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Quantocracy’s Daily Wrap for 08/16/2019

This is a summary of links featured on Quantocracy on Friday, 08/16/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Variance Risk Premium is Pervasive [Alpha Architect]

    The variance risk premium (VRP) refers to the fact that, over time, the option-implied volatility has tended to exceed the realized volatility of the same underlying asset. This has created a profit opportunity for volatility sellersthose willing to write volatility insurance options, collect the premiums and bear the risk that realized volatility will increase by more than implied volatility.

Quantocracy’s Daily Wrap for 08/14/2019

This is a summary of links featured on Quantocracy on Wednesday, 08/14/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Synthetic ETF Data Generation (Part-2) – Gaussian Mixture Models [Black Arbs]

    This post is a summary of a more detailed Jupyter (IPython) notebook where I demonstrate a method of using Python, Scikit-Learn and Gaussian Mixture Models to generate realistic looking return series. In this post we will compare real ETF returns versus synthetic realizations. To evaluate the similarity of the real and synthetic returns we will compare the following: visual inspection histogram

Quantocracy’s Daily Wrap for 08/13/2019

This is a summary of links featured on Quantocracy on Tuesday, 08/13/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Movement Capital’s Composite Strategy: Balancing Strategy and Asset Risk [Allocate Smartly]

    This is a test of Movement Capitals Composite Strategy. It combines tactical asset allocation with passive buy & hold. This balance between strategy risk and asset risk may be psychologically easier to trade, encouraging investors to stick with a smart investment plan when either style finds itself out of favor. Results from 1970 net of transaction costs follow. Read about our backtests or
  • Do Most Individual Stocks Outperform Cash? No. [Alpha Architect]

    Id argue that a typical investor believes the followingIn the past and over the long run, stocks outperformed bonds.(1) However, as highlighted here, an academic paper last year shows that the majority of individual U.S. stocks actually lost compared to Treasury Bills (i.e. the return to cash)! For many investors, that is a stunning finding. (note: the stats for stocks with value and

Quantocracy’s Daily Wrap for 08/12/2019

This is a summary of links featured on Quantocracy on Monday, 08/12/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Value and Momentum in a Cone [Two Centuries Investments]

    One of the most effective performance reporting formats I know is a Cone Chart, popularized by Bridgewater Associates. Here are some reasons why a Cone Chart is so effective: It clearly establishes ex-ante expectations of both return and volatility. When actual outcomes deviate within expectations, its just volatility, not risk (see Volatility vs Risk) It effectively captures both the drawdown
  • Your Style-age May Vary [Flirting with Models]

    New research from Axioma suggests that tilting less through lower target tracking error can actually create more academically pure factor implementation in long-only portfolios. This research highlights an important question: how should long-only investors think about factor exposure in their portfolios?Is measuring against an academically-constructed long/short portfolio really
  • Quant Strategies: Theory vs Reality [Factor Research]

    The live performance of quant strategies is significantly worse than in backtesting Factor investing returns from research are frequently challenged as being overstated However, the performance of smart beta and long-short multi-factor funds match theoretical returns INTRODUCTION When pitching an investment product with a backtested history the frequent response from potential investors is that
  • A Historical Look at Opex Week in August [Quantifiable Edges]

    It is options expiration week this week. Options expiration weeks often have a bullish tendency. You can see it broken down by month in this post from March. But the summer months of June, July, & August have not seen that same bullish tendency. Augusts performance has actually been net negative. June is the only other negative month. Below is a look at the profit curve for August.

Quantocracy’s Daily Wrap for 08/10/2019

This is a summary of links featured on Quantocracy on Saturday, 08/10/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How and why I got 75Gb of free foreign exchange Tick data (h/t @PyQuantNews) [Detlev Kerkovius]

    Towards the end of completing my masters in data science, I started picturing myself doing clever things with machine learning and automated trading. If like me, you have run into the how do I get historical free tick data connundrum, then this post is for you. I have structured my post in three sections: Some background for context. Storytime How to fail and then succeed. Putting it all
  • Does Meta-Labeling Add to Signal Efficacy? [Hudson and Thames]

    Successful and long-lasting quantitative research programs require a solid foundation that includes procurement and curation of data, creation of building blocks for feature engineering, state of the art methodologies, and backtesting. In this project we create a open-source python package (mlfinlab) that is based on the work of Dr. Marcos Lopez de Prado in his book Advances in Financial
  • The power of R for trading (part 1) [SR SV]

    R is an object-oriented programming language and work environment for statistical analysis. It is not just for programmers, but for everyone conducting data analysis, including portfolio managers and traders. Even with limited coding skills R outclasses Excel spreadsheets and boosts information efficiency. First, like Excel, the R environment is built around data structures, albeit far more

Quantocracy’s Daily Wrap for 08/09/2019

This is a summary of links featured on Quantocracy on Friday, 08/09/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Probability of Normality [Philipp Kahler]

    As an option seller you want the market to stay within the range prognosticated by implied volatility. But what is the historic probability that markets behave as expected? And what other analysis could be done to enhance your chances and find the periods when it is wise to sell an at the money straddle? This article will try to give some answers to this question. The normal distribution cone

Quantocracy’s Daily Wrap for 08/07/2019

This is a summary of links featured on Quantocracy on Wednesday, 08/07/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Betting Against Beta (BAB) Construction [Alpha Architect]

    One of the more popular equity strategies over the past decade is low volatility investing. Simply put, this is a systematic strategy that invests in stocks with lower volatility, either measured by Beta or standard deviation. Why? Well, the low-beta anomaly is the fact that in the past, academics (and practitioners) have noticed that high beta stocks have underperformed expectations from asset
  • Market Timing and Bond ETFs [Alvarez Quant Trading]

    In my last two posts, Market Timing with a Canary, Gold, Copper, LQD, IEF and much more and Day of Month and Market Timing, I assumed that we earned no interest in cash. Most methods did a good job of telling us when to be in the SPY and when to be in cash. How much could we boost returns by investing the cash in a bond fund? Which Bond ETFs? I tested these ETFs in what I would consider increasing

Quantocracy’s Daily Wrap for 08/06/2019

This is a summary of links featured on Quantocracy on Tuesday, 08/06/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Summer VIX [Reproducible Finance]

    In a previous post, from way back in August of 2017, we explored the relationship between the VIX and the past, realized volatility of the S&P 500 and reproduced some interesting work from AQR on the meaning of the VIX. With the recent market and VIX rollercoaster, this seemed a good time to revisit the old post, update some code and see if we can tweak the data visualizations to shed some
  • No Skill? Well, Active Share Won’t Save You! [Alpha Architect]

    What are the research questions? This paper is the first to examine the impact of including an active share target into the mean-variance optimization process of constructing portfolios. They use the Ceria and Stubbs (2006) approach to robust portfolio optimization as methodology. Monte Carlo simulations are run on DJIA stocks with expectations set by the historical return and covariance matrix.

Quantocracy’s Daily Wrap for 08/05/2019

This is a summary of links featured on Quantocracy on Monday, 08/05/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Harvesting the Bond Risk Premium [Flirting with Models]

    The bond risk premium is the return that investors earn by investing in longer duration bonds. While the most common way that investors can access this return stream is through investing in bond portfolios, bonds often significantly de-risk portfolios and scale back returns. Investors who desire more equity-like risk can tap into the bond risk premium by overlaying bond exposure on top of
  • Low Vol Factor: From Obscurity to Stardom [Factor Research]

    Given the popularity of Low Volatility, investors might expect structural shifts in the factor characteristics Betas, valuations, sector biases, interest rate sensitivity, and factor exposures are highly time-varying Although these are worth monitoring from a risk perspective, none seem particularly concerning currently INTRODUCTION Germans call a product or service that solves all problems
  • Should Investors Care About “the Way Things Are Going”? [CXO Advisory]

    Are broad measures of public sociopolitical sentiment relevant to investors? Do they predict stock returns as indicators of exuberance and fear? To investigate, we relate S&P 500 Index return and 12-month trailing S&P 500 price-operating earnings ratio (P/E) to the percentage of respondents saying yes to the recurring Gallup polling question: In general, are you satisfied or

Quantocracy’s Daily Wrap for 08/02/2019

This is a summary of links featured on Quantocracy on Friday, 08/02/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Balancing Strategy and Asset Risk [Allocate Smartly]

    The Two Centuries Investments blog from Mikhail Samonov has become a new favorite of mine. More thought heavy than numbers heavy, Mikhail is a fount of novel ideas. In this piece he describes something I apply in my own investing (though never defined so succinctly): the need to balance strategy risk and asset risk. I encourage you to read Mikhails piece, but in short, different
  • Risks of Long-Term Stock Market Investments [Scalable Capital]

    No pain, no premium: risks are the currency that investors need to pay in order to earn excess returns in the long run. Over a period of almost 100 years the Fama-French US market index achieved approximately 10% annualised return but temporarily lost more than 30% on multiple occasions. For no investment period longer than 15 years did the US market index end up with negative performance. A