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Quantocracy’s Daily Wrap for 08/12/2015

This is a summary of links featured on Quantocracy on Wednesday, 08/12/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Absolute Strength Momentum: Guley And Petkova (2015) [Flirting with Models]

    In May 2015, Huseyin Gulen and Ralitsa Petkova published "Absolute Strength: Exploring Momentum in Stock Returns" (SSRN). In the paper they outline their new concept of absolute strength momentum. Momentum, in its traditional form, was a relative strength concept. Momentum took the cross-section of returns across securities, bough the "winners" and sold the "
  • Equal Weighting Investigation [John Orford]

    I landed in a town in Western Sumatra called Padang a few days after an earthquake hit. 7 or 8 on the Moment Magnitude scale. Just as in finance there are various ways of measuring quakes. The Richter scale measures ground motion whereas the more modern Moment Magnitude scale measures energy released. In any case my favourite measure of earthquake size is the n
  • 3-Bar Momentum Pattern | Trading Strategy (Entry) [Oxford Capital]

    I. Trading Strategy Concept: Short-term momentum pattern with trend filter. Source: Hill, J. R. (1977). Stock & Commodity Market Trend Trading by Advanced Technical Analysis. Hendersonville, N.C.: Commodity Research Institute, Ltd. Research Goal: Performance verification of 3-Bar Momentum Pattern. Specification: Table 1. Results: Figure 1-2. Portfolio: 42 futures markets f
  • Python Backtesting Libraries For Quant Trading Strategies [Robust Tech House]

    Frequently Mentioned Python Backtesting Libraries It is essential to backtest quant trading strategies before trading them with real money. Here, we review frequently used Python backtesting libraries. We examine them in terms of flexibility (can be used for backtesting, paper-trading as well as live-trading), ease of use (good documentation, good structure)
  • Volatility Breakout Model | Trading Strategy (Benchmark) [Oxford Capital]

    I. Trading Strategy Concept: Volatility breakout strategy based on price deviations defined by Minkowski Distance where: Upper_Band = Mean + (Multiple Deviation); Lower_Band = Mean ? (Multiple Deviation); Deviation((Close)k=1,,K, Mean) = (?|Close ? Mean|? K)1/?. Minkowski Distance has two special cases: (a) when ? = 1 (Manhattan Distance), the above formula reflects

Quantocracy’s Daily Wrap for 08/11/2015

This is a summary of links featured on Quantocracy on Tuesday, 08/11/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Vectorised Backtest in R [Quants Portal]

    In the previous 3 articles I discussed backtesting a trading strategy in Excel using the vectorised methodology. This article will cover the same strategy but in R. This article is more of a supplement to the already published article by Joshua Ulrich on FOSS Trading and is for readers looking for more examples. Before we get started, Id like to point out how
  • Update on the MOOC Machine Learning for Trading [Augmented Trader]

    If you want to be sure to be notified about enrollment opportunities, please sign up to follow my blog. I will post that information on this blog. The old course Weve had four very successful sessions of my MOOC Computational Investing, Part I at Coursera. The Coursera run included over 170,000 students with a 5% completion rate. The Coursera course f
  • War and the Markets [Factor Wave]

    This post is based on an article I wrote for Active Trader Magazine. "Buy to the sound of cannons, sell to the sound of trumpets." -Lord Nathan Rothschild, 1810 The Rothschilds were one of the worlds richest families and formed a modern financial dynasty. In 1815 they were rumored to have made a fortune when they used a carrier pigeo
  • When do equity anomalies have the highest return? During earnings announcements… [Quantpedia]

    Authors: Engelberg, McLean, Pontiff Title: Anomalies and News Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2631228 Abstract: Using a sample of 97 stock return anomalies documented in published studies, we find that anomaly returns are 7 times higher on earnings announcement days and 2 times higher on corporate news days. The effects are similar on both the long and short
  • Dual Momentum August Update [Scott’s Investments]

    Scotts Investments provides a free Dual ETF Momentum spreadsheet which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum. Antonaccis book, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk, also details Dual Momentum as a total portfolio strategy. My

Quantocracy’s Daily Wrap for 08/10/2015

This is a summary of links featured on Quantocracy on Monday, 08/10/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Bring Data [Dual Momentum]

    When doing financial modeling, one of the first things to look at is if your empirical work makes sense. In other words, are there valid economic reasons why a model should work? This can help you avoid drawing erroneous conclusions based on creative data mining.[1] Next, you should look for robustness. This can take several forms. One of the most common robustness tests i
  • Death of (Plain Vanilla) Value – Long Live GARP [EconomPic]

    Warren Buffett made news this morning, not just for making the largest acquisition of his career, but for making it at a relatively lofty 22x earnings multiple. Reuters reports: Warren Buffett is paying a hefty price for the biggest acquisition of his career, now that his Berkshire Hathaway Inc has agreed to buy Precision Castparts Corp in a merger valuing
  • What is the difference between Relative Strength and Trend Following? [Flirting with Models]

    After publishing our Two Centuries of Momentum article last week, we received a number of requests for our thoughts on the recent underperformance of multi-asset, relative strength portfolios. Now, we tend to fall more on the trend following side of momentum. So we wanted to spend some time talking about the difference between relative strength and trend following.
  • Wisdom State of Trend Following – July 2015 [Wisdom Trading]

    Summer bounce for our Wisdom State of Trend Following report. A strong up month ends the downslide seen in the second quarter and ensures the YTD performance is more comfortably in the black. Below is the full State of Trend Following report as of last month. Performance is hypothetical. Chart for July: Wisdom State of Trend Following – July 2015
  • Improving The Simple Gap Strategy Part 5 [System Trader Success]

    In the last article of the series, Improving The Simple Gap Strategy Part 4, I continued my attempt to improve the Simple Gap strategy by testing dynamic stops and targets. As it turned out these did not seem to offer much benefit. In this article Im going to take what we have learned over the past couple of articles to create a modified version of the Simple Gap strategy and test it o
  • Show yourself (look under the hood of a function in R) [Eran Raviv]

    Open source software has many virtues. Being free is not the least of which. However, open source comes with ABSOLUTELY NO WARRANTY and with no power comes no responsibility (I wonder..). Since no one is paying, by definition it is your sole responsibility to make sure the code does what it is supposed to be doing. Thus, looking under the hood of a function written by someone else i
  • Tradelib is Open Source [Quintuitive]

    Tradelib is my framework which I have been using for backtesting and signal generation in my futures trading. My feeling is that it might be useful to others, and I have decided to open source it. Unfortunately, I dont have the time at the moment to open source any strategy implemented with it, and I am also too lazy to provide a step-by-step guide for it. If you have an i
  • RUT Strangle – High Loss Threshold – 45 DTE [DTR Trading]

    This is the first article in a series that will review the performance of selling options strangles on the Russell 2000 Index (RUT). For background on the setup for the backtests, as well as the nomenclature used in the charts and tables below, please see the introductory article for this series: Option Strangle Series – Higher Loss Thresholds This post looks at selling on

Best Links of the Week

The best quant mashup links for the week ending Saturday, 08/08 as voted by our readers:

We need to vote more. About 1% of clickthroughs result in a vote. That’s just not enough. A vote doesn’t necessarily mean a link is the greatest of all time, it simply means that it’s good and deserves to be read by others. So let your voice be heard and 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, we invite you to 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 08/07/2015

This is a summary of links featured on Quantocracy on Friday, 08/07/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Battle Of New Factor Models [Larry Swedroe]

    In their groundbreaking paper, Digesting Anomalies: An Investment Approach, Kewei Hou, Chen Xue and Lu Zhang proposed a new four-factor asset pricing model that goes a long way toward explaining many of the anomalies neither the Fama-French three-factor nor subsequent four-factor models could explain. The study, which was published in the March 2015 issue of The Review of
  • Momentum Strategies [Quants Portal]

    Pinto, Henry, Robinson and Stowe (2010) define momentum indicators as valuation indicators that are based on the relationship between price or another fundamental, earnings for example, to a time series of its historical performance or to the fundamentals expected future performance values. When the strategy uses earnings then it is an earnings momentum strategy and in the case of usin
  • Hello, Market Maker! [MKTSTK]

    As we have made clear in the past, we are fascinated by the economics of open source software. This business model makes sense for massively scalable and ubiquitous bits of technology, but surely it must be anathema to the closed world of trading, right? This has an intuitive appeal, we know of people that have made millions off of the information acquired overhearing conve
  • Selecting an Appropriate Benchmark [Quantlab.co.za]

    Introduction I have the privilege of working with two of the sharpest minds in the industry. Last week I had a discussion with them via email about selecting a suitable benchmark for the strategies I run. I was specifically questioning them on the use of cash returns as a benchmark. This is a contentious issue in the industry – many folk disagree with cash as a benchmark be
  • The Junkie Market, Part lll – Too Many NYSE AND Nasdaq Highs & Lows [Dana Lyons]

    This brief post will serve as the coup de grace for our Junkie Market series. By that, we are referring to days on which there are numerous (in this case, at least 100) new 52-Week Highs AND 52-Week Lows. We have covered such occurrences on the NYSE and the Nasdaq exchanges. If youll recall, these events tended to pop up near cyclical market tops. Thus, the forward returns in t

Quantocracy’s Daily Wrap for 08/05/2015

This is a summary of links featured on Quantocracy on Wednesday, 08/05/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Two Centuries of Momentum [Flirting with Models]

    A momentum-based investing approach can be confusing to investors who are often told that chasing performance is a massive mistake and timing the market is impossible. Yet as a systematized strategy, momentum sits upon nearly a quarter century of positive academic evidence and a century of successful empirical results. Our firm, Newfound Research, was found
  • Maximum Loss Stops: Do you really need them? [Alvarez Quant Trading]

    We hear it all the time. You must use stops. And most of us use them. But do you know how they change your strategy results? Are they improving your results by giving you higher CAR or lower maximum drawdown? Recently I was speaking with a reader about this topic and he insisted that it you had to have stops to trade. Well, does one? Early in my time while working with La
  • Turn of the Month Effect in Commodities [Factor Wave]

    I've been thinking about applying factor analysis to commodity futures. People have studied this idea but commodity factors have not been studied to the same degree as equity factors. This is to be expected. Stocks are parts of companies and there are many commonalities between the operations and accounting reports of companies, even those in different industries and sectors. On the oth
  • When Bonds Act Like Stocks [Larry Swedroe]

    Research into the determinants of fixed-income returns have found that a number of stock and bond market risk factors can be shown to demonstrate explanatory power beyond the standard term-structure variables. Ivelina Pavlova, Ann Marie Hibbert, Joel Barber and Krishnan Dandapaniauthors of the paper Credit Spreads and Regime Shifts, which appears in the Summer 2015 issue

Quantocracy’s Daily Wrap for 08/04/2015

This is a summary of links featured on Quantocracy on Tuesday, 08/04/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Expensive Junk Stocks are Killing High-Quality Value Stocks, YTD [Alpha Architect]

    In general, investors focused on affordable stocks with strong fundamentals have been taken to the cleaners year-to-date. Meanwhile, expensive stocks with poor fundamentals have been rocking! Some Basic Statistics: Below we document some core performance figures using Ken Frenchs data on value/growth portfolios (proxy for cheap/expensive) and high profi
  • 2 Ways to Lower Portfolio Drawdown [Flirting with Models]

    The financial crisis of 2007 to 2009 highlighted the importance of downside risk management. Many managers that protected capital during this period saw their AUM balloon. Some of these same managers underperformed in the post-crisis years. This underperformance should be anything but surprising. We often compare tactically risk-managed strategies to uncertain

Quantocracy’s Daily Wrap for 08/03/2015

This is a summary of links featured on Quantocracy on Monday, 08/03/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • VIX Trading Strategies in July [Volatility Made Simple]

    We've tested 23 simple strategies for trading VIX ETPs on this blog (separate and unrelated to our own strategy). And while I can't speak for all traders, based on all of my readings both academic and in the blogosphere, the strategies we've tested are broadly representative of how the vast majority of traders are timing these products. There was a wide disparity in the per
  • The Ornstein-Uhlenbeck process and pairs trading [MKTSTK]

    Perhaps the most widely known form of statistical arbitrage is called Pairs Trading. In this general strategy, we start first by picking two stocks which are highly related to one another (either by correlation, cointegration, or both). One method for finding such pairs is to use a network graph like a Minimum Spanning Tree. A filtered correlation network quickly summarizes the set of a
  • Daily Academic Alpha: Warren Buffett Market Predictions [Alpha Architect]

    Last week we had a fairly long post on a valuation based asset allocation strategy that might actually work. This post followed a couple of other research projects on the issue, which showed limited evidence for simple valuation-based timing strategies. Now there is a new paper on Warren Buffetts favorite timing mechanism, Market Cap/ GNP (or GDP). Weve discussed this met
  • Backtesting in Excel: Adding a Stop Loss [Quants Portal]

    In my previous article I went over how to add a position sizing rule and in this one I will complete homework exercise 2: adding a stop loss and trailing stop loss. Adding a stop loss in R is way easier than building it into Excel, I had to think for some time as to how I was going to break it down in the spreadsheet. First calculate daily returns followed by a column to as
  • Prepared: Market Breakout or Breakdown? [Flirting with Models]

    This week we received an email from an advisor that echoes some calls weve been receiving lately. We thought it would make a great topic for us to cover in our commentary this week. The email read: Were seeing a lot of negative indicators in the market right now, and seeing commentary from other managers changing from pessimistic to dire warnings of impen
  • A Quant’s view of CFA Level I [Turing Finance]

    Having just written and, thankfully, passed the CFA Level I exam I wanted to take this opportunity to share my experience writing the CFA Level I exam given that I come from an unconventional academic background and work in the industry as a quantitative analyst. I also want to share some helpful online resources with would-be CFA Level I candidates who might find the quantitative meth
  • Sizing Up the Size Premium (h/t @Abnormal Returns) [Gerstein Fisher]

    Since Rolf Banz published his groundbreaking paper that identified the so-called small stock effect in 1981, the investment community has acknowledged the existence of a return premium afforded to smaller-capitalization stocks over their larger counterparts. Banzs study demonstrated that between 1926 and 1980, the smallest quintile of the stocks on the New York Stock Exchange outperf
  • Do the VIX Futures Know More Than the S&P 500? [Factor Wave]

    A while ago I wrote a post, "Does the VIX Know More Than the S&P 500?", and concluded "when the VIX and the S&P 500 are both up on the day sell the stocks, either through the futures of an ETF. " An astute reader, Leo Cheng, pointed out that the VIX index has a certain degree of predictability (mean reversion, clustering and calendar effects) and these effects are pri
  • The Carry Trade Defies Theory [Larry Swedroe]

    The success of the carry trade strategy has led to its widespread proliferation, despite the fact that it contradicts economic theory. In short, this strategy involves borrowing (going short) a currency with a relatively low interest rate and using the proceeds to purchase (going long) a currency yielding a higher interest rate, capturing the interest differential. It can be enhanced

Quantocracy’s Daily Wrap for 08/02/2015

This is a summary of links featured on Quantocracy on Sunday, 08/02/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 08/01/2015

This is a summary of links featured on Quantocracy on Saturday, 08/01/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Quantocracy’s Best Links in July [Quantocracy]

    The best links for the month of July, as voted by our readers: P/E Attention Strategies Earn Monthly Excess Return of 1% [Alpha Architect] Back to Fundamentals [Dual Momentum] New Paper from Markowitz: Introducing the Gerber Statistic [Flirting with Models] Video: James Simons Numberphile [YouTube] All Strategies Blow Up [Gest