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Quantocracy’s Daily Wrap for 06/23/2015

This is a summary of links featured on Quantocracy on Tuesday, 06/23/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Creating an Open Source Hedge Fund Strategy [Quants Portal]

    The idea is to build a quantitative hedge fund strategy based on momentum investing. With the obvious interest that I see on Quantocracy, I felt that this would be a topic that many of us are interested in. I didnt want to run the risk of previous employers saying I used their IP, so I hired 4 students (Still currently studying, I listed the qualification they were busy wi
  • Fad Investments (the Case of Good Harbor) [EconomPic]

    Investment News outlines an arbitration request by an investor seeking damages for being placed in two funds; one to F-Squared (an outright fraud) and another to Good Harbor's U.S. Tactical Core Fund (GHUIX). The adviser placed approximately $900,000 of the investor's savings, which his lawyer said was the vast majority, in products managed by two so-called ETF strategi
  • How The Russell 2000 has Dominated the S&P 500 in Late June [Quantifiable Edges]

    Yesterday I published a study that showed the week after June opex has exhibited weakness in recent years. An astute newsletter subscriber suggested to me that this could be partially due to Russell rebalancing, which always happens at the end of June. His comments led me to wonder how the Russell 2000 might have performed versus the SPX during late June. The table below shows how the Russell 2000
  • New Backtests for ETFReplay Portfolio [Scott’s Investments]

    I am frequently asked about various strategy and portfolio performance metrics and backtests. A reader recently asked if there are any current backtests for the ETFReplay 6/3/3 Portfolio so I decided now is the appropriate time to provide updated results. The strategy background is available here and is updated monthly on Scott's Investments, including a real-time simulate
  • Beginner’s Guide to Time Series Analysis [Quant Start]

    Over the last few years we've looked at various tools to help us identify exploitable patterns in asset prices. In particular we have considered basic econometrics, statistical machine learning and Bayesian statistics. While these are all great modern tools for data analysis, the vast majority of asset modeling in the industry still makes use of statistical time series anal
  • An Investable ‘Investable Vix’ Strategy [John Orford]

    The ideas I sketch out every afternoon are fanciful sweet little things, decorated to perfection. Then someone ventures a bite and sometimes finds that that's all they are. Fanciful. Readers are fantastic guinea pigs! Ilya got in touch about this post about diversification and rightly mentioned that it is impossible to actually invest
  • Oh Those Summer Nights [Overnight Edges]

    Danny Zucco and Sandy loved the Summer Nights, but how have they played out for the market over the years? Below I examine two time periods. As youll see, the edge may be shifting. First, lets look at numbers from the summers of 2000 2012 (from the night of June 21st the night of September 20th). 2015-06-23 Q1 As you can see, summer was not a great tim
  • Trading Stocks using Bonds [Jay On The Markets]

    In case you are new to this game or just in case you never noticed, there are a lot of ways to play this game. This article details one. I cant honestly say that this is a good strategy the test period is relatively short, it uses leverage so it is risky, and drawdowns may be more than some people can bear. Still, there is an old saying that goes something like this:
  • The Probability of Something that has Never Occurred [Factor Wave]

    An astute reader of the post on Risk pointed out that one of the reasons risk management is hard is because it often involves estimating the chance of something that has never happened before. For example, what is the probability of the US defaulting on its debt or of Apple going bankrupt? Sometimes there are instruments in the market that imply these probabilities (

Quantocracy’s Daily Wrap for 06/21/2015

This is a summary of links featured on Quantocracy on Sunday, 06/21/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Interview with Ernest Chan [Better System Trader]

    Ernie Chan is an expert in the application of statistical models and software for trading currencies, futures, and stocks. He has built and traded numerous quantitative models for investment banks and hedge funds. He is now the Managing Member of QTS Capital Management, commodity pool operator and trading advisor, managing a hedge fund as well as individual accounts.
  • Fractal Investment Strategy [John Orford]

    Martin Stisen got in touch after reading about the Mean Reversion + Momentum Strategy last week with an idea. Using the Hurst exponent to predict future returns. Quirky ideas are exciting. The Hurst exponent was originally found by observing how the Nile River waxed and waned over the years and now for base money making purposes we will apply it to

Quantocracy’s Daily Wrap for 06/20/2015

This is a summary of links featured on Quantocracy on Saturday, 06/20/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Stops II [Factor Wave]

    In this post I surmised about the effect of stops and got about as far as I could by speculating from my armchair. So I simulated ten thousand investments. Before there is any stop we have a distribution with a mean of 10% and a standard deviation of 20%. This is similar to the performance of the S&P 500 since 1950, which has an annual return of 7.4% and a standard deviatio
  • Automated Daily Stock Database Updates Using The R Statics Project [Godel’s Market]

    I received a request from pcavatore several posts ago. pcavatore was interested in "database update automation via R script." He wanted to know "how to run a daily task to update prices in the database." In this article we'll be using R and the RMySQL package to access and update a MySQL database with stock information from Yahoo! Finance. If you do not have R installed,

Quantocracy’s Daily Wrap for 06/19/2015

This is a summary of links featured on Quantocracy on Friday, 06/19/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Daily Academic Alpha: Corporate Loan Momentum Alpha [Alpha Architect]

    The Cross-Section of Expected Returns in the Secondary Corporate Loan Market We examine the pricing of characteristics and betas in the cross-section of expected corporate loan returns. Expected loan returns decrease with default beta. Default beta contains information not captured by rating or spread-to-maturity. A three-month formation momentum strategy earns a monthl
  • Backtesting Methodology Problems [John Orford]

    How many times have you bought a bottle of milk? And how many times have you bought a house? Which are you more comfortable with? It's no surprise that we make better repeated small decisions than the once in a lifetime big choices. When short horizon strategies make mistakes they dust themselves off and jump back into the market the next day.

Quantocracy’s Daily Wrap for 06/18/2015

This is a summary of links featured on Quantocracy on Thursday, 06/18/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Momentum Due Diligence [Dual Momentum]

    Sometimes I get asked how well momentum has done the past year or the past several years. If I am in a snarky mood that day, I'll respond, "What will that tell you?" The truth of the matter is that, in most cases, short-term performance is indistinguishable from noise and cannot tell you anything meaningful. Here are the questions that one should ask instead: 1) Why does momentum
  • High Dividend Stocks and Value Investing [Alpha Architect]

    Barron's recently ran an article (written by Research Affiliates), which is titled "Get Smart About Picking Dividend-Rich Stocks." The article highlights that high-quality high-dividend-paying stocks outperform low-quality high-dividend-paying stocks. The quality of the firm is measured by profitability, financial distress, and accounting red flags. We investigate a Simpler Way to
  • One more practical research paper related to #20 – Volatility Risk Premium Effect [Quantpedia]

    #20 – Volatility Risk Premium Effect Authors: Donninger Title: Hedging Adaptive Put Writing with VIX Futures : The Affenpinscher Strategy Link: http://www.godotfinance.com/pdf/AffenPinscherStrategy_Rev1.pdf Abstract: In a previous working paper I analyzed the Austrian and Doberman Pinscher strategy. The Austrian is an adaptive Put Writing strategy. One hedges the short position wit
  • Successful Algorithmic Trading Updated for Python 2.7.x and Python 3.4.x [Quant Start]

    This is a short update to inform current and prospective readers of Successful Algorithmic Trading that the Python code in the book has been updated to be fully compatible with both Python 2.7.x and Python 3.4.x. In addition I've created a requirements.txt file that allows you to easily install, via pip, the necessary Python packages. I've also checked every file within the code to mak
  • Dow Divergences Reaching Historic Levels [Dana Lyons]

    Since 1929, the Dow Jones Industrial Average has rarely ever been so close to a 52-week high while the Dow Transports AND Dow Utilities were so close to a 6-month low. A few weeks ago, we ran a series on divergences in an attempt to provide some statistical evidence to the debate on this ambiguous topic. Given the attention paid to the Dow Theory (i.e., the relationship between the Dow
  • RUT Iron Condor – High Loss Threshold – 80 DTE [DTR Trading]

    This post looks at a standard (STD) one-lot iron condor on the Russell 2000 Index (RUT), initiated at 80 days-to-expiration (DTE). The results in this post were derived from approximately 3200 individual trades entered by the backtester. 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 f

Quantocracy’s Daily Wrap for 06/15/2015

This is a summary of links featured on Quantocracy on Monday, 06/15/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 06/14/2015

This is a summary of links featured on Quantocracy on Sunday, 06/14/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Interview with Ralph Vince [Better System Trader]

    Ralph Vince is a trading systems expert who has been programming trading systems for fund managers, sovereign wealth funds and staking systems for "professional gamblers," since the early 1980's, working as a personal programmer to legendary traders like Larry Williams. He is a recognized authority on position sizing in trading and has written numerous books and professiona
  • Predicting Heavy and Extreme Losses in Real-Time for Portfolio Holders [Quant at Risk]

    The probability of improbable events. The simplicity amongst complexity. The purity in its best form. The ultimate cure for those who trade, for those who invest. Does it exist? Can we compute it? Is it really something impossible? In this post we challenge ourselves to the frontiers of accessible statistics and data analysis in order to find most optimal computable solutions to this en

Quantocracy’s Daily Wrap for 06/13/2015

This is a summary of links featured on Quantocracy on Saturday, 06/13/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Momentum and Stop Losses [Dual Momentum]

    Stop losses are a form of trend following in which you switch from risky assets, such as stocks, to a risk-free or fixed income asset after there are pre-determined cumulative losses. The random walk hypothesis (RWH) was widely accepted in the 1960s and 1970s. It was synonymous with market efficiency. It effectively eliminated any academic interest in stop loss rules. Under RWH, with st
  • An Overview of Market (In)efficiency Research [John Orford]

    Always outnumbered but never outgunned. That's how the saying goes. But this time you are outgunned and staring death squarely in the face. In the moments before your final reckoning, you think about your children, husband – and the impending invasion. This is it. And that is precisely what economists face every day hen fo
  • Using the Price to Sales Ratio [Investor’s Field Guide]

    Price to sales is a very simple valuation ratio. It has the tendency to bias you towards lower margin and higher debt companies, all else equal, but it has still been a very effect measure of cheapness and a fine standalone factor for stock selection. Having explored the history of the ratio, lets now turn to its measurement and usefulness in stock selection. Here is a sum
  • Max Wait [John Orford]

    There's a phrase or attitude in and around Java called pasrah. Maybe it's dying out only surviving in some out of the way places which haven't been totally submerged in bit and bytes. Pasrah means 'resignation'. Train doesn't come on time? Pasrah. Stuck in a humungous queue? Pasrah. Stranded in your car in the middle of Ja

Quantocracy’s Daily Wrap for 06/12/2015

This is a summary of links featured on Quantocracy on Friday, 06/12/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Performance and correlated assets [Quant Dare]

    It is well known that an efficient portfolio should be comprised by uncorrelated assets. The objective is to cover possible widespread falls of all portfolios assets. But, what actually is the negative effect of investing in correlated assets? Does the correlation benefit at anytime? How often does the correlation work against the earnings? Firstly, we focus on S&P500 in o
  • Dual Momentum June 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
  • Momentum Across Time & Asset Classes [Larry Swedroe]

    The academic study of price momentum has intensified considerably since 1993, the year Narasimhan Jegadeesh and Sheridan Titman's paper, "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," appeared in The Journal of Finance. The authors found that buying winning stocks and selling losers generated significant positive returns over three- to
  • Lazy PCA Site [John Orford]

    Lots of posts in the past week about breaking down time series returns into momentum and mean reversion. Vix Equity Momentum Mean Reversion + Momentum strategy Now you can PCA too! I have added an interface to the code I have been using and called it Lazy PCA. Try it out and let me know what you think!

Quantocracy’s Daily Wrap for 06/10/2015

This is a summary of links featured on Quantocracy on Wednesday, 06/10/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Using Profitability as a Factor? Perhaps You Should Think Twice… [Alpha Architect]

    Many investors are getting excited about the so-called profitability factor, originally posed by Novy-Marx (here is an alternative story) . Larry Swedroe has a high-level piece advocating the concept here. The basic idea is simple: Other things being equal, firms with high gross profits (revenue costs) have earned higher expected returns than firms with low gross profit
  • PCA & Momentum [John Orford]

    Check out the first and second posts in this series to get up to speed. This is a picture of AAPL's monthly returns over the last 3 years. It shows ever so slightly more momentum than mean reversion as the ellipse is pointing up right. In contrast to the previous equity and Vix pictures the plotted data is pretty centred. I would bet that AAPL has
  • New related paper to #21 – Momentum Effect in Commodities and #22 – Term Structure Effect in Commodities [Quantpedia]

    #21 – Momentum Effect in Commodities #22 – Term Structure Effect in Commodities Authors: Benham, Walsh, Obregon Title: Evaluating Commodity Exposure Opportunities Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2602885 Abstract: Commodities as an asset class have been in growing demand over the last 40 years