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Quantocracy’s Daily Wrap for 07/05/2020

This is a summary of links featured on Quantocracy on Sunday, 07/05/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • R + Python = Rython [Eran Raviv]

    Enough! Enough with that pointless R versus Python debate. I find it almost as pointless as the Bayesian vs Frequentist dispute. I advocate here what I advocated there (..dont be a Bayesian, nor be a Frequenist, be opportunist). Nowadays even marginally tedious computation is being sent to faster, minimum-overhead languages like C++. So its mainly syntax administration we insist

Quantocracy’s Daily Wrap for 07/03/2020

This is a summary of links featured on Quantocracy on Friday, 07/03/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Do non binary forecasts work? [Investment Idiocy]

    This is a post about forecasts in trading systems. A forecast is a calibrated expectation for future risk adjusted returns. In more layman like terms, it is a measure of how confident we are about a bullish (positive forecast) or bearish (negative forecast). Perhaps it is easiest to think about forecasts if we compare them to what is not: a forecast is non binary. A binary trading system will
  • Combining Momentum with Long-Term Reversal [Alpha Architect]

    Two of most documented anomalies in the asset pricing literature are the momentum effect and the long-term reversal effect. Momentum is typically defined as the last 12 months of returns excluding the most recent month (i.e., months 212) because it tends to show a reversal, which some have attributed to microstructure (trading) effects in which securities that have outperformed recently tend to
  • Research Review | 3 July 2020 | Business Cycle Analysis [Capital Spectator]

    Forecasting Macroeconomic Risk in Real Time: Great and Covid-19 Recessions Roberto A. De Santis (European Central Bank) July 2020 We show that financial variables contribute to the forecast of GDP growth during the Great Recession, providing additional insights on both first and higher moments of the GDP growth distribution. If a recession is due to an unforeseen shock (such as the Covid-19

Quantocracy’s Daily Wrap for 07/01/2020

This is a summary of links featured on Quantocracy on Wednesday, 07/01/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • First Day of Month Based on Month [Quantifiable Edges]

    Since the late 80s there has been a tendency for the market to rally on the first day of the month. One theory on why this occurs is that there are often 401k inflows that are put to work on the 1st of the month. I examined this tendency and broke it down by month on the blog in 2013 and 2009. I thought it would be interesting to take another look at it today. Below is an updated version of the

Quantocracy’s Daily Wrap for 06/30/2020

This is a summary of links featured on Quantocracy on Tuesday, 06/30/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Time Series Momentum: Theory and Evidence [Alpha Architect]

    The profitability of trend-following strategies has been documented in a large number of empirical studies. The majority of these empirical studies find that these strategies are profitable in the long-run over periods ranging from 50 to 150 years. However, two issues of concern arise regarding the empirical performance of trend-following strategies. The first issue is that the researchers

Quantocracy’s Daily Wrap for 06/29/2020

This is a summary of links featured on Quantocracy on Monday, 06/29/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How Trend Following Strategies Shape Return Distributions [Alpha Architect]

    Crisis Alpha is on everyones mind right now, maybe due to a bit of recency bias, but regardless of the reason thinking of and preparing for tail-risk is best done before its needed. Trend following is one such strategy that is rooted in academic research and is an enticing way to manage large drawdown risk, though not without the occasional trip on the Pain Train. The author,
  • The Variance Risk Premium: What Premium? [Factor Research]

    Harvesting the variance risk premium has a sound theoretical foundation However, actual investment products have generated poor returns Furthermore, they are correlated to equities, providing few diversification benefits INTRODUCTION Investing is akin to fighting in a never-ending war. There are long periods of peace and prosperity, but investors are frequently drawn into short-term combat,

Quantocracy’s Daily Wrap for 06/26/2020

This is a summary of links featured on Quantocracy on Friday, 06/26/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Diversifying Your Value Portfolio? Quality Works, but Have You Heard of Momentum? [Alpha Architect]

    What if your portfolio was only based on one idea? Something like stocks always go up or value always beats growth. You may be learning a humbling lesson right now that Mr. Market has taught us over and over again (and learning it the painful way). In this post, well examine various ways value-centric investors can potentially improve their portfolio outcomes by pooling together
  • Political market making [Cuemacro]

    It is challenging to understand how to model external shocks when trading financial markets. However, in recent years, it has become particularly notable that these risks, such as Brexit, the election of Trump, or coronavirus can greatly impact markets. Hence, we need to have a way to model them. In this paper we investigate the Thorfinn Sensitivity Index (TSI) which quantifies event risks related
  • Performance anxiety [OSM]

    In our last post, we took a quick look at building a portfolio based on the historical averages method for setting return expectations. Beginning in 1987, we used the first five years of monthly return data to simulate a thousand possible portfolio weights, found the average weights that met our risk-return criteria, and then tested that weighting scheme on two five-year cycles in the future. At
  • YTD Performance of Crisis Hedge Strategies [Quantpedia]

    After a month, we are back with a year-to-date performance analysis of a few selected trading strategies. In the previous article, we were writing about the performance of equity factors during the coronavirus crisis. Several readers asked us to take a look also on different types of trading strategies, so we are now expanding to other asset classes. We picked a subset of strategies that can be

Quantocracy’s Daily Wrap for 06/24/2020

This is a summary of links featured on Quantocracy on Wednesday, 06/24/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How to turn off a strategy using historical volatility [Alvarez Quant Trading]

    A very common question I get, is when should I turn off a strategy? Given the very volatile markets we have had the last few months, I can relate. Some strategies can thrive in these high volatility markets. While others can suffer. In the June 2020 issue of Technical Analysis of Stocks and Commodities, Perry Kaufman writes an article about using the historical volatility of the equity curve

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