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Quantocracy’s Daily Wrap for 04/20/2021

This is a summary of links featured on Quantocracy on Tuesday, 04/20/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Market Sentiment and an Overnight Anomaly [Quantpedia]

    Various research papers show that market sentiment, also called investor sentiment, plays a role in market returns. Market sentiment refers to the general mood on the financial markets and investors overall tendency to trade. The mood on the market is divided into two main types, bullish and bearish. Naturally, rising prices indicate bullish sentiment. On the other hand, falling prices indicate
  • Climate Change and Asset Allocation [Alpha Architect]

    This article focuses on climate-aware asset allocation and the associated impacts of higher temperatures on equity excess returns and risk. The objective of this research is to demonstrate how portfolios can incorporate climate change risk and rewards into the decision-making process. The research does not comment The analysis proceeds in two steps: Determine estimates of how climate change

Quantocracy’s Daily Wrap for 04/19/2021

This is a summary of links featured on Quantocracy on Monday, 04/19/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • New Site: Machine learning for finance – part 2 [Thiago Marzagao]

    In this series of posts Im trying some of the ideas in the book Advances in Financial Machine Learning, by Marcos Lpez de Prado. Here I tackle an idea from chapter 5: fractional differencing. the problem Stock prices are nonstationary – their means and variances change systematically over time. Take for instance the price of BOVA11 (an ETF that tracks Brazils main stock market index,
  • Myth-Busting: Money Printing Must Create Inflation [Factor Research]

    The link between central bank policy, money supply, and inflation seems to have changed QE money printing had no substantial impact on inflation, aside from asset price inflation More direct stimuli might change that INTRODUCTION London ranks ninth on the UBS Global Real Estate Bubble index for residential properties. Like in many other countries, property prices in the United Kingdom reached an
  • Statistical arbitrage risk premium [SR SV]

    Any asset can use a portfolio of similar assets to hedge against its factor exposure. The factor residual risk of the hedged position is called statistical arbitrage risk. Consequently, the statistical arbitrage risk premium is the expected return of such a hedged position. A recent paper shows that both theoretically and empirically this premium rises in the stocks statistical arbitrage risk.

Quantocracy’s Daily Wrap for 04/18/2021

This is a summary of links featured on Quantocracy on Sunday, 04/18/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Beta in the tails [Eran Raviv]

    Every form of strength is also a form of weakness*. I love statistics, but I focus to much on methodology, which is not for everyone. Some people (right or wrong) question: wonderful sir, but what can I do with it?. A new paper titled Beta in the tails is a showcase application for why we should focus on correlation structure rather than on average correlation. They discuss the
  • The Price Wave Radio [Financial Hacker]

    Price curves consist of much noise and little signal. For separating the latter from the former, John Ehlers proposed in the Stocks&Commodities May 2021 issue an unusual approach: Treat the price curve like a radio wave. Apply AM and FM demodulating technology for separating trade signals from the underlying noise. A very simple AM (amplitude modulation) receiver is just an antenna, a

Quantocracy’s Daily Wrap for 04/16/2021

This is a summary of links featured on Quantocracy on Friday, 04/16/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How Portfolio Construction Impacts the Reliability of Outcomes [Alpha Architect]

    We are proponents of focused (i.e., 50 stock) long-only value and momentum factor strategies. 1 There are also plenty of incredibly talented systematic investing shops that build highly diversified factor portfolios with 500+ stocks. We take no stance on the "best" approach because there is no "best" approach: the reality is that each approach has costs and benefits. Our belief
  • How to Predict Asset Prices (and how not to) [Robot Wealth]

    If you have some factor that you think predicts future stock returns (or similar) and you are making charts like below, then here are some tips Well go through an example of trying to time SPX with the level of VIX. You get daily SPX index prices and daily VIX close data You align them by date and plot them on dual axes, in true RealVision style. SPX tends to go down when VIX is
  • Inflation and the Value Premium [Alpha Architect]

    The grand experiment of combining massive fiscal and monetary stimulus at a time when the economy is already recovering stronglythe Feds latest forecast for 2021 GNP growth is 6.5 percenthas led many investors to begin to worry about the risks of rising inflation. And strong growth is expected to continue well into next year. For example, the Philadelphia Federal Reserve First Quarter

Quantocracy’s Daily Wrap for 04/14/2021

This is a summary of links featured on Quantocracy on Wednesday, 04/14/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Copula for Statistical Arbitrage: Intro to Vine Copula [Hudson and Thames]

    Copula is a great statistical tool to study the relation among multiple random variables: By focusing on the joint cumulative density of quantiles of marginals, we can bypass the idiosyncratic features of marginal distributions and directly look at how they are related. Indeed, traders and analysts have been using copula to exploit statistical arbitrage under the pairs trading framework for
  • A self optimising moving average [Philipp Kahler]

    Different markets and different timeframes will need different moving average periods. This article will show a way to construct a self optimising moving average, one which automatically adjusts its period to the charted market and timeframe. Reading a simple moving average I would like to start this new indicator with some thoughts about how to define how good a moving average is. Usually
  • What cannot be hedged [Quant Dare]

    When looking to generate appreciable returns and increase diversification, it is natural to consider investing in foreign instruments. Currency risk then comes up, since the returns coming from these funds, stocks, bonds need to be translated into your home currency. The most straightforward solution to deal with this undesired extra risk is to hedge. In this context, the main objective of
  • The Fibonacci Timing Pattern – Coding a Reversal Pattern to Trade the Markets [Milton FMR]

    I am always fascinated by patterns as I believe that our world contains some predictable outcomes even though it is extremely difficult to extract signals from noise, but all we can do to face the future is to be prepared, and what is preparing really about? It is anticipating (forecasting) the probable scenarios so that we are ready when they arrive. Pattern recognition is the search and

Quantocracy’s Daily Wrap for 04/13/2021

This is a summary of links featured on Quantocracy on Tuesday, 04/13/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Trading and investing performance – year seven [Investment Idiocy]

    It's April, which means the birds are singing, the trees are leafing, and I'm doing my annual review of my investing and trading performance. The format will be familiar from previous years, but I'm going to be using the fact I've upgraded my live trading system to include a lot more detail about my futures trading performance. TLDR: Last year my futures trading bailed me out

Quantocracy’s Daily Wrap for 04/12/2021

This is a summary of links featured on Quantocracy on Monday, 04/12/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Time Machines for Investors [Factor Research]

    Investors are challenged when evaluating investment opportunities with limited track records Factor exposure analysis can be used to create replication portfolios These empower investors to walk backward and forward in time, enhancing the investment decision process INTRODUCTION Investing is all about time traveling. Most investors travel forward a few days, months, or even years, in order to take
  • Where You Can Trade Cryptocurrencies using Fiat Currencies? [Quant at Risk]

    With a myriad of new crypto-exchanges popping up every quarter, lots of newcomers to this fields can be overwhelmed by their number. Big names can quickly stand out if you filter the list according to daily trading volume or the total number of cryptocurrencies available for trading. Some offer decent liquidity but some are newly born rising stars. In this quick note, we will show a few-liner in
  • Cryptocurrency Volatility Indexes [Only VIX]

    Last week I wrote about BVOL – bitcoin volatility index launch on Deribit. However this is not the first crypto volatility index. In fact last year T3 Indexes – the folks behind SPIKES volatility index launched both Bitcoin and Etherium volatility indexes, and already executed trades tied to their BitVol index on LedgerX platform. The first trade executed about a month ago was a call spread; the
  • The Definitive Guide to Pairs Trading [Hudson and Thames]

    Born at Morgan Stanley in the late 1980s, under the wing of Nunzio Tartaglia and his team, who later split up to start several of the worlds best hedge funds, namely PDT Partners and D.E. Shaw (which then lead to Two Sigma). Pairs trading has proven to be a popular and sophisticated trading strategy, often taught in advanced MSc Financial Engineering programs. A special mention to Gerry
  • Trend-Following Filters Part 3 [Alpha Architect]

    This is the third article in a series of three, the first two are available here and here. Those articles focus on examining from a digital signal processing (DSP) perspective 1 various types of digital filters that are designed to model trends in time series, in order to illustrate their properties and limitations. This article discusses a different signal processing tool called a filter
  • Research Review | 9 April 2021 | Bitcoin [Capital Spectator]

    How Much Bitcoin Should I Own? A Mathematical Answer Adam Grealish (Betterment) March 9, 2021 It goes without saying that this is a hard question to answer. But we can borrow a page from modern quantitative finance to help us arrive at a potential answer. For years, Wall Street quants have used a mathematical framework to manage their portfolios called the Black-Litterman model. Yes, the

Quantocracy’s Daily Wrap for 04/08/2021

This is a summary of links featured on Quantocracy on Thursday, 04/08/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • What P&L Swings Can I Expect as a Trader? [Robot Wealth]

    Many beginner traders dont realize how variable the p&l of a high-performing trading strategy really is. Heres an example I simulated ten different 5 year GBM processes with expected annual returns of 20% and annualized volatility of 10%. (If you speak Sharpe Ratios, Im simulating a strategy within known Sharpe 2 characteristics.) I plotted the path with the highest ending equity

Quantocracy’s Daily Wrap for 04/07/2021

This is a summary of links featured on Quantocracy on Wednesday, 04/07/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Adding candlesticks to mean reversion setup in a portfolio [Alvarez Quant Trading]

    In my previous post, Adding candlesticks to mean reversion setup, we looked at how various candle patterns could help individual trades. Now we will see how those results translate to a portfolio. And why I usually only do portfolio level testing. The Strategy Setup Rules Stock is a member or was a member of the Russell 3000 The Dollar Volume of stock is greater than $500,000 Close is above $1

Quantocracy’s Daily Wrap for 04/05/2021

This is a summary of links featured on Quantocracy on Monday, 04/05/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Estimating the Stock-Bond Correlation [Alpha Architect]

    The correlation between stock and bond returns is an integral component of hedging strategies, risk assessment, and minimization of risk in allocation decisions. In the context of those strategies, the stock-bond correlation is typically estimated using monthly return data over a recent previous period. This is a reasonable approach but has turned out to be an unreliable indicator for forecasting