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Quantocracy’s Daily Wrap for 06/07/2023

This is a summary of links featured on Quantocracy on Wednesday, 06/07/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Efficiency Ratio and Mean Reversion [Alvarez Quant Trading]

    While reading the January 2023 issue of Technical Analysis of Stocks & Commodities, I came across an article about Efficiency Ratio (ER) by Perry Kaufman. In the article, he discusses using ER to decide when to trade mean reversion strategy vs a trend following one. My curiosity on this was could I use the ER to filter trades in my mean reversion strategies. Efficiency Ratio ER is calculated

Quantocracy’s Daily Wrap for 06/06/2023

This is a summary of links featured on Quantocracy on Tuesday, 06/06/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Active Reading with ChatGPT: Systematic Investing in Credit [Gautier Marti]

    Yet another experiment with ChatGPT-4: Active reading a semi-technical book. Chapter 1 Can a Combination of Treasuries and Equities Replace Credit in a Portfolio? What is the size of the corporate bond market? As of my knowledge cutoff in September 2021, I dont have the most recent data on the size of the corporate bond market. However, as a reference, the Securities Industry and Financial
  • Finding (latent) trading factors [SR SV]

    Financial markets are looking at a growing and broadening range of correlated time series for the operation of trading strategies. This increases the importance of latent factor models, i.e., methods that condense high-dimensional datasets into a low-dimensional group of factors that retain most of their underlying relevant information. There are two principal approaches to finding such factors.
  • Diversification versus Hedging [Finominal]

    Hedging and diversifying strategies have different objectives Downside betas can be used to differentiate these Alternative strategies have overtaken bonds as the most diversifying strategies INTRODUCTION In investing, some terms are used interchangeably, despite these having quite different technical interpretations. For example, most investors put stocks with strong sales growth, strong

Quantocracy’s Daily Wrap for 06/02/2023

This is a summary of links featured on Quantocracy on Friday, 06/02/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • In-Sample vs. Out-Of-Sample Analysis of Trading Strategies [Quantpedia]

    Science has been in a replication crisis for more than a decade. Researchers have discovered, over and over, that lots of findings in fields like psychology, sociology, medicine, and economics dont hold up when other researchers try to replicate them. There are many interesting questions of philosophy of science, for example: Is the problem just that we test for statistical
  • Negative Screening and the Sin Premium [Alpha Architect]

    Negative exclusionary screening refers to an investment strategy in which socially controversial firms in particular sectors are excluded from the portfolio. The Global Sustainable Investment Review reports that, in 2020, more than $15 trillion (43% of total sustainable investments) were invested using negative screening. The most common negative screen employed is excluding sin stocks, a

Quantocracy’s Daily Wrap for 05/30/2023

This is a summary of links featured on Quantocracy on Tuesday, 05/30/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Our Take on “The Single Greatest Predictor of Future Stock Market Returns” [Allocate Smartly]

    Readers have asked for our take on the single greatest predictor of future stock market returns, aka the Aggregate Investor Allocation to Equities. This indicator was first shared by Philosophical Economics back in 2013, and recently resurrected by Portfolio Optimizer (two excellent sites you should be following). A very brief primer: The Aggregate Investor Allocation to Equities (AIAE)
  • Alpha Generation: Equity Generalists vs Sector Specialists [Finominal]

    Neither equity generalists nor sector specialists have generated alpha on average There is no consistency in alpha generation by either type of fund manager The most consistent alpha generators produced no alpha out-of-sample INTRODUCTION When I joined Citigroup as an analyst in their mergers & acquisitions department in 2005, my career trajectory was to either become a sector specialist or a

Quantocracy’s Daily Wrap for 05/28/2023

This is a summary of links featured on Quantocracy on Sunday, 05/28/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • An Evaluation of the Skewness Model on 22 Commodities Futures [Quantpedia]

    Skewness is one of the less-known but practical measures from statistics that can be used in trading. It is defined as a measure of the asymmetry of the probability distribution of a random variable around its mean. Financial mathematics and most quantitative models assume some kind of symmetric distribution of random variables, such as near-normal distribution, which would have zero skewness.
  • Active Reading with ChatGPT [Gautier Marti]

    Another experiment with ChatGPT-4: Active reading a semi-technical book. This book by Michael Isichenko is probably the best I have read so far in this field. Lets dive into it! You can (and should) buy this book. Chapter 1 Market Data Gautiers Prompt: The author mentions in his book that one can argue that a suitable analysis of the order book could detect the presence of a big
  • Intangible-Adjusted Profitability Factor [Alpha Architect]

    The past decade has witnessed a dramatic increase in spending on intangibles (not just research and development and advertising expenditures, but also expenses related to human capital) relative to tangible capital expenditures on plants and equipment. Given the change, it is not surprising that researchersincluding the authors of the 2020 studies Explaining the Recent Failure of Value

Quantocracy’s Daily Wrap for 05/25/2023

This is a summary of links featured on Quantocracy on Thursday, 05/25/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • 2023 Democratize Quant Conference Recap and Materials [Alpha Architect]

    We recently hosted our 6th Annual Democratize Quant Conference (sign up here for updates). This post is a recap of what we learned at the conference and some resources we can make available to the public. The agenda for the 2023 conference is outlined below: Date Time Topic Presenter Notes 5/18 09:30 09:45 Introduction Wes Gray CEO Alpha Architect 5/18 09:45 10:15 ETF Industry Update Eric
  • Rotational Trading in Python [Ed West]

    Rotational trading is a strategy used by investors that involves purchasing top-performing assets and simultaneously selling the underperforming ones in their portfolio. Its a great way to periodically manage a portfolio by holding winners and selling losers. Backtesting a rotational trading strategy is easy using PyBroker, an open-source Python framework for developing trading strategies. To
  • Drawdowns and recoveries – what lessons do they hold? [Alpha Architect]

    This paper helps investors better understand drawdowns and recoveries, in terms of empirical facts, practical implications, and strategies for handling them. It shows the importance of the interplay between drawdowns and recoveries (which the authors call submergence), which should not be treated and analyzed separately by investors. Submergence = Drawdown Plus Recovery Rook,

Quantocracy’s Daily Wrap for 05/22/2023

This is a summary of links featured on Quantocracy on Monday, 05/22/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • A Key New Momentum Measure to Consider: Distance from 1-Year High [Allocate Smartly]

    This research was inspired by Alpha Architects coverage of a new paper looking at how the distance from a stocks 1-year high has affected the performance of momentum strategies and the likelihood of momentum crashes. We look at the same question applied to a stock index: the S&P 500. We show that how far the S&P 500 was from a 1-year high has had a significant impact on the
  • The Single Greatest Predictor of Future Stock Market Returns, Ten Years After [Portfolio Optimizer]

    In his 2013 post The Single Greatest Predictor of Future Stock Market Returns, Jesse Livermore1 from the blog Philosophical Economics introduced an indicator to forecast long-term U.S. stock market returns and empirically demonstrated that it outperformed all the commonly used stock market valuation metrics like the Shiller CAPE2. This indicator, called the Aggregate Investor Allocation to
  • Mark Virag’s Momentum Based Balancing : Relative Momentum Taken to the Extreme [Allocate Smartly]

    This a test of Mark Virags paper Momentum Based Balancing for the Diversified Portfolio (NAAIM Wagner Award winner, 2014). This is a relative momentum strategy that provides an interesting contrast to a popular strategy we track: FinancialMentor.coms Optimum 3. More on this later. Backtested results from 1973 follow. Results are net of transaction costs see backtest assumptions.
  • Trend Following in Equities [Finominal]

    Long-only trend following in equities was more effective than long-short trend following in the US Same for European and Asian stock markets Perhaps explained by the negative skewness of stock markets INTRODUCTION Imagine a world where economic growth is anemic. Governments and central banks do everything to stimulate growth, but their powers have weakened over time to the extent that even the

Quantocracy’s Daily Wrap for 05/20/2023

This is a summary of links featured on Quantocracy on Saturday, 05/20/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Index Funds Reimagined? [Flirting with Models]

    In Reimagining Index Funds (Arnott, Brightman, Liu and Nguyen 2023), the authors propose a new methodology for forming an index fund, designed to avoid the buy high, sell low behavior that can emerge in traditional index funds while retaining the depth of liquidity and capacity. Specifically, they propose selecting securities based upon the underlying economic footprint of the
  • Gold as a Safe-Haven Asset [Alpha Architect]

    Abstract: In times of extreme macroeconomic events, including war, hyperinflation, or significant economic recessions, many investors believe gold investing is a safe haven. Is that belief warranted? Investors have concerns about the increased risks of inflation and a recession, Congress ability to increase the debt limit (failing to do so could lead to a default on government debt), and the
  • FX trend following and macro headwinds [SR SV]

    Trend following can benefit from consideration of macro trends. One reason is that macroeconomic data indicate headwinds (or tailwinds) for the continuation of market price trends. This is particularly obvious in the foreign-exchange space. For example, the positive return trend of a currency is less likely to be sustained if concurrent economic data signal a deterioration in the competitiveness

Quantocracy’s Daily Wrap for 05/18/2023

This is a summary of links featured on Quantocracy on Thursday, 05/18/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Creating a Returns Series with @Polygon_io Forex Data [Quant Start]

    In this article we will access the Polygon API and download a month of intraday minutely Forex data. We will show you how to access the API, creating a Python function that can be easily adapted to extract FX data for various pairs across different timespans. We will also create and visualise a returns series with Pandas. This article is part of a series on Forex data, in later articles we will be
  • Ranking aggregation using genetic algorithms [Quant Dare]

    In a previous post, we saw how to use genetic algorithms to make implicit optimizations. We used that technique to construct a portfolio, but in a very simple manner: we were just limited to 5 stocks, and we were looking for a constant weight for each of them, assuming daily rebalancing. Today, we will focus on another, somehow related, problem: how to aggregate rankings using these genetic

Quantocracy’s Daily Wrap for 05/17/2023

This is a summary of links featured on Quantocracy on Wednesday, 05/17/2023. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Reducing the Impact of Negative Momentum Performance [Alpha Architect]

    Momentum crashes are a blight on the performance of momentum strategies. Although there has been a fair amount of research on the topic, few practical solutions have emerged to mitigate the impact on portfolios. In this study, the authors document the outperformance of momentum stocks, made somewhat immune to momentum crashes , by including stocks far away from their peak position relative
  • Emerging Market Funds: Same, Same, but Different? [Finominal]

    Emerging markets offer divergent factor exposures across and within regions Smart beta ETFs do not necessarily offer high factor exposures It is all about fund selection INTRODUCTION We highlighted previously that the case for exposure to emerging markets (EM) stocks is not as clear as frequently highlighted by the marketing materials of asset managers (read The Case Against EM Equities).