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Quantocracy’s Daily Wrap for 01/01/2019

This is a summary of links featured on Quantocracy on Tuesday, 01/01/2019. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How bad is the problem of data misuse in finance research papers? [Mathematical Investor]

    Spurious results are the norm Having done a healthy share of paper replications over the past decade, and having been consistently disappointed when the models or techniques broke down on data shortly after (or even before) the authors sample periods, I would say that data misuse is a gigantic problem spurious results are the norm. But also over those years, the granularity of market data
  • Is Asset Dynamics Priced In Correctly by Black-Scholes-Merton Model? [Relative Value Arbitrage]

    A lot of research has been devoted to answering the question: do options price in the volatility risks correctly? The most noteworthy phenomenon (or bias) is called the volatility risk premium, i.e. options implied volatilities tend to overestimate future realized volatilities. Much less attention is paid, however, to the underlying asset dynamics, i.e. to answering the question: do options price
  • Factor Olympics 2018 [Factor Research]

    2018 was negative for classic multi-factor portfolios Low Volatility generated the best and Value the worst performance Factor performance was homogenous across global markets INTRODUCTION We present the performance of five well-known factors on an annual basis for the last 10 years, including 2018. We only present factors where academic research highlights positive excess returns across market
  • Programming’s Achilles Heal [John Orford]

    I am building a small Domain Specific Language (spreadsheet style calculations) called FlatLang with some interesting properties. These are my notes. ~ FlatLang is a functional, pure, total, statically typed language. To simplify, 1) (almost) everything is a function 2) each function's 'functionality' is described completely by its inputs and outputs 3) each function will produce an
  • Our Most Popular Posts in 2018 [Dual Momentum]

    Happy New Year! In case you missed them, here were our most popular posts in 2018: Extended Backtest of Global Equity Momentum My book had dual momentum results from 1974 through 2013. With the acquisition of additional data, we are now able to show results back to 1950. We also explain why 1950 is a good starting date for looking at global investing. Perils of Data Mining We show examples of

Quantocracy’s Daily Wrap for 12/31/2018

This is a summary of links featured on Quantocracy on Monday, 12/31/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • 2018 Highlights The Top 20 Posts You Might Have Missed [Flirting with Models]

    As 2018 comes to a close, we are thankful for all those who have read, commented upon, and shared the research that we have published this year. This year, we wrote 53 new research commentaries, averaging north of 3,000 words per piece. And we hope our approach of accessible and thoughtful quantitative research has resonated as much as the numbers seem to indicate: viewership for our blog this
  • Exploring Smart Leverage: DAA on Steroids [TrendXplorer]

    The constant leverage myth is busted: there is no spoon natural decay. DAAs fast protective momentum approach successfully detects lower volatility regimes with higher streak potential. Smart leverage through a clever separation of signals and trades can achieve considerable outperformance even on a risk adjusted basis. Popular belief that constant leveraging results in decay over time is a

Quantocracy’s Daily Wrap for 12/29/2018

This is a summary of links featured on Quantocracy on Saturday, 12/29/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Last Day Of The Year History (And Why Traders Need An Open Mind & Adaptability) [Quantifiable Edges]

    The last day of the year used to be consistently bullish for the market. But that has changed since the turn of the century. This is true across a number of indices. The most dramatic example is the NASDAQ, which I highlighted here on the blog a few years ago. I have updated the chart below. 2018-12-28 Closing up 29 years in a row is fairly astounding. Just as astounding is the abrupt reversal and
  • Is Active Alpha Enough to Cover Taxes? [Alpha Architect]

    Each time S&P Dow Jones Indices publishes its latest Active Versus Passive Scorecard, the persistent failure of the vast majority of actively managed funds to outperform is highlighted. The evidence on this failure led Charles Ellis to call active management the losers game while its possible to win, the odds of doing so are so poor that it isnt prudent to try. Whats more, the
  • Equity values and credit spreads: the inflation effect [SR SV]

    A theoretical paper shows that a downward shift in expected inflation increases equity valuations and credit default risk at the same time. The reason for this is nominal stickiness. A slowdown in consumer prices reduces short-term interest rates but does not immediately reduce earnings growth by the same rate, thus increasing the discounted present value of future earnings. At the same

Quantocracy’s Daily Wrap for 12/26/2018

This is a summary of links featured on Quantocracy on Wednesday, 12/26/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Managing Expectations During Steep Stock Market Drawdowns [Capital Spectator]

    A bull market can be a fragile thing. To paraphrase Hemingway, there are two ways that investing profits can turn into losses: gradually, then suddenly. The latter profile applies to the latest adjustment in the S&P 500s current drawdown. As recently as early October, the US stock markets drawdown was measured in a few basis points. By the close of trading on Christmas eve, the
  • Toys for Young (and Old) Investors? [CXO Advisory]

    Are premium toys attractive alternative investments? In their April 2018 paper entitled LEGO The Toy of Smart Investors, Victoria Dobrynskaya and Julia Kishilova study LEGO sets as an alternative investment. A secondary market for these sets with 10,000+ daily transactions, affordable to any retail investor, has evolved since 2000. Brickpicker.com tracks prices for each set (either new

Quantocracy’s Daily Wrap for 12/24/2018

This is a summary of links featured on Quantocracy on Monday, 12/24/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Asset Allocation Roundup [Allocate Smartly]

    Six recent asset allocation articles (tactical or otherwise) that you might have missed: 1. Trend Following on Steroids (Wouter Keller via Alpha Architect) Wouter Keller details his latest tactical model: Defensive Asset Allocation. We track a number of strategies from Dr. Keller and his partner-in-quant JW Keuning (including this one). Its worth noting that their strategies are, overall,
  • Dart-Throwing Monkeys and Process Diversification [Flirting with Models]

    This weeks commentary is a short addendum to last weeks piece, attempting to serve as a (very) brief and simplified summary of process diversification. Volatility is only one way of measuring risk; dispersion in terminal wealth is another. Using simulations of dart-throwing monkeys, we plot the dispersion in terminal wealth for different levels of portfolio and manager diversification. We
  • Research Compendium 2018 [Factor Research]

    In 2018 we published more than 50 research notes and 4 white papers on mainly factor investing, but also on other topics like zombie stocks, replicating private equity returns, statistical arbitrage, and mutual fund performance chasing. We would like to thank you for reading and always appreciate feedback, especially if critical. The Research Compendium 2018 contains all of our research published

Quantocracy’s Daily Wrap for 12/23/2018

This is a summary of links featured on Quantocracy on Sunday, 12/23/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Hundreds of quant papers/libraries from #QuantLinkADay in 2018 [Cuemacro]

    I tweet quite a bit! It can involve random subjects such as burgers. However, the main objective of my Twitter account is to tweet about all thinks quant related, whether its trading strategies or the market or coding (in particular Python). To make sure I actually did this, several years ago, I started my #QuantLinkADay daily tweets, where I post at least one daily link to something quant
  • The little girl study and the horrid Crash of 87 [Quantifiable Edges]

    Every once in a while I come across a study that reminds me an awful lot of Longfellows The little girl. 2018-12-23-2 After the strong and persistent selling over the last few days I decided to examine other times like now where the SPX dropped at least 1.5% for 3 days in a row. The study below looks back to late 1987 and shows all 10 occurrences over the time period, along with their

Quantocracy’s Daily Wrap for 12/22/2018

This is a summary of links featured on Quantocracy on Saturday, 12/22/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Bear is Here [Quintuitive]

    October and December have been devastating for stocks. It wasnt until Friday though that we officially reached the depths of a bear market. There are different theories, the most common is 20% pullback in an index. As readers of this blog are aware, I follow a slightly different definition, based on Jack Schanneps work. Based on this definition, a bear market is official when two of the
  • The macro information inefficiency of financial markets [SR SV]

    There are reason and evidence for financial markets failing to be efficient with respect to macro trends. The main reason is cost: tradable economic research is expensive and investment firms will only invest in such research if their fees on expected incremental portfolio returns exceed their expenses. This requires them to concentrate scarce research budgets on areas where they see

Quantocracy’s Daily Wrap for 12/21/2018

This is a summary of links featured on Quantocracy on Friday, 12/21/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • ReSolve 12 Days of Christmas [Invest ReSolve]

    This holiday season, ReSolve is offering a gift in podcast-form: a 12-episode mini-series, where we will explore, from first principles, timeless investment wisdom that will help you maximize your long-term success. From universe selection to portfolio construction, our aim is to offer you a comprehensive framework for a more thoughtful investment approach, for yourselves and your clients.
  • Machine Learning Classification Methods and Factor Investing [Alpha Architect]

    In the last post in our machine learning series, we showed how nonlinear regression algos might improve regression forecasting relative to plain vanilla linear regression (i.e., when underlying reality is nonlinear with complex interactions). In this piece, well first review machine learning for classification, a problem which may be less familiar to investors, but fundamental to machine

Quantocracy’s Daily Wrap for 12/20/2018

This is a summary of links featured on Quantocracy on Thursday, 12/20/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Position Sizing for Practitioners Part 3: A Portfolio Approach [Quant Fiction]

    Diversification is the Only Free Lunch Im sure everyone has heard this old adage at some point in their trading career. Most people probably shrug it off and go back to watching The Big Short and dreaming of putting on that one career-making trade. Or maybe theyre still trying to figure out how to pick every single top and bottom on one instrument, thinking all they need is that one
  • What to do when you find the Holy Grail [Alvarez Quant Trading]

    As I have mentioned in several interviews, I am always looking for new strategies. One area that fascinates me is stock options. Because it is difficult to get good data and to do backtests, I believe that there are good edges here to be found. A few weeks ago, I found myself with lots of time and having read presentations on options, I went into a testing frenzy. After lots of work, I found a

Quantocracy’s Daily Wrap for 12/19/2018

This is a summary of links featured on Quantocracy on Wednesday, 12/19/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Cash or Bonds at Low Yields and a Flat Yield Curve? [EconomPic]

    While there have been a few cyclical periods of rising rates over the past 40 years, we've largely been in one large downtrend… meaning that it has consistently paid to own bonds vs cash / take duration risk for nearly my / many investment lives. Now that we've moved away from a zero interest rate policy on cash in the U.S. and the yield curve is essentially flat, this post is an
  • Algorithmic Trading Regulations – European Union [Quant Insti]

    A game of cat and mouse. Technological development more often than not stays ahead of regulators. Each new technological advance or disruption carries risks for the stability of things and advantages for those who are at the forefront. Regulators try to set rules and good practices that limit possible abuses and bring transparency to the participants. In this post, we will review the European
  • Data Science is Revolutionizing Investment Practice [Alpha Architect]

    What are the Research Questions? This editorial introduces data science to the wider investment community and highlights some of the advantages (and potential pitfalls as discussed yesterday) it can bring to everyday investment practice. The paper answers two apparently simple questions: What is data science? How can data science help advance investing practice? What are the Academic Insights?