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Quantocracy’s Daily Wrap for 01/23/2022

This is a summary of links featured on Quantocracy on Sunday, 01/23/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Option Implied Stock Price vs. Actual Traded Stock Price [Newmark Risk]

    Stock and options markets can disagree about a stocks value because of informed trading in options and/or price pressure in the stock. This difference between the options implied stock price and the actual traded stock price (DOTS) can give insight into the markets view on the expected future price and thus can be utilized to predict the underlying stock return. First Glance As with many
  • VIX-Yield Curve Cycles May Predict Recessions [Quantpedia]

    Equities provide significant long-term returns, but the growth certainly is not constant or even stable. Anyway, this holds for almost every financial asset. Bear markets alternate bull markets, and expansion periods rotate with recession periods. Since recessions and bear markets come hand in hand for several asset classes, recession predictions have always been the foremost concern. The yield
  • How to estimate factor exposure, risk premia, and discount factors [SR SV]

    The basic idea behind factor models is that a large range of assets returns can be explained by exposure to a small range of factors. Returns reflect factor risk premia and price responses to unexpected changes in the factors. The theoretical basis is arbitrage pricing theory, which suggests that securities are susceptible to multiple systemic risks. The statistical toolkit to estimate factor

Quantocracy’s Daily Wrap for 01/19/2022

This is a summary of links featured on Quantocracy on Wednesday, 01/19/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Best Research Practices for Your Quant Group [Hudson and Thames]

    Its early in the morning and the markets are about to open. As an individual trader/investor, or perhaps the manager of a group of traders/investors, you are intensely studying the latest news feed that you think may have an impact on your portfolio. Amongst the other plethora of tools at your disposal, you have often read about some of the amazing stories from algorithmic trading groups that
  • Clustering and correlations [Investment Idiocy]

    Happy new year! A very quick post from me this month – I'm trying to get ready for teaching next week and also cracking on with my latest book. On the Systematic Trader podcast I recently discussed using a clustering algorithim to group instruments. Using my software, pysystemtrade, I can get a correlation matrix of asset returns and cluster it quite easily (all the code for this post is here

Quantocracy’s Daily Wrap for 01/18/2022

This is a summary of links featured on Quantocracy on Tuesday, 01/18/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Financial Mentor’s Optimum3 Strategy [Allocate Smartly]

    This is an independent test of Optimum3, a tactical asset allocation strategy from Todd Tresidder of FinancialMentor.com. Optimum3 starts as a momentum strategy similar to many of the TAA strategies we track. It combines that with a unique approach to portfolio optimization to enforce a degree of high momentum diversification. Backtested results from 1987 follow. Results are net of
  • Analyzing stock data near events with pandas [Wrighters.io]

    Stock returns can be heavily impacted by certain events. Sometimes these events are unexpected or a surprise (natural disasters, global pandemics, terrorism) and other times they are scheduled (presidential elections, earnings announcements, financial data releases). We can use pandas to obtain financial data and see the impacts of events the returns of stocks. In my earlier article on financial
  • Lottery Effect in ETFs Across Several Asset Classes [Quantpedia]

    Indisputably, we are witnesses of an ETF mega boom. From passive to active ETFs, their numbers seem to be ever-increasing. Since these exchange-traded funds can be excellent (accessible, transparent, liquid) instruments, it is a great necessity to examine their possible usage in active and systematic trading or investing. Therefore, the short research critically assesses the possibility of using
  • Analyzing Floating Rate ETFs [Factor Research]

    Floating rate ETFs pursue differentiated strategies Some of them are highly correlated to equities, limiting any diversification benefits The correlation with interest rates and inflation has been low INTRODUCTION Despite the consensus on high inflation being transitory in 2021, the five-year, five-year forward inflation expectation rate in the US remains stubbornly above 2%. Investors that hoped

Quantocracy’s Daily Wrap for 01/14/2022

This is a summary of links featured on Quantocracy on Friday, 01/14/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Quality Factor in Sector Investing [Quantpedia]

    In general, a factor is described as a characteristic that can be associated with a group of assets, and it helps to explain their returns and risks. As noted in the literature focusing on CAPM, the market itself can be viewed as the primer and most significant equity factor. Besides the market factor, academics generally look for persistent factors over time with solid explanatory power over a
  • SP-500 Seasonality [Alvarez Quant Trading]

    Ive been seeing lots of seasonality type charts on the S&P500 where they take the average return for each day of the year and then create a return curve for the year. The chart often shows the sell in May and buy in November flatness of the returns. And then the holiday end of the year run up. Steven, my trading buddy, sent me yet another chart and I noticed something I had not seen
  • Research Review | 14 January 2022 | Inflation [Capital Spectator]

    The Time-Varying Relation between Stock Returns and Monetary Variables David G. McMillan (University of Stirling) November 2, 2021 The nature of the relation between stock returns and the three monetary variables of interest rates (bond yields), inflation and money supply growth, while oft studied, is one that remains unclear. We argue that the nature of the relation changes over time and this
  • Factor Investing in Sovereign Bond Markets [Alpha Architect]

    In our 2016 book Your Complete Guide to Factor-Based Investor Andrew Berkin and I recommended that due to the risks of data mining (or p-hacking)researchers torture the data until it confessesfor you to consider investing in a factor it should have demonstrated a premium that was: persistent across long periods of time and economic regimes; pervasive across asset classes and around the

Quantocracy’s Daily Wrap for 01/12/2022

This is a summary of links featured on Quantocracy on Wednesday, 01/12/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How to get serious about making money trading [Robot Wealth]

    In Australia, if youre serious about getting the job done effectively and efficiently, you might say: Im not here to f*** spiders. Many traders act like they are, indeed, here to f*** spiders. If youre making soup, you first need a good stock. Stock isnt exciting. Everyone has stock. Garnish is exciting, but you cant make soup from just garnish. Similarly, you need some stock
  • Finding Alpha on the Internet – Part 2 [Derek Wong]

    I was continuing from the last post. I will explain why I picked the paper I did, answer the questions from the previous post, and show my note-taking and thought process. After reading hundreds if not thousands of whitepapers, blogs, or articles, this is my distilled version of how I approach it. I will document this for the first time. It may be different from how others approach it. Over time
  • Trend-Following Filters Part 4 [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
  • Analyzing S&P 500 Constituents Returns by Sector [Quant Dare]

    In a previous post we analyzed the performance of US Sectors using SPDR Sector ETFs. Now, lets dive into the analysis of sectors using S&P 500 components and some measures of its performance. Before going any further, it is important to note that there are some differences between the Sector SPDR and the figures that we are going to see. In this analysis, we weight each company equally but

Quantocracy’s Daily Wrap for 01/11/2022

This is a summary of links featured on Quantocracy on Tuesday, 01/11/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How backtest overfitting in finance leads to false discoveries [Mathematical Investor]

    The present author, together with Marcos Lpez de Prado, has just published the article How backtest overfitting in finance leads to false discoveries in Significance, a journal of the British Statistical Society. The published article is now available at the Significance (Wiley) website. This article is condensed from the following manuscript, which is freely available from SSRN: Finance is Not
  • Asset Allocation and Private Market (i.e. illiquid) Investing [Alpha Architect]

    Allocations to illiquid assets(1) have become increasingly popular, thus requiring asset managers to consider portfolio-wide liquidity characteristics. Although determining the price of illiquidity is a challenge for investors, the construction of a portfolio that includes liquidity constraints can be even more daunting. Improvised, or other less formal approaches to manage illiquidity, are less

Quantocracy’s Daily Wrap for 01/10/2022

This is a summary of links featured on Quantocracy on Monday, 01/10/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Modeling Intent in R and/or Python [Open Source Quant]

    Learning or experimenting with Tidytext has been on my radar for at least a few years. Only recently did i have a need to pick it up. As with most learnings, they lead you down a path of more knowledge (read: rabbit holes) than you foresaw. This post is a hat-tip to the resources i used, knitting them together in a sample use case with an extension using parallel processing for the R
  • Research Compendium 2021 [Factor Research]

    There is nothing new in the world except the history you do not know Harry S. Truman January 2022. Reading Time: Several hours. Author: FactorResearch. RESEARCH COMPENDIUM 2021 In 2021 we published more than 50 research notes on mostly quantitative strategies, but also on topics like venture capital, catastrophe bonds, inflation, long volatility strategies, and direct indexing. The
  • Variance risk premia for patient investors [SR SV]

    The variance risk premium manifests as a long-term difference between option-implied and expected realized asset price volatility. It compensates investors for taking short volatility risk, which typically comes with a positive correlation with the equity market and occasional outsized drawdowns. A recent paper investigates a range of options-related strategies for earning the variance risk
  • Oversold $NDX does not bounce as reliably as $SPX [Quantifiable Edges]

    The NDX was hit especially hard last week. It fell 4.5% on the week and Friday was the lowest close since October. Many times we will see multi-day pullbacks and/or intermediate-term lows during a long-term uptrend suggest the market is primed for a bounce. But in running some studies on NDX this weekend, I found results like below. NDX oversold shows no hint of upside edge Such setups have been a

Quantocracy’s Daily Wrap for 01/07/2022

This is a summary of links featured on Quantocracy on Friday, 01/07/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The matrix effective rank: measuring the dimensionality of a universe of assets [Portfolio Optimizer]

    Quantifying how diversified is a universe of assets is an open problem in quantitative finance, partly because there is no definite formula for diversification1. Lets make the (reasonable) assumption that the way assets are moving together within a universe is important for its diversification. This in turn makes asset correlations within a universe important in determining how diversified it
  • What Do Mutual Fund Investors Really Care About? [Alpha Architect]

    Itzhak Ben-David, Jiacui Li, Andrea Rossi, and Yang Song contribute to the literature on the behavior of individual investors with their July 2021 study What Do Mutual Fund Investors Really Care About?, published in the July 2021 issue of The Review of Financial Studies. They began by noting that while researchers agree that fund flows are strongly correlated with past performance, there is

Quantocracy’s Daily Wrap for 01/05/2022

This is a summary of links featured on Quantocracy on Wednesday, 01/05/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Finding Alpha on the Internet Part 1 [Derek Wong]

    The internet is teeming with resources for potential alpha. How do you separate the wheat from the chaff? In this series of blog posts, I will explain my process for identifying sources worth diving deeper into and extracting some kind of benefit to a portfolio or strategy. This will be a side-by-side view of my workflow as an individual. As of now, I have no idea what even to research or how I

Quantocracy’s Daily Wrap for 01/04/2022

This is a summary of links featured on Quantocracy on Tuesday, 01/04/2022. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Is Hedged Equity a Good Replacement for the 40 ? [Simplify]

    Equity investors are drawn to the asset class with the expectation of an attractive and consistent risk premium. But with this risk premium comes the real risk of downside volatility. Traditionally, investors have paired stocks with defensive assets like bonds to provide anti-correlative benefits, but this has become increasingly more difficult in the current environment. In earlier blog posts, we
  • Most popular posts 2021 [Eran Raviv]

    Kind of sad, but the same intro which served last year, befits this year also. Littered with Corona, this year was not easy. But looking around me, I feel grateful. The following quote by Socrates comes to mind: If all our misfortunes were laid in one common heap whence everyone must take an equal portion, most people would be content to take their own and depart. On topic, as with previous
  • Factor Olympics Q4 2021 [Factor Research]

    2021 was a year of moderate factor performance Value, Quality, and Low Volatility factors generated positive returns Momentum and Size were negative INTRODUCTION We present the performance of five well-known factors on an annual basis for the last 10 years. Specifically, we only present factors where academic research supports the existence of positive excess returns across market cycles and asset