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Quantocracy’s Daily Wrap for 03/26/2022

This is a summary of links featured on Quantocracy on Saturday, 03/26/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • 2022 Democratize Quant Conference Recap and Materials [Alpha Architect]

    We recently hosted our Democratize Quant Conference (sign up here for updates). This post is a recap of what we heard and some resources we can make available to the public. Democratize Quant 2022 Agenda/Outline Session 1: State of the Asset Management Industry (with a focus on the ETF aspect) Dave Nadig presented on the current state of the ETF business and much more! Slides Here is what I
  • Hedging cash flows [Quant Dare]

    Currency hedging is a powerful tool, offering foreign investors access to new opportunities, providing returns very similar to those of local ones. However, it also has some disadvantages to consider. In this post we will explain how passive hedging could transform the original currency risk problem into a different one: dealing with the cash flows from hedging. Going back to the equation for the
  • Can Investment Flows Affect Prices? Yep. [Alpha Architect]

    Traditional finance theory suggests that stocks prices always reflect their fair market values based on publicly available information. Or in academic parlance, the semi-strong form efficient markets hypothesis serves as the null. What are the implications of this hypothesis? Well, the hypothesis suggests that the only reason a stock price will move is due to a shift in fundamentals (either

Quantocracy’s Daily Wrap for 03/22/2022

This is a summary of links featured on Quantocracy on Tuesday, 03/22/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Finding Alpha on the Internet (Part 3) [Derek Wong]

    We continue the series by replicating using as much data and code as provided in the source material. We create a three-state Gaussian Mixture Model and fit it so S&P500 data. I examine the output and give feedback about my coding replication and data sourcing along the way. Then I try to apply a proxy for adding economic data as a featureprevious posts Part 1 and Part 2. Disclaimer: Not
  • Hacking 1-Minute Cryptocurrency Candlesticks: Capturing Binance Live Data [Quant at Risk]

    There is no question about how profitable the trading of cryptocurrencies can be. If you create an algorithmic strategy and stick to it, you can capture a +10% PnL wave sometimes even twice a day for a selected asset. Unfortunately, the opposite is true, too! The crypto-risks seem to follow the same patterns. But, lets be optimistic from the beginning. In this mini-series of articles, we will
  • Intraday Stock Index Forecasting [Jonathan Kinlay]

    In a previous post I discussed modelling stock prices processes as Geometric brownian Motion processes: To recap briefly, we assume a process of the form: Where S0 is the initial stock price at time t = 0. The mean of such a process is: and standard deviation: In the post I showed how to estimate such a process with daily stock prices, using these to provide a forecast range of prices over a
  • What Can We Learn from Insider Trading in the 18th Century? [Quantpedia]

    Directors, board members, and large shareholders are just some of those who might have non-public material information about their firm. Even though this information could be easily used to profit by trading their own stocks (stocks of the company they hold information about), this behavior is strictly prohibited. This is but one aspect of insider trading. There are two different possible

Quantocracy’s Daily Wrap for 03/21/2022

This is a summary of links featured on Quantocracy on Monday, 03/21/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Measuring Hedge Fund Performance with Factor Model Monte Carlo [Light Finance]

    Due diligence for hedge funds presents a unique set of challenges for analysts and asset allocators. Funds often have significant discretion to invest across multiple asset classes and instruments. Funds may also deploy strategies of varying complexity ranging from well-known approaches such as equity long-short to more exotic schemes like capital-structure arbitrage. Investments might be in
  • Risk-Managed Equity Exposure II [Factor Research]

    Relying on single entry and exit signals for trading introduces model risk However, simple tactical asset allocation strategies are surprisingly robust Necessity of signal diversification is questionable INTRODUCTION Last week, we explored a simple risk management system for an equity allocation that might be suitable for investors with a cautious outlook on stock markets. Given record-high
  • How to find your own Safe Haven investing strategy [Raposa Trade]

    On Sunday September 2, 1666 a small fire started on the premises of the King's baker in London. By Thursday, the resulting inferno–later dubbed the Great Fire–had reduced much of the medieval City of London to ash. Writing of the fire in his diary, Samuel Pepys described a catastrophic scene of almost biblical proportions: "the conflagration was so universalthere was nothing heard
  • Predicting volatility with neural networks [SR SV]

    Predicting realized volatility is critical for trading signals and position calibration. Econometric models, such as GARCH and HAR, forecast future volatility based on past returns in a fairly intuitive and transparent way. However, recurrent neural networks have become a serious competitor. Neural networks are adaptive machine learning methods that use interconnected layers of neurons.

Quantocracy’s Daily Wrap for 03/18/2022

This is a summary of links featured on Quantocracy on Friday, 03/18/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Predicting NASDAQ price using news [Quant Dare]

    News have a huge impact in the global stock market, but its impossible even for professionals to be constantly updated. One can ask itself: is there any way to automate this procedure? Recently in this blog we have covered the topic of summarizing news by applying the TF-IDF algorithm, which is a powerful algorithm to extract key insights from a given text in an automatic way. In this post, we
  • A Deep Dive into the Low Beta Premium [Alpha Architect]

    One of the big problems for the first formal asset pricing model developed by financial economists, the CAPM, was that it predicts a positive relationship between risk and return. However, empirical studies have found the actual relationship to be basically flat, or even negative. In addition, defensive strategies, at least those based on volatility, have delivered significant Fama-French
  • $SPY Short-Term Overbought In A Downtrend [Quantifiable Edges]

    In last nights subscriber letter I showed a few studies suggesting the market was short-term overbought in a long-term downtrend, and that there appeared to be a short-term downside edge. Below is one of those studies, which also appeared in the Quantifinder yesterday afternoon.
  • Research Review | 18 March 2022 | Commodities and Inflation [Capital Spectator]

    Performance of Gold as a Financial Asset During Different Phases of Financial Cycles Aniket Ranjan and Naveen Kumar (Reserve Bank of India) January 2022 The paper examines the fundamental relationship between gold and financial markets within the framework of unobserved components model. It measures the performance of gold as a financial asset during different phases of financial cycles (credit,

Quantocracy’s Daily Wrap for 03/15/2022

This is a summary of links featured on Quantocracy on Tuesday, 03/15/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Trend-following and Mean-reversion in Bitcoin [Quantpedia]

    Indisputably, trend-following and mean-reversion are two key concepts in quantitative investing or technical analysis. The trend-following proponents suggest a performance continuation and that assets that have performed well will continue to do so. In other words, the trend-following strategies are characterized primarily as buying high and selling even higher. Conversely, the mean-reversion
  • Analyzing intraday and overnight stock returns with pandas [Wrighters.io]

    I recently saw some chatter about a technical paper discussing the contrast between overnight and intraday stock returns. In the paper, we learn that overnight stock returns far outpace returns seen intraday during regular trading hours. In other words, stocks move the most when markets are not open, but when trading is taking place, the net returns seem to be close to zero. The paper claims this
  • Is there any edge in holding stocks overnight? Correction [Rotating Stocks]

    In my previous post I discussed about trading overnight, since there was a clear edge holding the SPY over night. But due to small mistake that I made in my testing the results were bad and the edge disappeared. The mistake was setting commissions as 0.05 $ per share instead of 0.005$ per share. This is a clear reminder why we need to use low commission broker if we want to trade with high

Quantocracy’s Daily Wrap for 03/14/2022

This is a summary of links featured on Quantocracy on Monday, 03/14/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Risk-Managed Equity Exposure [Factor Research]

    Risk management overlays tend to reduce stock market returns However, they also can reduce drawdowns and increase Sharpe ratios Given that diversification has become more difficult, these are becoming more relevant INTRODUCTION It is tough to have high return expectations for stocks for the coming years. Stocks may go up in the short-term, but over the long-term, returns are primarily a function
  • Are Financial Crises Predictable? [Alpha Architect]

    Who among us wouldnt want to be the savior that predicts a market crisis and saves our clients from losses in capital or even better profits from them? A central topic of interest for academics is whether there are more precise tools to predict financial crises. Those who believe so dedicate their efforts to finding early warning indicators. In this paper, the authors estimate the

Quantocracy’s Daily Wrap for 03/12/2022

This is a summary of links featured on Quantocracy on Saturday, 03/12/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Factor Investing Premiums and the Economic Cycle [Alpha Architect]

    Academic research has found that factor premiums are both time-varying and dependent on the economic cycle. For example, the authors of the 2017 study Fama-French Factors and Business Cycles examined the behavior of six Fama-French factorsmarket beta (MKT), size (SMB), value (HML), momentum (MOM), investment (CMA), and profitability (RMW)across business cycles, splitting them into four

Quantocracy’s Daily Wrap for 03/08/2022

This is a summary of links featured on Quantocracy on Tuesday, 03/08/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Factor Performance in Cold War Crises – A Lesson for Russia-Ukraine Conflict [Quantpedia]

    The Russia-Ukraine war is a conflict that has not been in Europe since WW2. And it has great implications not only on human lives but also on security prices. It bears numerous characteristics of the cold war crises, where two nuclear powers (Soviet Union and USA/NATO) were often very close to hot war or were waging a proxy war in 3rd countries. We thought it might be wise to look at similar
  • New Accounting Standards and Factor Investing [Alpha Architect]

    How well do quantitative investors navigate around the changes to the accounting standards that are endemic to the financial data used in quantitative strategies? The numbers reported on financial statements are wholly governed by regulation and by each firms interpretation of those accounting standards. So do quants stick to their empirical evidence on old data methods or do they react in

Quantocracy’s Daily Wrap for 03/07/2022

This is a summary of links featured on Quantocracy on Monday, 03/07/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How to gamble with demons (and make money doing it) [Raposa Trade]

    A demon comes to you one night giving you a simple dice game to play. You're offered the chance to wager your wealth and receive a 50% increase if you roll a 6, 5% bump if you roll 2-5, or lose 50% if you roll a 1. You also get 300 rolls and get to compound your wealth with each roll of the die. Do you play? Most people would jump at this opportunity. They'd look at the average of these
  • Commodities vs Commodity ETFs [Factor Research]

    The average correlation between oil and oil ETFs was only 0.8 Gold ETFs provide better exposure to gold than oil ETFs to oil Gold mining stocks are hybrids that feature gold and equity beta INTRODUCTION As the war in Russia unfolded, crude oil (WTI) breached $100 per barrel, which was last seen in 2014. Inflation was already at a multi-decade-high level in most developed countries before this

Quantocracy’s Daily Wrap for 03/04/2022

This is a summary of links featured on Quantocracy on Friday, 03/04/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Bittrex API – An Introductory Guide [Algo Trading 101]

    Bittrex API is a method that allows us to automatically trade cryptocurrencies on Bittrex via code. What is Bittrex? Bittrex is an online cryptocurrency exchange platform that allows its users to trade over 700 trading pairs. As one of the oldest US-based exchanges, Bittrex is known for its excellent safety practices and transaction speed. Is Bittrex API free? Creating a Bittrex account and using
  • Active mutual funds underperform passive funds, again [Mathematical Investor]

    In a previous Mathematical Investor blog, we presented data on actively managed fund versus passive fund performance over various time horizons, based on the February 2019 Morningstar Active-Passive Barometer report. These data showed, for instance, that only 12.6% of actively managed U.S. large value funds outperformed a comparable passive index fund over a 3-year horizon, and only 8.3% did so
  • How to manage systemic risk in asset management [SR SV]

    Systemic crises are rare but critical for long-term performance records. When the financial system fails, good trades become bad trades and many sensible investment strategies incur outsized losses due to deleveraging and liquidation pressure. Managers have two principal sets of tools to address systemic risk. The first is estimation and control of tail risk. The second is a contingency plan for
  • Factor Investing: Are Internally Generated Intangibles Worthless? [Alpha Architect]

    As mind-bending as it sounds, although a companys internally generated intangible investments generate future value, they are currently not accepted as assets under US GAAP. Omission of this increasingly important class of assets reduces the usefulness and relevance of financial statement analysis that uses book value. In fact, Amitabh Dugar and Jacob Pozharny, authors of the December 2020