Quantocracy

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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

Quantocracy’s Daily Wrap for 01/27/2022

This is a summary of links featured on Quantocracy on Thursday, 01/27/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Portfolio Strategies for Volatility Investing [Alpha Architect]

    The most basic tenet of financial theory is that risk and expected return are related. One widely used measure of risk is volatility. As far back as 1976, with the publication of Fischer Blacks Studies of Stock Price Volatility Changes, financial economists have known that volatility and returns are negatively correlated. This relationship results in the tendency to produce negative
  • Factor Performance in Bull and Bear Markets [Quantpedia]

    Do common equity factors suffer during bear markets? Undoubtedly, the market factor is a rather unpleasant investment during bear markets, but what about the long-short factors? Are they able to deliver performance? The research paper by Geertsema and Lu (2021) provides several answers and interesting insights. Returns of value, profitability, investment, and momentum are highly positive and
  • The Best Strategies for Dealing with Inflation? Factors and Trend-Following [Alpha Architect]

    Inflation whats that? It has been quite a while since inflation has been considered a problem. Today, however, the angst surrounding the possibility of a resurgence in inflation is real and top of mind for investors. If the current fear becomes a reality, how should investors react? What strategies and asset classes perform well in a rising inflationary environment? If inflation

Quantocracy’s Daily Wrap for 01/24/2022

This is a summary of links featured on Quantocracy on Monday, 01/24/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Tactical Asset Allocation During Bear Markets and Major Pullbacks [Allocate Smartly]

    One of the primary benefits of Tactical Asset Allocation (TAA) is the ability to manage losses during major market declines. TAA does that by reducing allocation to risk asset classes like stocks and real estate, and increasing allocation to defensive assets like bonds and gold. In this post, we test how the 60+ TAA strategies we track would have fared through the 10 most significant market
  • How to Build the Best Quant Team in the World [Hudson and Thames]

    Building on our last article regarding best practices for quantitative finance research groups, this article asks the question: What is the best setup and culture for a quant team? This question may have different answers depending on who you ask. Fortunately, there are some glimpses and statements from the top quantitative research groups that afford us a window into their work environment behind
  • Myth-Busting: ETFs Are Eating the World [Factor Research]

    ETFs are a negligible owner of US stocks Primary and secondary ETF trading has not grown quicker than total stock trading The impact of ETFs on stocks is less strong than frequently suggested INTRODUCTION Software is eating the world. The venture capitalist Marc Andreessen wrote these words back in 2011. From todays perspective, with companies like Alphabet, Microsoft, and Meta dominating