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Quantocracy’s Daily Wrap for 12/28/2015

This is a summary of links featured on Quantocracy on Monday, 12/28/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • State Space Models and the Kalman Filter [Quant Start]

    To date in our time series analysis posts we have considered linear time series models including ARMA, ARIMA as well as the GARCH model for conditional heteroskedasticity. In this article we are going to consider the theoretical basis of state space models, the primary benefit of which is that their parameters can adapt over time. State space models are very general and it is possible to put the
  • Why Index Investing Wins [Larry Swedroe]

    J.B. Heaton, Nick Polson and J.H. Witte recently authored a nice short paperits all of four pagesentitled Why Indexing Works. In it, the authors developed a simple stock selection model to explain why active equity fund managers tend to underperform their benchmark index. While most of the academic literature focuses on the efficiency of the market and the higher costs of active
  • Our Favorite Commentaries from 2015 [Flirting with Models]

    This commentary is available for download here. There is an adage on Wall Street that comes around every January. And every January, we debunk it. In As Goes January, So Goes the Year, we remind readers that while the performance of markets in January will, by definition, influence the total return of the year, the returns in January say nothing about market returns in February through December.
  • Machine Learning and Mechanical Trading with Genotick [Throwing Good Money]

    Ive recently been experimenting with Genotick, which is open-source java software that attempts to discover mechanical trading systems through the use of machine learning. You can run it on just about any Mac/Windows/Linux system (although you may have additional hurdles to get java8 working at the command-line level on a Mac). Thousands of tiny programs create random rules to predict the next

Best Links of the Week

The best quant mashup links for the week ending Saturday, 12/26 as voted by our readers.

Also, Jacques added two new books to our quant books library (a big mahalo to QuantStrat TradR for your input):

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My fellow traders, ask not what Quantocracy can do for you, ask what you can do for Quantocracy. Vote for your favorite links on our quant mashup to encourage bloggers to write quality content. We do our part by providing this site without annoying advertising. All we ask is that you take a moment to participate in the process.

If you haven’t done so already, register to vote. Once registered, you can choose to remain logged in indefinitely, making voting as simple and painless as possible.

Read on Readers!
Mike @ Quantocracy

Quantocracy’s Daily Wrap for 12/25/2015

This is a summary of links featured on Quantocracy on Friday, 12/25/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Build Better Strategies! Part 2: Model-Based Systems [Financial Hacker]

    Trading systems come in two flavors: model-based and data-mining. This article deals with model based strategies. The algorithms are often astoundingly simple, but properly developing them has its difficulties and pitfalls (otherwise anyone would be doing it). Even a significant market inefficiency gives a system only a relatively small edge. A little mistake can turn a winning strategy into a

Quantocracy’s Daily Wrap for 12/24/2015

This is a summary of links featured on Quantocracy on Thursday, 12/24/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • High noon for 2015 market prophets [Mathematical Investor]

    When a prophet speaketh, if the thing follow not, nor come to pass, the prophet hath spoken it presumptuously: thou shalt not be afraid of him. [Deuteronomy 18:22]. In a December 2014 Math Investor blog, we assessed how 2014 market prophets had fared (answer: not very well). Thus with the holiday season once again upon us, it is time to check scores. So how have 2015 prophets performed?
  • VBA Swap Pricing [Smile of Thales]

    VBA and Quant finance This article is actually a first part of an introductory course to VBA coding, given at Solvay School of Economics in Feb. 2014. The Excel sheet and VBA swap pricing code are attached. Visual Basic for Applications (VBA) is not trendy, properly speaking, in the financial industry. It is however massively used in many institutions for several reasons. People naturally
  • Stock Returns Around New Year s Day [CXO Advisory]

    Does the New Years Day holiday, a time of replanning and income tax positioning, systematically affect investors in a way that translates into U.S. stock market returns? To investigate, we analyze the historical behavior of the S&P 500 Index during the five trading days before and the five trading days after the holiday. Using daily closing levels of the S&P 500 Index around New
  • AmiBroker Code for the Breadth Indicator [Throwing Good Money]

    As per request, Im including the AmiBroker code for the 30% up/down last quarter in the Russell 3000 index indicator. I REALLY need to come up with a better name for it than that. How about the Haines Breadth Indicator? No, thats stupid. Magic Matts Mystical Meter? Uhsure. Its a two step process. You must do a scan every day, or as frequently as you want accurate data. It

Quantocracy’s Daily Wrap for 12/23/2015

This is a summary of links featured on Quantocracy on Wednesday, 12/23/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 12/22/2015

This is a summary of links featured on Quantocracy on Tuesday, 12/22/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • New Book Added: 25 Recipes for Getting Started with R [Amazon]

    R is a powerful tool for statistics and graphics, but getting started with this language can be frustrating. This short, concise book provides beginners with a selection of how-to recipes to solve simple problems with R. Each solution gives you just what you need to know to use R for basic statistics, graphics, and regression. You'll find recipes on reading data files, creating data frames,
  • ZIRP, And The Factors That Launched 1,000 ETFs [Investor’s Field Guide]

    The rise of smart betaor more broadly, factor investinghas coincided with a 6 year period of zero interest rates. During this period, factors have been particularly ineffective relative to longer term results. Using publicly-available data (Ken French) we can explore the recent results for the most popular stock selection factors and compare them to longer-term periods of both rising and
  • Using Market Breadth To Gauge Market Health (Part 5) [Throwing Good Money]

    This is part 5 of a multi-part series examining the use of market breadth indicators to judge the state of the market. For an overview of what Im doing, youd best start here so you can catch up: PART 1CLICK HERE. And oh yeah, we finally have an indicator that beats our baseline! Just coincidence that I left this one until the end? Perhaps This next market breadth indicator counts all
  • US Recession Callers Are Embarrassing Themselves [Macrofugue]

    Through a combination of quackery, charlatanism, and inadequate utilisation of mathematics, callers for US recession in 2016 are embarrassing themselves. Again. The most prominent reason for recession calling may well be the Institute of Supply Managements Manufacturing Purchasing Manager Index. The problem with this recession forecasting methodology is that it doesnt work. Figure 1: ISM PMI
  • In Search of Sustained Success [Systematic Relative Strength]

    How do you rate an NBA team across a decade of play? One method is Elo, a simple measure of strength calculated by game-by-game results (Source: Nate Silvers FiveThirtyEight). A description of Elo is below: Elo ratings have a simple formula; the only inputs are the final score of each game, and where and when it was played. Teams always gain Elo points for winning. But they get more

Quantocracy’s Daily Wrap for 12/21/2015

This is a summary of links featured on Quantocracy on Monday, 12/21/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Best Links of the Last Two Weeks [Quantocracy]

    The best quant mashup links for the two weeks ending Saturday, 12/19 as voted by our readers: Using the LASSO to Forecast Returns [Alex Chinco] pysystemtrade [Investment Idiocy] Why Does Dual Momentum Outperform? [Dual Momentum] Why doesnt the choice of performance measure matter? [MathFinance.cn] We also welcome three blogs making their first ever appearance on the mashup: Using Market Breadth
  • Returns don’t mean revert, fundamentals do [Flirting with Models]

    While prior 5-year returns for the S&P 500 have been spectacular, prior 10-year returns are still muted. Does this mean the bull market still has room to run? Prior returns, however, are not a great predictor of future returns. Fundamentals, not returns, tend to be mean-reverting. Current fundamentals are historically expensive: Shiller PE currently sits in the 89th percentile. This implies
  • Using Market Breadth to Gauge Market Health (part 4) [Throwing Good Money]

    Welcome to Part 4 of this series. Were still trying to find a market breadth indicator that gives a better health assessment than using a simple moving average on SPY. For a description of what the heck Im doing, please go back and read the first post (and the subsequent ones too): Using Market Breadth to Gauge Market Health (part 1) Back when momentum and dinosaurs ruled the earth (instead
  • Present-day great statistical discoveries [Eran Raviv]

    Some time during the 18th century the biologist and geologist Louis Agassiz said: Every great scientific truth goes through three stages. First, people say it conflicts with the Bible. Next they say it has been discovered before. Lastly they say they always believed it. Nowadays I am not sure about the Bible but yeah, it happens. I express here my long-standing and long-lasting admiration

Best Links of the Last Two Weeks

The best quant mashup links for the two weeks ending Saturday, 12/19 as voted by our readers:

We also welcome three blogs making their first ever appearance on the mashup:

And lastly, Jacques added one new book to our quant books library:

* * *

My fellow traders, ask not what Quantocracy can do for you, ask what you can do for Quantocracy. Vote for your favorite links on our quant mashup to encourage bloggers to write quality content. We do our part by providing this site without annoying advertising. All we ask is that you take a moment to participate in the process.

If you haven’t done so already, register to vote. Once registered, you can choose to remain logged in indefinitely, making voting as simple and painless as possible.

Read on Readers!
Mike @ Quantocracy

Quantocracy’s Daily Wrap for 12/17/2015

This is a summary of links featured on Quantocracy on Thursday, 12/17/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Why Does Dual Momentum Outperform? [Dual Momentum]

    Those who have read my momentum research papers, book, and this blog should know that simple dual momentum has handily and consistently outperformed buy-and-hold. The following chart shows the 10- year rolling excess return of our popular Global Equities Momentum (GEM) dual momentum model compared to a 70/30 S&P 500/U.S. bond benchmark [1]. Results are hypothetical, are NOT an indicator of
  • Momentum: Slip Counterfactuals, the “Stale Price” Effect, and the Future [Philosophical Economics]

    The recent piece on the dangers of backtesting has attracted an unusual amount of attention for a piece on this blog. I'd like to thank everyone who read and shared the piece, and also those who offered up commentary on it. To be clear, my intent in presenting the Daily Momentum example was not to challenge the Fama-French-Asness momentum factor in specific, or the phenomenon of momentum in
  • Time-Series vs. Cross-Sectional Implementation of Momentum, Value and Carry Strategies [Quantpedia]

    We contrast the time-series and cross-sectional performance of three popular investment strategies: carry, momentum and value. While considerable research has examined the performance of these strategies in either a directional or cross-asset settings, we offer some insights on the market conditions that favor the application of a particular setting. Notable quotations from the academic research
  • Avoid Firms with CFOs that Golf All the Time [Alpha Architect]

    Chief financial officers are responsible for managing the financial reporting process. We test whether the quality of a firms financial reports is a function of the effort expended by the CFO. Using golfing records to measure leisure consumption, we first show that CFOs consume more leisure when they have lower economic incentives to work. We show further that higher levels of CFO leisure are
  • Historical SPX Performance When Rates Start To Rise [Quantifiable Edges]

    Fed announcing Wednesday that they will begin raising rates for the 1st time in 11 years. Since 1990 there have only been 4 other cycles of rate hikes. I decided to measure SPX performance from the start of those cycles. I found that one month later the stock market was trading lower every time. But one year later it was higher every time. Individual returns (based on $100k/trade) can be found in