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Quantocracy’s Daily Wrap for 06/23/2020

This is a summary of links featured on Quantocracy on Tuesday, 06/23/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Option-Based Trend Following [Flirting with Models]

    The convex payoff profile of trend following strategies naturally lends itself to comparative analysis with option strategies. To isolate the two extremes of paying for whipsaw either up front or in arrears we replicate an option strategy that buys 1-month at-the-money calls and puts based on the trend signal. We find that while option premiums steadily eat away at the balance of the
  • No Longer Superheroes? Twilight of the Bonds [Factor Research]

    Bonds had superhero qualities over the last few decades The case for bonds in asset allocation is not clear when yields are low or negative Japan can be used as a roadmap for the outlook of a 60/40 portfolio in the US or Europe FIXED INCOME KRYPTONITE Faster than a speeding bullet. More powerful than a locomotive. Able to leap tall buildings in a single bound. And he can fly and shoot lasers
  • Can Statistics Actually Determine if Managers Have No Skill? [Alpha Architect]

    Whether they are selecting a manager, a factor, or a strategy, investors can make two types of mistakes. We thought we were hiring Peter Lynch, not this loser! A Type I error (or false discovery) when selecting a manager who turns out to be unskilled. That Warren Buffett guy is washed up, lets pass. A type II error (missed discovery) when not selecting or missing a manager that the investor

Quantocracy’s Daily Wrap for 06/22/2020

This is a summary of links featured on Quantocracy on Monday, 06/22/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Portfolio Optimisation with MlFinLab: Hierarchical Risk Parity [Hudson and Thames]

    In 2016, Dr. Marcos Lopez de Prado introduced the Hierarchical Risk Parity (HRP) algorithm for portfolio optimization. Prior to this, Harry Markowitzs Modern Portfolio Theory (MPT) was used as an industry-wide benchmark for portfolio optimization. MPT was an amazing accomplishment in the field of portfolio optimization and risk management, earning Harry Markowitz a Nobel Prize for his work.

Quantocracy’s Daily Wrap for 06/21/2020

This is a summary of links featured on Quantocracy on Sunday, 06/21/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Petra on Programming: Truncated Indicators [Financial Hacker]

    Cumulative indicators, such as the EMA or MACD, are affected not only by previous candles, but by a theoretically infinite history of candles. This makes them return slightly different results depending on the tested period. Although this effect is often assumed negligible, John Ehlers demonstrated in his July S&C article that it is not so. At least not for some indicators, such as a narrow
  • Fighting racism starts with a baby step [Ran Aroussi]

    While most people agree that black lives matter (why shouln't they?), many also feel that the "PC Police" has gone too far with demands to ban movies like "Gone with the Wind", removing statues of historical figures, or renaming words like "blacklist". Here are my two cents… blm I firmly believe that racism is, always was, and always will be, both evil and

Quantocracy’s Daily Wrap for 06/18/2020

This is a summary of links featured on Quantocracy on Thursday, 06/18/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Do Option Prices Inform Stock Returns? [Alpha Architect]

    In perfectly efficient markets, option prices should not convey any new information or contribute to the price discovery of underlying assets. However, if markets are not perfectly efficient, traders with private information might prefer to transact in option markets over stock markets even though option markets are less liquid than the markets in the underlying stocks. The reason for the
  • More Work on RVFL Networks [Dekalog Blog]

    Back in November last year I posted about Random Vector Functional Link (RVFL) networks here and here. Since then, along with my recent work on Oanda's API Octave functions and Market/Volume Profile visualisation, I have continued looking at RVFL networks and this post is an update on this work. The "random" in RVFL means random initialisation of weights that are then fixed. It

Quantocracy’s Daily Wrap for 06/17/2020

This is a summary of links featured on Quantocracy on Wednesday, 06/17/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Trend-following, volatility targeting and Ensembles for Bitcoin [Beat Passive]

    Today well incrementally build a strategy using trend-following, volatility targeting, and ensemble models and well use Bitcoin as our use-case. Why bitcoin? Because its a maddening asset-class thats extremely volatile over short periods of time and seemed like a fun place to test these concepts. You might be thinking: an investing strategy for bitcoin is such a cop out, of course
  • What is the difference between Extra Trees and Random Forest? [Quant Dare]

    Extra Trees and Random Forest are two very similar ensemble methods and often a doubt arises as to whether to use one or the other. What is really the difference between them? In previous posts, Random forest: many are better than one, we have seen how to create a Random Forest from decision trees and how they improve their performance. Furthermore, if you want more information about simple
  • ReSolve Riffs on Gold vs Treasury as Disaster Protection [Invest Resolve]

    This is ReSolves Riffs live on Youtube every Friday afternoon to debate the most relevant investment topics of the day. The recent pandemic-led selloff has once again highlighted the importance of having ballast in portfolios to deal with extreme equity volatility and ultimately protect investors from disastrous outcomes. This week we discussed: Whether bonds can continue to

Quantocracy’s Daily Wrap for 06/16/2020

This is a summary of links featured on Quantocracy on Tuesday, 06/16/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Free Online Event from AI & Data Science in Trading: June 22-26

    AI & Data Science in Trading Digital Week brings together experts in the use of AI and advanced data analytic techniques within asset management, primarily for finding alpha, managing risk and optimizing portfolios. Join us for a week long online event from wherever you are in the world. Use this time to continue to learn, network and utilize AI to optimize your investment workflow. During
  • Trading Costs Wipe Out the Overnight Return Anomaly [Alpha Architect]

    At least once a year, the press and Twittersphere propagate the mistaken idea that investors can earn excess returns by buying the S&P 500 at the close of the market, then selling it at the open the next day. The logic is that by exposing themselves to only overnight returns, investors can seek to harness some form of information surprises by the way of earnings announcements or idiosyncratic
  • Defensive & Diversifying Strategies: What Worked in 2020? [Factor Research]

    Defensive smart beta strategies like Low Volatility did not offer much capital protection in 2020 Long-short multi-factor investing generated negative returns, but still offered diversification benefits Managed futures finally found their redemption given positive & uncorrelated returns INTRODUCTION The best defense is a good offense is frequently quoted in the military (George

Quantocracy’s Daily Wrap for 06/15/2020

This is a summary of links featured on Quantocracy on Monday, 06/15/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Order Flow Correlation May Imply Momentum Factor Crowding [Alpha Architect]

    This study is one of several studies reviewed here and here, attempting to measure factor crowding. This article specifically examines the presence of factor crowding by estimating the correlation between market order flow with the magnitude of the factor signal to trade. They hypothesize that factor crowding can be identified via the correlations associated with supply-demand imbalances where

Quantocracy’s Daily Wrap for 06/13/2020

This is a summary of links featured on Quantocracy on Saturday, 06/13/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Portfolio simulations [OSM]

    In our last post, we compared the three most common methods used to set return expectations prior to building a portfolio. Of the threehistorical averages, discounted cash flow models, and risk premia modelsno single method dominated the others on average annual returns over one, three, and five-year periods. Accuracy improved as the time frame increased. Additionally, aggregating all three

Quantocracy’s Daily Wrap for 06/12/2020

This is a summary of links featured on Quantocracy on Friday, 06/12/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Monster Factor Correlation Chart [Alpha Architect]

    We recently added a monster correlation matrix to our factor library data sheet that maps out the correlation of all the factors against every other factor. Here is a sample output that highlights the difference in the correlations between value factors and different quality factors. Note the big difference between book to market, which has a negative correlation to quality, and the other metrics
  • Research Review | 12 June 2020 | Forecasting [Capital Spectator]

    Breaking Bad Trends Ashish Garg (Research Affiliates), et al. May 7, 2020 We document and quantify the negative impact of trend breaks (i.e., turning points in the trajectory of asset prices) on the performance of standard trend-following strategies across several assets and asset classes. The frequency of trend breaks has increased in recent years, which can help explain the lower performance of

Quantocracy’s Daily Wrap for 06/11/2020

This is a summary of links featured on Quantocracy on Thursday, 06/11/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • 5 Surprising Things We Learned from a Factor Investing Expert [Alpha Architect]

    Lu Zhang and his colleagues made some waves with their new paper, Replicating Anomalies. (now published in the RFS congrats!). We have a summary of the paper here. Lu Zhang, and his colleagues, Kewei Hou and Chen Xue, spent nearly 3 years carefully compiling and replicating 447 anomalies identified in the academic literature. The paper is so dense Ryan even created a blog post that
  • How to extend ETF prices with mutual fund data using SQL [Robot Wealth]

    On Zero to Robot Master Bootcamp, we teach how to build a portfolio of three automated systematic trading strategies. One of them is a long term Risk Premia Harvesting strategy which trades asset class ETFs. ETFs are useful instruments for analysing long term (tradeable) performance of various asset classes but many have been introduced only relatively recently and have limited data available.
  • Counterpoint: ETF Activity May Make the Stock Market MORE Efficient [Alpha Architect]

    The Securities and Exchange Commission (SEC) has called for more research and discussion on the impacts of ETFs. In a previous post, we covered why ETFs have not screwed up correlations, liquidity, and alpha opportunities. However, here is another post from Wes that outlines arguments that ETFs may screw up stock market efficiency. In short, how ETFs affect stock market efficiency is an ongoing