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Quantocracy’s Daily Wrap for 06/28/2022

This is a summary of links featured on Quantocracy on Tuesday, 06/28/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Yield Game [Grzegorz Link]

    Asset managers are often fixated on predicting the best performing asset in the near future be that a month ahead, six months, a year or two. Of course, it would be great to know what will appreciate in price the most (and subsequently what to invest in right now), but all we can do is predict. And predictions are far from certain. They sometimes if not usually fail. Near-term

Quantocracy’s Daily Wrap for 06/27/2022

This is a summary of links featured on Quantocracy on Monday, 06/27/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Vol targeting: A CA(g)R race [Investment Idiocy]

    Regular listeners to the podcast I ocasionally co-host will know that I enjoy some light hearted banter with some of my fellow podcasters, many of whom describe themselves as 'pure' trend followers, whilst I am an apostate who deserves to be cast into the outer darkness. My (main) sin? The use of 'vol targeting', an evil methodology not to be found in the original texts of
  • Slava Ukraini! Latest from Only VIX, Quantocracy contributor in Ukraine: Curious Periodicity Of VIX Index [Only VIX]

    I was browsing LinkedIn the other day and saw a bar chart of annual average VIX levels, and noticed that they kind of go up and down as if it was a cycle. Intra-day effects of elevated volatility near open and close are well-known, as well as some day-of-week patterns. Seasonal effects of VIX are also obvious – the index tends to be low during summer months, and rise in the autumn months. However
  • Stock Market Valuation and Impact of Inflation [Light Finance]

    If 2022 has taught us anything, it is that our understanding of the inflationary process is woefully incomplete. Increasingly, it seems that the easy money era of the 2010s created a blind spot in the market: stable inflation and ample liquidity were taken for granted. The risk of high (indeed, very high) inflation was deeply discounted which resulted in a significant misallocation of investor
  • Defensive & Diversifying Strategies in YTD 2022 [Factor Research]

    Most defensive and diversifying strategies generated negative returns in YTD 2022 The correlation of almost all of these strategies to equities was too high Only managed futures generated attractive diversification benefits INTRODUCTION Economics and investing are all about data, eg GDP has increased by 1.5% this quarter, the stock market is down 10% this month, and so on. However, despite numbers

Quantocracy’s Daily Wrap for 06/25/2022

This is a summary of links featured on Quantocracy on Saturday, 06/25/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How I Invest My Own Money: Robust to Chaos [Alpha Architect]

    A lot of people ask me how I invest my own money, and I am always happy to oblige. But I have never discussed the topic in the public (unlike my friend Meb, who has a great post dedicated to the subject). However, this past week Justin and Jack asked if they could grill me on my personal portfolio for their excellent podcast, Excess Returns. You can listen and/or watch the podcast via the
  • The power of macro trends in rates markets [SR SV]

    Broad macroeconomic trends, such as inflation, economic growth, and credit creation are critical factors of shifts in monetary policy. Above-target trends support monetary tightening. Below-target dynamics give grounds for monetary easing. Yet, markets may not fully anticipate policy shifts that follow macro trends, for lack of attention or conviction. In this case, macro trends should predict

Quantocracy’s Daily Wrap for 06/23/2022

This is a summary of links featured on Quantocracy on Thursday, 06/23/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Using Historical Volatility for Parameter Adjustment [Alvarez Quant Trading]

    The AllocateSmartly website often has interesting posts. Recently I was reading the article Trending Fast and Slow and thought about other ideas to test. The article is based on research on trading the SPX and depending on the current historical volatility one would either use a 12-month or a 1-month lookback to decide whether to enter or exit the trade. I had tried similar ideas before but not
  • Can Machine Learning Identify Future Outperforming Active Equity Funds? [Alpha Architect]

    Ron Kaniel, Zihan Lin, Markus Pelger, and Stijn Van Nieuwerburgh contribute to the asset pricing literature with their January 2022 study Machine-Learning the Skill of Mutual Fund Managers in which they used machine learning in the form of an artificial neural network to examine the universe of actively traded U.S. equity mutual funds between 1980 and 2019 and the stocks they hold in order
  • Using Institutional Investor’s Trading Data in Factors [Alpha Architect]

    Can the returns from running factor strategies be enhanced if institutional investors selectively and actively participate? Most of the evidence presented in this paper would suggest the answer is an unqualified YES. The authors argue this would require institutional investors to possess and then capitalize on private information. Consequently, the movement into and out of specific stock positions

Quantocracy’s Daily Wrap for 06/22/2022

This is a summary of links featured on Quantocracy on Wednesday, 06/22/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • From theory to practice: Challenging the market using MPT-based investment strategy [Quant Dare]

    In order to develop complex strategies for a successful asset allocation, portfolio managers need profound knowledge on the field. Apparently, this is the key to be able to consistently beat the market. In this post we will learn how to design investment strategy based in Modern Portfolio Theory in Python. Will we be able to outperform the market? Lets find out! Note that before diving into the

Quantocracy’s Daily Wrap for 06/21/2022

This is a summary of links featured on Quantocracy on Tuesday, 06/21/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Skewness/Lottery Trading Strategy in Cryptocurrencies [Quantpedia]

    A recent spring 2022 crisis in the cryptocurrency market emphasized the importance of market-neutral crypto trading strategies. Its not enough just to HODL crypto market and hope for the everlasting bull market. Therefore, we continue our series of research articles about the cryptocurrency market and offer an analysis of the skewness anomaly. So after our description of the skewness effect in
  • Macro Variables in Factor Exposure Analysis [Factor Research]

    Most investors treat factor and macro variables differently Including macro variables improves a factor exposure analysis Both should be considered simultaneously when analyzing investment portfolios INTRODUCTION The investment world is full of conundrums. For example, discussions on investment portfolios usually focus on the impact of change in inflation, interest rates, economic growth, and

Quantocracy’s Daily Wrap for 06/19/2022

This is a summary of links featured on Quantocracy on Sunday, 06/19/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Does Emerging Markets Investing Make Sense? [Alpha Architect]

    This post focuses on the costs and benefits of including generic broad-based emerging market exposures in ones portfolio (Note, we do not discuss factors/freedom/etc.). The analysis is not meant to be exhaustive and/or highly complex. Nor is it meant to sway the reader in one direction or the other. Like all things in life, there are costs/benefits to everything and everyone needs to identify a

Quantocracy’s Daily Wrap for 06/16/2022

This is a summary of links featured on Quantocracy on Thursday, 06/16/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Predicting US Treasury Returns [Allocate Smartly]

    This is a test of the paper Predicting Bond Returns: 70 Years of International Evidence. The authors use an ensemble model to trade US and international treasury bonds. Over the last 60+ years the strategy would have produced long-term returns in line with buy & hold, while significantly reducing short-term volatility and drawdowns, especially during the era of rising rates. Obviously, these

Quantocracy’s Daily Wrap for 06/15/2022

This is a summary of links featured on Quantocracy on Wednesday, 06/15/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Fed Days: Pre vs Post-Announcement Action During Downtrends [Quantifiable Edges]

    In a blog post a few years ago I showed that the Fed Day edge has basically played out before the announcement even takes place. Returns after the announcement have been somewhat random. In last nights subscriber letter I decided to take a similar look, but only examining instances during long-term downtrends. Below is a look at how the SPY has performed from 2pm to 4pm on Fed Days where SPY
  • Optimization problems with non-continuous restrictions [Quant Dare]

    In the financial field, managers usually take advantage of the great development in machine learning techniques to improve their models and get the best performance of their portfolios. These techniques may be clustering, neural networks, or even a more traditional one as optimization algorithms. In general, the existing algorithms are suitable in most of the problems that managers have to face
  • Relative Sentiment and Machine Learning for Tactical Asset Allocation [Alpha Architect]

    By the middle of 2019, we had been running an ensemble of relative sentiment(1) indicators in live asset management for several years. One of the components of that ensemble was a strategy that looked at Sentix sentiment indices. For those unfamiliar with Sentix (a German company), every week it polls institutions and individuals separately about their current and future outlooks on various
  • Factors Investing in Cryptocurrency [Alpha Architect]

    Cryptocurrency investing is a widely debated topic and one can find plenty of debates on Twitter discussing the fed, fiat currencies, and inflation. Regardless of where you fall on the crypto spectrum, we try and focus on research-centric takes on various investment themes whenever possible. The authors of this study research the cross-section of cryptocurrency returns and ask the following: Are

Quantocracy’s Daily Wrap for 06/13/2022

This is a summary of links featured on Quantocracy on Monday, 06/13/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Slava Ukraini! Latest from Only VIX, Quantocracy contributor in Ukraine: Modeling Implied Vol Surfaces of Crypto Options [Only Vix]

    This is a quick follow-up to my previous post with comments on Artur Sepps's video. From the start Mr Sepp sets up the practical problem familiar to anyone in the crypto options space. The leader is Deribit – an exchange that I wrote about extensively in this blog with ~ 89% market share. The next biggest is CME with ~ 6% market share, and expected to grow. One would naturally want to trade
  • A Rare Inverse Zweig Breadth Collapse Triggers [Quantifiable Edges]

    A few years back I wrote about Zweig Breadth Thrusts in some detail. The Zweig Thrust takes a 10-day exponential moving average of the NYSE Up Issues %. It looks for a move from Over the last 3 days we have essentially what could be considered the inverse setup trigger. The NYSE Up Issues % 10ema has fallen from above 61.5% to under 40% in 10 trading days. Rather than a breadth thrust, we have
  • Ehlers Loops [Financial Hacker]

    Price charts normally display price over time. Or in some special cases price over ranges or momentum. In his TASC articles in June and July 2022, John Ehlers proposed a different way of charting. The ratio of two parameters, like price over momentum, or price A over price B, is displayed as a 2D curve in a scatter plot. The resulting closed or open loop is supposed to predict the future price
  • Sector versus Factor Exposure Analysis [Factor Research]

    Investors tend to talk more about sector than factor performance However, few investors conduct a regression-based sector exposure analysis The high correlations of sectors, even if structured market-neutral, makes this less meaningful INTRODUCTION Switch on CNBC or Bloomberg TV during US stock trading hours and there is a good probability of listening to a lively discussion on current sector
  • Six ways to estimate realized volatility [SR SV]

    Asset return volatility is typically calculated as (annualized) standard deviation of returns over a sequence of periods, usually daily from close to close. However, this is neither the only nor necessarily the best method. For exchange-traded contracts, such as equity indices, one can use open, close, high, and low prices and even trading volumes. These provide different types of information on