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Quantocracy’s Daily Wrap for 06/09/2015

This is a summary of links featured on Quantocracy on Tuesday, 06/09/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Lessons from Market Extremes [Investor’s Field Guide]

    We know that markets overdo it at extremes. At the market level, we call these bubbles or manias, panics or crashes. At the stock level, we call them glamour and value. Lets collect some lessons from the best performing stocks from the two categories where investors have the most extreme (good or bad) expectations for the futurevalue and glamour stocks. A quick definition
  • Fixing Empirical Finance [CXO Advisory]

    What are the most pressing systematic weaknesses in financial research, and how should the investment community address them? In the May 2015 version of his article entitled The Future of Empirical Finance, Marcos Lopez de Prado identifies three major problems in empirical finance and proposes ways to mitigate them. Based on his experience and common sense arguments and references
  • Chapter 11 – Comparison of the Strategies [Meb Faber]

    This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and Ill send you a free copy. – I believe in the discipline of mastering the best that other people have ever figured out. I dont believe in just sitting there and trying to dream it up all yourself. Nobodys that smart.
  • Chapter 10 – The Warren Buffett Portfolio [Meb Faber]

    This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and Ill send you a free copy. – Warren Buffett mentioned asset allocation instructions for his trust in his 2013 shareholder letter: What I advise here is essentially identical to certain instructions Ive laid o
  • Chapter 9 The Endowment Portfolio [Meb Faber]

    This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and Ill send you a free copy. – Because for any given level of return, if you diversify, you can generate that return with a lower risk; or for any given level of risk, if you diversify, you can generate a higher return. So
  • Equity through a PCA Lens [John Orford]

    Last time I had a look at the Vix's returns plotted against each other with a quarter lag. Now I am doing the same with the S&P 500. Whereas the Vix's returns were mostly found in the bottom left corner and reflected positive skew, I promised equities would be in the top right and imply negative skew. The S&P 500 however is fairly centred, the larg
  • The Utilities Divergence $XLU [@NautilusCap]

    The Utilities Divergence $XLU
  • RUT Iron Condor – High Loss Threshold – 52 DTE [DTR Trading]

    This post looks at a standard (STD) one-lot iron condor on the Russell 2000 Index (RUT), initiated at 52 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 introducto
  • [Academic Paper] Working Your Tail Off: Active Strategies vs. Direct Hedging [@Quantivity]

    Working Your Tail Off: Active Strategies vs. Direct Hedging

Quantocracy’s Daily Wrap for 06/04/2015

This is a summary of links featured on Quantocracy on Thursday, 06/04/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 06/03/2015

This is a summary of links featured on Quantocracy on Wednesday, 06/03/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 06/01/2015

This is a summary of links featured on Quantocracy on Monday, 06/01/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • SPX Iron Condor – High Loss Threshold Results Summary [DTR Trading]

    Over the last four blog posts we looked at eight different exit approaches for a standard SPX iron condor with 25 point wings. These exits included: STD – NA%:NA% – exit at 8 DTE. STD – NA%:50% – exit if the trade has a profit of 50% of its initial credit OR 8 DTE. STD – 100%:50% – exit if the trade has a loss of 100% of its initial credit OR if the
  • Ignore the Margin Debt Alarm [EconomPic]

    Ignore the Margin Debt Alarm The margin debt alarm has seemingly been sounded every few months when investors realize absolute levels of margin debt has reached new all-time highs (inferring that risk taking has too reached all-time high levels and stocks are at risk). This brief post highlights why any such alarm (and any future margin debt alarm) should likely be ignored.
  • Fooled by Monte Carlo Analysis [System Trader Success]

    Simple Monte Carlo analysis tools are often used to assess the risks of trading systems and to determine appropriate capitalization levels. However, simple trade reshuffling algorithms can produce misleading results in many cases and fool their users. There are several Monte Carlo analysis tools available to traders. Some of these are even distributed for free via popular f
  • Investors Pay Premiums For Bad Bets [Larry Swedroe]

    The first formal asset pricing modelthe capital asset pricing modelwas built on certain assumptions, including that investors are risk-averse; will maximize the expected utility of absolute wealth; and care only about the mean and variance of return. However, academic research has found that these assumptions dont necessarily hold. In the real world, some

Quantocracy’s Daily Wrap for 05/30/2015

This is a summary of links featured on Quantocracy on Saturday, 05/30/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Chapter 5 The Permanent Portfolio [Meb Faber]

    This excerpt is from the book Global Asset Allocation now available on Amazon as an eBook. If you promise to write a review, go here and Ill send you a free copy. – Harry Browne was an author of over 12 books, a one-time Presidential candidate, and a financial advisor. The basic portfolio that he designed in the 1980s was balanced across four simple assets
  • What Do Falling Corporate Profits Mean With Stocks Near Their Highs? [Dana Lyons]

    If youve followed this blog for awhile, you may have noticed that we dont cover fundamental or economic data too often. That is for a good reason: we dont use it, at all. Occasionally, however, a data point will cross the radar that piques our interest for whatever reason. So it is with the current state of U.S. Corporate Profits. The U.S. Bureau of Economic Analysis released the lat
  • Discussing Deep Value and the Acquirer s Multiple at Harvard [Greenbackd]

    A little over a month ago I travelled to Harvard to speak to Michael Parzens business statistics class on Deep Value and the acquirers multiple. Here is the recording of that talk. You can get a free list of the best deep value stocks in the largest 1000 names on The Acquirers Multiple. Buy my new book Deep Value: Why Activist Investors and Other Contrarians
  • Equally Weighted Portfolios [John Orford]

    Old school German and Austrian professors operate on 'academic time'. When you are told to meet at 3, they really mean a quarter past. You wouldn't want to reverse the tables though. Better to be a quarter of an hour too early than too late. I never got the hang of academic time. Same with investing. Rather than getting your fingers bu

Quantocracy’s Daily Wrap for 05/28/2015

This is a summary of links featured on Quantocracy on Thursday, 05/28/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • What has Worked in June [Quintuitive]

    Time to start looking at the next month. Lets start with the top five performing futures (ordered by winning percentage): Future Total Months Winning Months Mean Return Median Return 30-Year Bond 37 68% (25) 9.62% 1.57% Canadian Dollar 37 68% (25) 0.07% 0.53% 10-Year Note 32 63% (20) 9.46% 1.45% Feeder Cattle 37 62% (23) 0.83% 0.
  • Basic Factor Analysis: Simple Tools to Understand What Drives Performance [Alpha Architect]

    Investors should know what they are buying and why they are buying it. Unfortunately, more often than not, investment products are jammed down the throats of unsuspecting victims who are either ignorant, easy to influence, and/or dont really care. We highlighted an extreme example of this in the form of a 3% front-end load, 60bp management fee S&P 500 Index Fu
  • Momentum Environments [Systematic Relative Strength]

    How consistent are Momentum returns? This is among the most frequently asked questions about Momentum (and about any investment strategy for that matter). One way to answer this question is to look at the following table from a white paper published by RBC Capital Markets. According to their research, Momentum outperformed the S&P 500 in every decade since the 1930?s. Yes, the margi
  • SPX Iron Condor – High Loss Threshold – 80 DTE [DTR Trading]

    This post looks at a standard (STD) one-lot iron condor on the S&P 500 Index (SPX), 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 ar
  • Amazing paper related to several momentum strategies [Quantpedia]

    #2 – Asset Class Momentum – Rotational System #3 – Sector Momentum – Rotational System #8 – FX Momentum #14 – Momentum Effect in Stocks #15 – Momentum Effect in Country Equity Indexes Authors: Geczy, Samonov Title: 215 Years of Global Multi-Asset Momentum: 1800-2014 (Equities, Sectors, Currencies, Bonds, Commodities and Stocks)
  • Using Leadership Index to Time S&P 500 [Systematic Investor]

    To install Systematic Investor Toolbox (SIT) please visit About page. Following is code and plots used in RFinance 2015 presentation. We will use a C++ function to compute Lagged Correlations from the Run Leadership Rcpp post. First, lets load historical prices for S&P 500. Please note that we are using current companies in the S&P 500 index and a
  • A Statistical Interpretation of Black Scholes [John Orford]

    I love the tingling sensation when some new idea or revelation becomes clear. Perhaps not 100% clear, but you get close enough that you can almost taste it. That happened to me when I read about the Pythagorean interpretation of special relativity. Nice to understand 20th century physics first in terms of Euclidean space and then make a small jump into Minkowsk
  • Moved Quantscript to GitHub [Quintuitive]

    Quantscript is an old project of mine, which was hosted on google.code. Since google.code is shutting down, I had to either scrap it or migrate it to GitHub. I am not using this code on a daily basis anymore, and since the project is relatively small the natural thing would have been to scrap it. However, I found myself a few times over the years pulling out the source code of the pro
  • [Academic Paper] Uncovering Trend Rules [@Quantivity]

    Uncovering Trend Rules

Quantocracy’s Daily Wrap for 05/27/2015

This is a summary of links featured on Quantocracy on Wednesday, 05/27/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • ETF Sector Rotation Ideas from readers [Alvarez Quant Trading]

    The post ETF Sector Rotation generated some good ideas on what to try differently. This post will focus on two ideas on the Select Sector SPDR ETFs. The next post will look at two ideas using Fidelity sector mutual funds. ETF Universe These tests will use the Select Sector SPDR ETFs. The list is Consumer Discretionary (XLY) Consumer S
  • Using the Price-to-Book Ratio [Investor’s Field Guide]

    Having explored the history of the price-to-book ratio, we can now turn to its usefulness as a stock selection criterion. The data suggests a few important points about the price-to-book ratio: It has worked quite nicely in small-cap It has not worked as well in large-cap stocks Price-to-book delivers the best returns when it is used to compare each
  • Risk-Managed Momentum Outperforms [Larry Swedroe]

    Momentum has been found to be a persistent and pervasive factor in the returns not only of stocks, but of other asset classes (including bonds, commodities and currencies). Compared with the market, value and size risk factors, momentum in equities has earned both the highest premium and the highest Sharpe ratio. However, momentum has also experienced the wor
  • SPX After Quick Drops From 50-day Highs [Quantifiable Edges]

    The study below is one I have shown here on the blog for a long time. It looks at relatively sharp selloffs from intermediate-term highs. It shows that there has been a strong tendency for situations like the current one to bounce. Results are updated. The stats all suggest an upside edge over the next 1-5 days. Traders may want to keep this in mind the next few days. Want research like this
  • Weekly Commentary The 60/40 Forecast: 0% through 2025 [Flirting with Models]

    Benjamin Graham, father of value investing, once said: in the short run, the market is like a voting machine but in the long run, it is a weighing machine. The psychology factor that can dominate market returns and volatility in the short-run is often washed out in long-run annualized returns, which is dominated by economic and valuation factors. While valuations may ser
  • A Breakout To Nowhere [Dana Lyons]

    Weve spent a good deal of ink over the past few months on the trendless, range-bound action that has characterized the U.S. stock market recently. This trading range has been, after all, the dominant factor in the equity market. And an epic, even record-setting, trading range it has been. Our expectations based on much of the research weve done has been that once the market br
  • Good News Bonds, Bad News Bonds [Jay On The Markets]

    First the (potential) good news. The (potential) good news is that one trend in bonds that I wrote about a while back here and here may finally (potentially) be playing out the right way. Although, as there are still three more trading days left in the month of May, it is clearly a little early to declare victory. In any event, the trend I am referring to is the histo

Quantocracy’s Daily Wrap for 05/25/2015

This is a summary of links featured on Quantocracy on Monday, 05/25/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Development of Intermarket Trading Systems [System Trader Success]

    In my past article, Intermarket Is Fundamentally Sound, I covered some of the basic premises and history of intermarket trading systems. While the previous entry was more theoretical, this article is more practical. Indeed, I will be discussing how intermarket analysis can be used to generate mechanical signals. I will also walk you through the process I followed in developing and impr
  • Building Algorithmic Trading Systems for the Forex market. Part 2: Where to look [Mechanical Forex]

    On my last post we discussed the first step necessary to become a successful algorithmic trader: to get a solid formation in statistics and programming. Once youre done with this step you will then need to confront the problem of building profitable trading strategies to trade the currency markets. Doing this is no easy task since there are a myriad of things you can do to
  • SPX Iron Condor – High Loss Threshold – 66 DTE [DTR Trading]

    This post looks at a standard (STD) one-lot iron condor on the S&P 500 Index (SPX), initiated at 66 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 ar
  • Accounting for Data Mining Bias [Dekalog Blog]

    I've recently subscribed to this forexfactory thread, which is about using machine learning to develop trading systems, and the subject of data mining/data dredging has come up. This post is a short description of how mining/dredging can be accounted for, but readers should be aware that the following is not a precise description of any particular test with accompanying code, but rather

Quantocracy’s Daily Wrap for 05/24/2015

This is a summary of links featured on Quantocracy on Sunday, 05/24/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Why Steady Vol Works [John Orford]

    Contrary to what people say every now and again, history never ends. Not like humans end with a monotonous beep out of a heart monitor. Life goes on, hearts keep thumping. When I was an English teacher in Germany. One of my students showed up for the first day of class. She was unemployed and the local 'work office' sent her to learn E

Mini Mashup: Changes Afoot in VIX Trading

There are some changes afoot in the VIX trading space with the launch of the VIX ETFs VXUP and VXDN. Even if you don’t trade those specific products, they might be having a knock-on effect on VIX futures, which would impact all other VIX ETF/ETNs like VXX and XIV. There is a subset of our readership that trades VIX products, and so below I link to six posts from bloggers in our Mashup that hint at this potential impact of VXUP and VXDN.