Quantocracy

Quant Blog Mashup

ST

Recent Quant Links from Quantocracy as of 01/30/2025

This is a summary of links recently featured on Quantocracy as of Thursday, 01/30/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Seasonality Patterns in the Crisis Hedge Portfolios [Quantpedia]

    Building upon the established research on market seasonality and the potential for front-running to boost associated profits, this article investigates the application of seasonal strategies within the context of crisis hedge portfolios. Unlike traditional asset allocation strategies that may falter during market stress, crisis hedge portfolios are designed to provide downside protection. We
  • Should You Buy A New Crypto Listing? [Quant Hedge]

    Every Monday, I get an email from CMC with the new Crypto listings and top trending coins. Heres the one from this past Monday. I usually give it a quick look and then delete it, but not so long ago, I started wondering: should I give a #@%! about this? It bugged me so I decided to look into it. I have data for over 8000 active coins painstakingly gathered from CMC (which I will be sharing with
  • Dr Ernest Chan – The Breakthrough Uses of Machine Learning in Risk Management [Algorithmic Advantage]

    Were back! Its 2025 and we are planning a cracker of a year! Stay tuned! It was strangely comforting talking to Ernie Chan. Whilst I was completely out of my depth talking about AI and Machine Learning, I came away broadly reinforced in my own belief that great trading still requires a human touch, and that the best niches in the market are best discovered by applying a certain kind of
  • Portfolio Construction and Risk Management Book [Anton Vorobets]

    The PDF version of the Portfolio Construction and Risk Management book is freely available online at the bottom of this post. The accompanying code to the book is available on GitHub at https://github.com/fortitudo-tech/pcrm-book1. The book has been written through a crowdfunding campaign that you can continue contributing to and getting perks for at https://igg.me/at/pcrm-book2. For example, you

Recent Quant Links from Quantocracy as of 01/21/2025

This is a summary of links recently featured on Quantocracy as of Tuesday, 01/21/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Iterative PSD Shrinkage (IPS) [CSS Analytics]

    In the previous post the framework for Generalized Downside Implied Correlations was introduced. You can use this correlation matrix derived from joint risk metrics to replace or augment/blend with traditional correlations for use in analysis or optimization. The challenge is that the resulting matrix may not be positive semi-definite (PSD) or well-conditioned. The solution is to find a reasonably
  • Monte Carlo Simulations: Pricing Weather Derivatives and Convertible Bonds [Relative Value Arbitrage]

    Monte Carlo simulations are widely used in science, engineering, and finance. They are an effective method capable of addressing a wide range of problems. In finance, they are applied to derivative pricing, risk management, and strategy design. In this post, we discuss the use of Monte Carlo simulations in pricing complex derivatives. Pricing of Weather Derivatives Using Monte Carlo Simulations
  • Artificial Intelligence and the Risks of Harking (Hypothesizing After-the-Fact) [Alpha Architect]

    Academics have long been aware of the risks of data miningtorturing the data until it confesses. The concern is that correlation of variables doesnt imply that the correlation is a result of causation. That is the reason that the prevailing academic standard for researchers is that they should first develop their hypothesis and predictions before testing them against the data. To minimize
  • Research Review | 17 January 2025 | Risk Premia [Capital Spectator]

    An Investigation into the Causes of Stock Market Return Deviations from Real Earnings Yields Austin Murphy (Oakland University), et al. December 2024 This research demonstrates that the simple difference between the current earnings yield on the S&P500 and the long-term real TIPS yield has significant forecasting power for excess returns on that stock market index over both short-term and
  • Intraday Momentum for ES and NQ [Quantitativo]

    "If I have seen further, it is by standing on the shoulders of giants. Sir Isaac Newton. First of all, Happy New Year! When I started Quantitativo a few months ago, I could never expect to gather such an amazing group of like-minded people in such a short time. Your enthusiasm, curiosity, and engagement have made this journey incredibly rewarding and inspiring. Reflecting on the many, many
  • Factor Investing Clearing the Air Datamining and the Antidotes [5th Horizon Research]

    Factor Investing Origins and Implications The roots of factor investing can be traced to work published in the early 1990s by two academics: Ken French and Eugene Fama. In two of their publications[1], they identified a set of risk factors priced to consistently and robustly provide a return premium. Three of these, Beta (market), Size (market capitalization), and Value (book-to-market) survived
  • Out-of-Sample Test of Formula Investing Strategies [Quantpedia]

    Can we simplify the complexities of the stock market and distill them into a simple set of quantifiable metrics? A lot of academic papers suggest this, and they offer formulas that should make the life of a stock picker easier. Some of the most compelling methodologies within this realm are the F-Score, Magic Formula, Acquirers Multiple, and the Conservative Formula. These quantitative

Recent Quant Links from Quantocracy as of 01/13/2025

This is a summary of links recently featured on Quantocracy as of Monday, 01/13/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Detecting Wash Trading in Major Crypto Exchanges [Quantpedia]

    The general acceptance of cryptocurrencies, especially Bitcoin, was a blessing from Wall Street, which institutionalized them as ETFs for comprehensive access by the general public and institutional investors. There is little to no denying now that this new asset class is becoming more traditional, often used as part of a diversified portfolio, and not taken as an alternative investment for
  • PCA in Action: From Commodity Derivatives to Dispersion Trading [Relative Value Arbitrage]

    Principal Component Analysis (PCA) is a dimensionality reduction technique used to simplify complex datasets. It transforms the original variables into a smaller set of uncorrelated variables called principal components, ranked in order of their contribution to the datasets total variance. In this post, well discuss various applications of PCA. Pricing Commodity Derivatives Using Principal
  • Training Machine Learning Models For Return Prediction [Alpha Architect]

    Machine learning models have proven effective in predicting stock returns using lagged stock characteristics, but their success is influenced by a wide range of modeling choices. One critical, yet often overlooked, choice is how stocks are weighted in the objective function during training, with equally weighted (EW) approaches being the norm. This paper investigates how such choices impact
  • Refining ETF Asset Momentum Strategy [Quantpedia]

    Todays research introduces a refined ETF asset momentum strategy by combining a correlation filter with selective shorting. While traditional long-short momentum strategies usually yield suboptimal results, the long leg proves effective on its own, and the correlation filter demonstrates significant value for improving the timing and performance of the short leg. We propose a final strategy of

Recent Quant Links from Quantocracy as of 01/09/2025

This is a summary of links recently featured on Quantocracy as of Thursday, 01/09/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Piard’s Annual Seasonality [Allocate Smartly]

    This is a test of two stock market seasonality strategies from Fred Piards book Quantitative Investing: Strategies to Exploit Stock Market Anomalies for All Investors. Strategy results from 1970 follow. Results are net of transaction costs see backtest assumptions. Learn about what we do and follow 90+ asset allocation strategies like this one in near real-time. Logarithmically-scaled.
  • Drawdown Implied Correlations Part 2: Generalized Downside Implied Correlations [CSS Analytics]

    In the previous post I introduced a Drawdown Implied Correlation (DIC) that is a joint time-series measurement which converts maximum drawdowns into a correlation coefficient using a simple formula derived from portfolio math. The DIC had some unique features such as a point-in-time reference to the exact point of maximum drawdown, and a triple reference which averages the calculation
  • CAPM, WACC, and Beyond: Beta s Application in Arbitrage [Relative Value Arbitrage]

    Beta is a measure of an assets sensitivity to market movements, indicating how much its price is expected to change in relation to the overall market. Beta is often used in CAPM and the calculation of WACC. However, it can also be applied in trading, specifically in arbitrage. In this post, Ill discuss beta arbitrage. Beta Arbitrage Around Macroeconomic Announcements The macroeconomic
  • Do less liquid assets trend better or is that they are just more diversified? [Investment Idiocy]

    As most of you know, one of the many projects / things I am involved with is the TTU Systematic Investor podcast series where I'm one of the rotating cast of co-hosts. On a recent episode (at 24:05) we discussed the reasons why 'alt' CTAs tend to do better than traditional CTAs. Examples of alt-CTAs mentioned in that segment are the Man-AHL Evolution fund which I was heavily
  • Stocks aren t always the best in the long-run [Alpha Architect]

    By examining data going back to 1792, McQuarries study comes up with a surprising observation : stocks are not as dominant as once thought. The variability of the performance of stocks vs. bonds across various time periods is dramatic. So buckle up, stocks do not invariably outperform bonds. Stocks for the long run, sometime yes, sometimes no Edward F. McQuarrie Financial Analysts Journal A

Recent Quant Links from Quantocracy as of 01/04/2025

This is a summary of links recently featured on Quantocracy as of Saturday, 01/04/2025. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Hundreds Of Quant Papers From #QuantLinkADay In 2024 [Turnleaf Analytics]

    I tweet a lot (from @saeedamenfx and at BlueSky at @saeedamenfx.bsky.social)! In amongst, the tweets about burgers, I tweet out a quant paper or link every day under the hashtag of #QuantLinkDay, mostly around FX, rates, economics, machine learning etc. Some are directly relevant to what were doing at Turnleaf Analytics forecasting inflation and other economic variables (and if youre
  • Investigating Simple Formulaic Investing [Alpha Architect]

    Investing formulas are simple, easy-to-implement, systematic, stock screeners that provide instructions on how to outperform the total stock market. Marcel Schwartz and Matthias Hanauer, authors of the December 2024 study, Formula Investing, evaluated the effectiveness of four such popular investing formulas over the period 1963-2022: The Piotroski F-Score: The sum of nine binary (+ or 0)
  • What the last day of the year can teach us about research and trading [Quantifiable Edges]

    Overall, the last day of the year used to be consistently bullish for the market. But that has changed since the turn of the century. This is true across a number of indices. The most dramatic example is the NASDAQ, which I highlighted a few years ago. I have updated the chart below. NASDAQ last day of year historical returns Closing up 29 years in a row is fairly astounding. Just as astounding is
  • What the Index Effect s Disappearance means for Market Efficiency [Alpha Architect]

    This paper investigates the puzzling decline in the price impact of S&P 500 index additions and deletions over the past four decades, despite the rapid growth of passive investing. It explores potential explanations, including changes in market liquidity and efficiency, shifts in the composition of index changes, the role of migrations from related indices, and the predictability of index

Recent Quant Links from Quantocracy as of 12/30/2024

This is a summary of links recently featured on Quantocracy as of Monday, 12/30/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Top Ten Blog Posts on Quantpedia in 2024 [Quantpedia]

    The year 2024 is nearly behind us, so its an excellent time for a short recapitulation. In the previous 12 months, we have been busy again (as usual) and have published over 70 short analyses of academic papers and our own research articles. The end of the year is a good opportunity to summarize 10 of them, which were the most popular (based on the Google Analytics ranking). The top 10 is
  • A “New” Way to Smooth Price [Dekalog Blog]

    Rather than describe it, I'll just paste the "help" description below:- "This function takes an input series and smooths it by projecting a 5 bar rolling linear fit 3 bars into the future and using these 3 bars plus the last 3 bars of the rolling input to fit a FIR filter with a 2.5 bar lag from the last projected point, i.e. a 0.5 bar lead over the last actual rolling point in
  • From Gold to Bitcoin: Exploring the Oldest and Newest Asset Classes [Relative Value Arbitrage]

    Gold, one of the oldest and most enduring asset classes, had an exceptional run in 2024, capturing attention across financial markets. Its role in investment portfolios continues to spark interest, acting as a hedge against uncertainty. On the other end of the spectrum, cryptocurrencies represent the newest frontier in finance. While opinions remain divided, some are enthusiastic supporters, while
  • Linear Congruential Generators in Python [Quant Start]

    Some years ago we wrote a range of articles on random number generation (RNG) using C++. These techniques are primarily used for Monte Carlo simulations that underpin modern derivatives pricing methods. The articles included one that implemented a particular algorithm known as a Linear Congruential Generator (LCG). The LCG is an algorithm for generating random looking numbers, despite being

Recent Quant Links from Quantocracy as of 12/23/2024

This is a summary of links recently featured on Quantocracy as of Monday, 12/23/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Drawdown Implied Correlations (Part 1) [CSS Analytics]

    Diversification is a concept that is critical to most asset managers and traders. The foundation of this body of research is built upon the Pearson correlation coefficient, which is the most popular metric to determine whether adding an asset to a portfolio might enhance diversification. Despite its widespread use, most investment practitioners recognize its limitations. Some of the flawed
  • Intangibles and the Performance of the Value Factor [Alpha Architect]

    Systematic factor-driven value strategies have underperformed broad market indices (such as the S&P 500) over the past 15+ years. That has led many to question whether intangible assets, such as patents and proprietary software, are properly treated. Current accounting standards, which require companies to expenserather than capitalizetheir outlays on activities that create intangible
  • Front Running Commodity Seasonality [Allocate Smartly]

    This is an independent test of a series of interesting studies from Quantpedia (here and here) related to seasonality in commodity ETFs. Weve more than doubled the length of the authors original test using relevant index data (1). Test #1: Front running commodity seasonality In all of our tests, we will be trading the same 4 commodity ETFs chosen by the author: DBA: Agriculture DBB:
  • Front-Running Seasonality in US Stock Sectors [Quantpedia]

    Seasonality plays a significant role in financial markets and has become an essential concept for both practitioners and researchers. This phenomenon is particularly prominent in commodities, where natural cycles like weather or harvest periods directly affect supply and demand, leading to predictable price movements. However, seasonality also plays a role in equity markets, influencing stock

Recent Quant Links from Quantocracy as of 12/17/2024

This is a summary of links recently featured on Quantocracy as of Tuesday, 12/17/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Is Goldman Sachs’ 3% Annual Return Forecast Based on Bad Data? [Allocate Smartly]

    This paper from Goldman Sachs made big headlines a couple of months back for forecasting an abysmal 3% nominal annual return for US stocks in the coming decade. For anyone who didnt read GSs analysis, the biggest contributor to that poor return was market concentration, or the market cap of the largest stocks relative to the remainder of the stock market. They provided the following
  • The Finance and Economics Problem [Anton Vorobets]

    Getting fundamental assumptions right is essential for successful investment and risk management. The aspects that enable us to build portfolios intelligently and outperform the market are subtle nuances that are not easily accessible to most investors. If you do not believe me, check out this video Note where the legendary Jim Simons explains it. Anton VorobetsOct 22 Imagine you have knowledge of
  • Estimating Long-Term Expected Returns [Alpha Architect]

    This paper examines various frameworks and proxies for forecasting long-term expected returns (E(R)) over periods of 10 to 20 years, focusing on out-of-sample performance and the impact of these forecasts on investment decisions. It compares models based on yield, valuation, and the combination of both to identify the most effective methods for predicting E(R). Time-Varying Drivers of Stock Prices
  • Option Pricing Models and Strategies for Crude Oil Markets [Relative Value Arbitrage]

    Financial models and strategies are usually universal and can be applied across different asset classes. However, in some cases, they must be adapted to the unique characteristics of the underlying asset. In this post, Im going to discuss option pricing models and trading strategies in commodities, specifically in the crude oil market. Volatility Smile in the Commodity Market Paper [1]
  • NLX Finance’s Hybrid Asset Allocation 60/40 [Allocate Smartly]

    This strategy from NLX Finance is an alternative version of a strategy weve covered previously: Dr. Keller & Keunings Hybrid Asset Allocation (HAA). It trades based on all the same rules as the original HAA with one exception: rather than allocating 100% to US stocks when risk on, it holds a 60/40 mix of US stocks and Treasuries. Strategy results from 1970 follow. We perform a much
  • PJ Sutherland – Complementary Dynamics of Mean Reversion and Trend Following [Algorithmic Advantage]

    In the domain of quantitative finance, the juxtaposition of mean reversion and trend-following strategies constitutes a pivotal dialogue in the formulation of robust trading paradigms. Each methodology is underpinned by unique theoretical and empirical foundations, presenting distinct opportunities and inherent vulnerabilities. However, when synthesized within a cohesive portfolio framework, these
  • The Ultimate Strength Index [Financial Hacker]

    The RSI (Relative Strength Index) is a popular indicator used in many trading systems for filters or triggers. In TASC 12/2024 John Ehlers proposed a replacement for this indicator. His USI (Ultimate Strength Index) has the advantage of symmetry the range is -1 to 1 and, especially important, less lag. So it can trigger trades earlier. Like the RSI, it enhances cycles and trends in the

Recent Quant Links from Quantocracy as of 12/12/2024

This is a summary of links recently featured on Quantocracy as of Thursday, 12/12/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Day 30: Summing up [OSM]

    On Day 29, we conducted our out-of-sample test on the four strategies and found that the adjusted strategy came out on top. We made this conclusion after ranking a cross section of the following metrics: cumulative return, Sharpe Ratio, and max drawdown. If we wanted to commit capital, there would be a lot more work to do. But with the bulk of the backtesting over, its time to sum up what we
  • Can We Use Active Share Measure as a Predictor? [Quantpedia]

    Active Share is a metric introduced to quantify the degree to which a portfolio differs from its benchmark index. It is expressed as a percentage, ranging from 0% (fully overlapping with the benchmark) to 100% (completely different). The concept gained popularity because it was believed that higher Active Share reflects truly active management, which could potentially lead to outperformance. If
  • From the Pits to the Page: A Conversation with Kris Abdelmessih [Robot Wealth]

    It was my absolute pleasure to chat with Kris Abdelmessih about markets and life. Kris was an options market maker who started out in the trading pits of New York and later flipped the script to set up the commodity options business for hedge fund Parallax Advisory. Today, Kris writes the Moontower newsletter on Substack one of the most consistently unique and insightful newsletters youll

Recent Quant Links from Quantocracy as of 12/11/2024

This is a summary of links recently featured on Quantocracy as of Wednesday, 12/11/2024. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Fast trend following [Quantitativo]

    I always say that you could publish trading rules in the newspaper and no one would follow them. The key is consistency and discipline. Richard Dennis. Richard Dennis is one of the greatest trend-following traders in history, renowned for transforming a small loan into a fortune in the commodities markets. As a pioneer of systematic trading, Dennis believed that successful trading could be
  • Frog in the Pan Momentum: International Evidence [Alpha Architect]

    This article analyzes various reasons why momentum strategies might work outside US borders. While the US story is firmly rooted in behavioral biases, is the same true on an international scale? That seems logical and likely. In fact, the authors conclude that a slow diffusion of news best explains momentum in the international contextacross all of our tests, we find supportive evidence for
  • When Correlations Break or Hold: Strategies for Effective Hedging and Trading [Relative Value Arbitrage]

    Its well known that there is a negative relationship between an equitys price and its volatility. This can be explained by leverage or, alternatively, by volatility feedback effects. In this post, Ill discuss practical applications to exploit this negative correlation between equity prices and their volatility. A Trading Strategy Based on the Correlation Between the VIX and S&P500