Architect]

    What are the research questions? This research focuses on the relationship between the frequency of unexpected short selling behavior and abnormal returns surrounding credit watch and rating change announcements in the equity market. It is notable that it employs a unique database that affords the authors the opportunity to study the behavior of unexpected short selling around credit rating agency
  • Low Risk Anomaly in Banking Industry and Its Implications [Quantpedia]

    Traditional capital structure theory in frictionless and efficient markets predicts that reducing banks leverage reduces the risk and cost of equity but does not change the overall weighted average cost of capital (and thus the rates for borrowers). We test these two predictions. We confirm that the equity of better-capitalized banks has lower beta and idiosyncratic risk. However, over the last

Quantocracy’s Daily Wrap for 02/09/2018

This is a summary of links featured on Quantocracy on Friday, 02/09/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Thoughts On Dealing With Historically Abnormal Markets [Quantifiable Edges]

    I have discussed some lately that the market is acting outside of historical norms. Thursdays action reinforced that. The pullback has come so fast and been so extreme that it is going beyond even many of the most extreme moves in similar situations. For instance, I looked back to 1960 with the SPX for to find other times SPX closed down > 10% from a 250-day closing high within 2 weeks of
  • Time Series Momentum (aka Trend-Following): A Good Time for a Refresh [Alpha Architect]

    Similar to some better-known factors like size and value, time-series momentum is a factor which has historically demonstrated above-average excess returns. Time-series momentum, also called trend momentum or trend-following, is measured by a portfolio which is long assets which have had recent positive returns and short assets which have had recent negative returns.(1) Compare this to the

Quantocracy’s Daily Wrap for 02/08/2018

This is a summary of links featured on Quantocracy on Thursday, 02/08/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Examining Short Term Reversals in Stocks Part 1 (Returns Data) [Sober Quant]

    Short-term reversals, including intraday and monthly reversals, are well-known in academic literature and are observable in the markets every day. This phenomenon persists across many different asset classes, especially stocks. There are many theories to explain this phenomenon. Some say the reversions are news-driven, in that when there is new information (e.g. Earnings or Clinical Trials),
  • VIX vs Stock Market Volatility: Similar But Different [Capital Spectator]

    The recent plunge in the US stock market ended the extended run of tranquility in equity returns. The medias metric of choice to cite this change is the CBOE Volatility Index, or VIX, which surged earlier this week to the highest level in nearly three years, based on daily data. The upward explosion was even sharper on an intraday basis. As useful as the VIX is for quantifying market
  • Correlation with prices or returns: that is the question [Quant Dare]

    Thought you knew everything about correlation? Think theres no fooling you with the question of correlation with financial prices or returns? Well maybe, just maybe, this post will enlighten you. Correlation: the debate is on Correlation can be a controversial topic. Things can go awry when two seemingly unrelated variables appear to move in a similar pattern and are found to be correlated.
  • Chess, Jeopardy, Poker, Go and Investing? [CXO Advisory]

    How can machine investors beat humans? In the introductory chapter of his January 2018 book entitled Financial Machine Learning as a Distinct Subject, Marcos Lopez de Prado prescribes success factors for machine learning as applied to finance. He intends that the book: (1) bridge the divide between academia and industry by sharing experience-based knowledge in a rigorous manner; (2) promote

Quantocracy’s Daily Wrap for 02/06/2018

This is a summary of links featured on Quantocracy on Tuesday, 02/06/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Deep Learning for Trading Part 4: Fighting Overfitting with Dropout and Regularization [Robot Wealth]

    This is the fourth in a multi-part series in which we explore and compare various deep learning tools and techniques for market forecasting using Keras and TensorFlow. In Part 1, we introduced Keras and discussed some of the major obstacles to using deep learning techniques in trading systems, including a warning about attempting to extract meaningful signals from historical market data. If you
  • The End of 60/40? The Case for Diversified Value, Momentum, and Carry Risk Exposures [Alpha Architect]

    What are the research questions? Despite Peter Bernsteins suggestion in 2003 that adherence to a fixed and undiversified policy portfolio is dangerous, benchmarks ( the most used of which is the 60/40) are as popular today as they were 15 years ago. The authors study the following research question: Is a broad investment opportunity set ( an un-levered and long-only version of a value,
  • State of Trend Following in January [Au Tra Sy]

    The State of Trend Following index starts the year with a strong performance to bounce back from the 2017 lows. Please check below for more details. Detailed Results The figures for the month are: January return: 7.25% YTD return: 7.25% Below is the chart displaying individual system results throughout January:
  • What Does History Tell Us About The Stock Market s Dive? [Capital Spectator]

    The 4.1% plunge in the S&P 500 yesterday looks ominous, all the more so since it follows last weeks hefty 3.8% decline. But focusing on what just happened distorts our capacity to maintain a healthy sense of historical perspective. As an antidote, lets step back and consider the latest market action through a longer-term lens. Despite Mr. Markets latest hissy fit, the current one-year
  • The Unconventional Guide To The Best Websites For Quants [Quant Insti]

    Technology moves at a startling speed and it has been the same case in the algorithmic and quantitative trading domain. Traders around the world are making use of Machine Learning, Artificial Intelligence, Blockchain, Neural Networks, Deep Learning and similar techniques to execute their trades. One of the key factors to benefit from the ever-changing trend in technology is to learn the impact of
  • What’s In A Factor? Breakdown by Sectors [Factor Research]

    SUMMARY Some factors show structural sector exposure while others rotate sectors frequently Sector concentrations explain factor performance and may represent concentration risks Value is currently long Financials, Low Volatility is short Health Care, and Growth is short Energy INTRODUCTION Despite all the hustle and bustle surrounding factor investing, considerable uncertainty remains about what
  • January 2018 Trend Following UP [Wisdom Trading]

    January 2018 Trend Following: UP +6.94% / YTD: +6.94% Below is the full State of Trend Following report as of last month, opening the year with a strong performance in January. Performance is hypothetical. Chart for January: WSTF 201801 Index And the 12-month chart: WSTF 201801 Index 12months Below are the summary stats: Horizon Return Ann. Vol. Last month 6.94% 15.12% Year To Date 6.94% 15.12%

Quantocracy’s Daily Wrap for 02/05/2018

This is a summary of links featured on Quantocracy on Monday, 02/05/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Constructing Continuous Futures Price Series [Quantoisseur]

    Welcome! If you enjoy these posts, please follow this blog via email and check out my Twitter feed located on the sidebar. All of my previous analysis has focused on US equities, but today we begin the journey into another asset class, futures. Futures are traded via contracts where two parties agree to exchange a quantity of an asset for a price decided today and delivered at a specified date in
  • Three ETF-Based Ways to Leverage Your 60/40 Without Margin [Flirting with Models]

    We believe that capital efficiency should remain a paramount objective for investors. The prudent use of leverage can help investors employ more risk efficient portfolios without necessarily sacrificing potential returns. Many investors, however, do not have access to leverage (be it via borrowing or derivatives). They may, however, have access to leverage via the variety of ETFs and ETNs
  • Reviewing Last Week s Stock Market Decline In Historical Context [Capital Spectator]

    How bad was last weeks rout in US equities? The slide is the biggest weekly drop for the S&P 500 Index in over two years. But thats not saying much, given how calm the upside bias for the equity trend has been lately. Perhaps the bigger surprise is that weve gone so long without a meaningful setback. But dont be too quick to dismiss the latest fall from grace as insignificant. A
  • A Closer Look At Historical Performance Following New Fed Chairmen [Quantifiable Edges]

    A couple of weeks ago I did a little study that looked at performance following the induction of a new Fed Chairman. With Jerome Powell starting his new job on Monday, I decided to expand on that study below. 2018-02-04 Obviously it appears to be a bit of a mixed bag. The most positive results came in the 1st 3 weeks (15 trading days). Perhaps the market view the new chairman with enthusiasm. The
  • Factors ETFs and Futures [Factor Research]

    Investors can directly access factor returns via ETFs in the US & futures in Europe However, neither of these come without some investor concerns Realised returns differ substantially from theoretical returns INTRODUCTION Despite factor investing having gained immense popularity in recent years, it has been relatively difficult for most investors to directly access long-short factor returns as

Quantocracy’s Daily Wrap for 02/03/2018

This is a summary of links featured on Quantocracy on Saturday, 02/03/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • What to Expect from TAA When Markets Fall [Allocate Smartly]

    Markets have started the month weak. We got spoiled last year. After such an abnormally long period of market calm, its natural for investors to feel a little anxious. We have no opinion on where the markets go from here. Thats why were quantitative traders. We put a lot of time into understanding these models so that we have signposts to follow during periods of market turmoil. What we
  • Can Momentum Investing Be Saved? [Quantpedia]

    On paper, momentum is one of the most compelling factors: simulated portfolios based on momentum add remarkable value, in most time periods and in most asset classes, all over the world. So, our title may seem unduly provocative. However, live results for mutual funds that take on a momentum factor loading are surprisingly weak. No US-benchmarked mutual fund with momentum in its name has

Quantocracy’s Daily Wrap for 02/02/2018

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

  • FX Order Flow as a Predictor [EP Chan]

    Order flow is signed trade size, and it has long been known to be predictive of future price changes. (See Lyons, 2001, or Chan, 2017.) The problem, however, is that it is often quite difficult or expensive to obtain such data, whether historical or live. This is especially true for foreign exchange transactions which occur over-the-counter. Recognizing the profit potential of such data, most FX
  • Measuring Momentum s Duration For The US Stock Market [Capital Spectator]

    Momentum-based investing strategies may be one of the most reliable drivers of alpha, but like all sources of excess return this factor premium waxes and wanes through time. Accordingly, deciding when to exit the trade (or reduce exposure to it) is no less critical than determining when to jump on the gravy train. Research Affiliates recently advised that momentum can be divided into fresh and
  • Value and Momentum Factors in Fixed Income [Alpha Architect]

    Smart beta (or factor investing) seems to be the product du jour in ETFs. There are so many different factor products available that just about every fund company seems to offer themeven Vanguard is launching their own suite of factor-based stock funds. Note that nearly all of these products are focused on stocksnot bonds. Why the lack of factor love for fixed income instruments? Fixed