Quantocracy

Quant Blog Mashup

ST

Quantocracy’s Daily Wrap for 02/23/2022

This is a summary of links featured on Quantocracy on Wednesday, 02/23/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Developing systematic smart beta strategies for crypto assets [Artur Sepp]

    I am delighted to share the video from my QuantMinds presentation that I made in Barcelona in December 2021. Many thanks to QuantMinds organizers for allowing me to share this video. First, it was nice to attend the onsite conference in a while and to meet old friends and colleagues. I was positively surprised by how many people attended. Many thanks to organizers for making it happen during these
  • What’s the Relation Between Grid Trading and Delta Hedging? [Quantpedia]

    Delta hedging is a trading strategy that aims to reduce the directional risk of short option strategy and reach a so-called delta-neutral position. It does so by buying or selling small increments of the underlying asset. Similarly, grid trading is a trading strategy that buys/sells an asset depending on its price moves. When the price falls, it buys and sells when the price rises a certain amount
  • Toward an efficient hybrid method for pricing barrier options [Artur Sepp]

    I am excited to share the latest paper with Prof. Alexander Lipton. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4035813 We find the semi-analytical solution to one of the unsolved problems in Quantitative Finance, which is to compute survival probabilities and barrier option values for two-dimensional correlated dynamics of stock returns and stochastic volatility of returns. An analytical
  • Does diversification always benefit investors? No. [Alpha Architect]

    Diversification has been around since the early 1950s and is often considered a free lunch in finance. But is that actually the case? Weve highlighted here and here that the reality is more complicated than the theory. Consider the two basic assumptions about correlations in the context of mean-variance optimization: (1) Pair-wise correlations are assumed to be symmetrical relative to
  • Black-Litterman Sector Allocation [Quant Dare]

    Incorporating market expectations and forecasts into asset allocation used to be more of an art than an analytical process in the 80s. In this post we will review Fisher Blacks elegant and very practical solution to portfolio construction, going through a sector allocation example. The Black Litterman Model The BL (Black-Litterman) model can be considered one of the greatest contributions in

Quantocracy’s Daily Wrap for 02/18/2022

This is a summary of links featured on Quantocracy on Friday, 02/18/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Are There Seasonal Intraday or Overnight Anomalies in Bitcoin? [Quantpedia]

    At Quantpedia, we love seasonality effects, and our screener includes several strategies that exploit them. These anomalies are fascinating since they usually offer a favorable risk and reward ratio and are commonly invested only during short periods. Frequently, these strategies are valuable additions to portfolios because they are not that sensitive to overall market performance. This short
  • Factor Investing: Is a Human Capital Factor on the Horizon? [Alpha Architect]

    From 1991 to 2018, capital expenditures as a percentage of total sales remained relatively flat, at about 10 percent. On the other hand, personnel expenses almost doubled during that time. In fact, by 2018 personnel expenses (the costs for hiring, wages, salaries, and bonuses; social security and insurance costs; costs for employee training and development; perquisites like catering and workwear;

Quantocracy’s Daily Wrap for 02/16/2022

This is a summary of links featured on Quantocracy on Wednesday, 02/16/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Internal Bar Strength for Mean Reversion [Alvarez Quant Trading]

    Ive been writing this blog for nine years now. Sometimes I am amazed about topics I have not covered and this is one of them. When developing a new strategy, these are the indicators I likely test: RSI, Historical Volatility and Internal Bar Strength (IBS). I had a reader send me an email pointing me to research done on IBS. I thought let me send him my blog post on this. After searching my

Quantocracy’s Daily Wrap for 02/15/2022

This is a summary of links featured on Quantocracy on Tuesday, 02/15/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Trend-Following Filters Part 5 [Alpha Architect]

    Previous articles in this series examine, from a digital signal processing (DSP) frequency domain perspective, various types of digital filters used by quantitative analysts and market technicians to analyze and transform financial time series for trend-following purposes. An Introduction to Digital Signal Processing for Trend Following Trend-Following Filters Part 1 Trend-Following Filters

Quantocracy’s Daily Wrap for 02/13/2022

This is a summary of links featured on Quantocracy on Sunday, 02/13/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Inverse Fisher Transform [Financial Hacker]

    The Fisher Transform converts data to or from a Gaussian distribution. It was first used in algorithmic trading by John Ehlers (1) , and became a common part of indicators since then. In a TASC January 2022 article, Ehlers described a new indicator, the Elegant Oscillator, based on the Inverse Fisher Transform. Lets have a look at this indicator and how its used in a trading system. First,

Quantocracy’s Daily Wrap for 02/11/2022

This is a summary of links featured on Quantocracy on Friday, 02/11/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How to Utilize Anticipated ETF Rebalances [Quantpedia]

    Passive investing enjoys substantial popularity and subsequently attracts the attention of researchers. We blogged about the boom of passive investing and market inelasticity in the past. However, the novel research by Li (2021) examines a different perspective. With the boom of passive investing, we are also witnessing a boom of index-tracking mutual funds, but especially index-tracking ETFs. For
  • Naive modelling of Matalan defaulting on its MTNLN 9.5 01/31/24 Notes [Gautier Marti]

    When reading Denevs book Probabilistic Graphical Models A New Way of Thinking in Financial Modelling, commented on my blog back in Summer 2020, I put a note in my todo list to model Matalan probability of default using a Bayesian network (for fun, not work). I was rather familiar with this single name, former member of the iTraxx Crossover index, which had been a target for orphaning (cf.
  • Research Review | 11 February 2022 | Financial Crises [Capital Spectator]

    Financial Cycles Early Warning Indicators of Banking Crises? Sally Chen (Bank for Intl Settlements) and Katsiaryna Svirydzenka (IMF) April 2021 Can the upturns and downturns in financial variables serve as early warning indicators of banking crises? Using data from 59 advanced and emerging economies, we show that financial overheating can be detected in real time. Equity prices and output

Quantocracy’s Daily Wrap for 02/08/2022

This is a summary of links featured on Quantocracy on Tuesday, 02/08/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Should Factor Investors Neutralize the Sector Exposure? [Quantpedia]

    Factor investors face numerous choices that do not end even after picking the set of factors. For instance, should they neutralize the factor exposure? If the investor pursues sector neutralization, does the decision depend on a particular factor? Or are the choices different for the long-only investor compared to the long-short investor? The research paper by Ehsani, Harvey, and Li (2021) answers
  • The Fed Put is Alive and Well [Alpha Architect]

    The question of whether or not the FED considers or responds to the stock market in its policy decisions has been studied fairly extensively, however, the subject of the existence of the FED put continues to pop up in the literature. In this particular revival of the issue, the authors are among the first to study FOMC minutes, transcripts, and other sources of information using textual
  • Smart Money, Crowd Intelligence, and AI [Factor Research]

    Smart money, crowd intelligence, and AI ETFs have underperformed the S&P 500 since their inception Somewhat surprisingly, all three have almost the same factor exposures Negative exposure to value, and positive exposure to size and momentum factors INTRODUCTION Welcome to the qualifying round of the 2022 US Investment Olympics. The goal of the games is simple: beat the S&P 500, either by

Quantocracy’s Daily Wrap for 02/04/2022

This is a summary of links featured on Quantocracy on Friday, 02/04/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Ulcer Performance Index Portfolio Optimization [Portfolio Optimizer]

    The Ulcer Performance Index1 (UPI) is a portfolio reward-risk measure introduced by G. Martin2 similar in spirit to the Sharpe Ratio, but using the Ulcer Index (UI) as a risk measure instead of the standard deviation. In this blog post, I will present the mathematics behind the Ulcer Performance Index portfolio optimization, and compare the results of Portfolio Optimizer with those of the Python
  • Linking Impact in Divergence Attribution [Quant Dare]

    The performance of a portfolio during a single period can be attributed to a set of factors, but in order to aggregate those daily factors and get a breakdown of the portfolios total performance during a multi-period (for example 1Y), we have to make use of an smoothing algorithm. This is due to the fact that single-period factor returns are not additive; they are referred to different bases.
  • Is The Value Premium Smaller Than We Thought? [Alpha Architect]

    From 2017 through March 2020, the relative performance of value stocks in the U.S. was so poor, experiencing its largest drawdown in history, that many investors jumped to the conclusion that the value premium was dead. It is certainly possible that what economists call a regime change could have caused assumptions to change about why the premium should exist/persist. For example, if the

Quantocracy’s Daily Wrap for 02/02/2022

This is a summary of links featured on Quantocracy on Wednesday, 02/02/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Exogenous risk overlay: take two [Investment Idiocy]

    This is a short follow up post to one I did a couple of years ago, on "Exogenous risk management". This was quite an interesting post which dug into why expected risk changes for a typical diversified futures trading system. And then I introduced my risk overlay: "Now we have a better understanding of what is driving our expected risk, it's time to introduce the risk overlay.
  • Backtest overfitting and the post-hoc probability fallacy [Mathematical Investor]

    In several articles on this site (see, for instance, A and B), we have commented on the dangers of backtest overfitting in finance. By backtest overfitting, we mean the usage of historical market data to develop an investment model, strategy or fund, where many variations are tried on the same fixed dataset. Backtest overfitting, a form of selection bias under multiple testing, has long plagued
  • What Explains the Momentum Factor? Frog-in-the Pan is Still the King [Alpha Architect]

    A lot of ink has been spilled on a seemingly simple question: Why does the momentum factor exist? We have done our fair share contributing to the question and our collective conclusions are in our book Quantitative Momentum. We walked away from the question and determined the following: We will never really know why the momentum factor actually exists. But we know that is does exist and it is

Quantocracy’s Daily Wrap for 01/31/2022

This is a summary of links featured on Quantocracy on Monday, 01/31/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Naive modelling of credit defaults using a Markov Random Field [Gautier Marti]

    Mid-2020, I read a book on probabilistic graphical models (PGMs) applied in finance by Alexander Denev. Mid-2021, I hosted a machine learning meetup with an application of PGMs to predict the future states of economic and financial variables, and geopolitical events based on forward-looking views expressed by experts in news articles. In this blog post, I finally provide some basic code to
  • Introduction to Dollar-Cost Averaging Strategies [Quantpedia]

    Most of you have probably heard the saying that somebody averaged into or out of his investment position. But what does it exactly mean, and what different dollar-cost averaging strategies exist? We plan to unveil our new Dollar-Cost Averaging report for Quantpedia Pro clients next week, and this article serves as a short introduction to this term. What is dollar-cost averaging?
  • Cryptocurrency Hedge Funds [Factor Research]

    Cryptocurrency hedge funds generated abnormally high and uncorrelated returns since 2014 However, the returns can be simply attributed to the performance of Bitcoin Many crypto-beta ETFs & ETPs have been launched, so crypto hedge funds need to move from beta to alpha INTRODUCTION Cryptocurrencies have reached politics far quicker than other financial instruments given their use in criminal