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Quantocracy’s Daily Wrap for 11/28/2018

This is a summary of links featured on Quantocracy on Wednesday, 11/28/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Stiffness Indicator Analysis [Alvarez Quant Trading]

    A reader pointed me the November 2018 issue of Technical Analysis of Stocks & Commodities to an article about a trend following indicator on S&P500 stocks. I liked the concept of the indicator and the article had backteted results and AmiBroker code. How could I resist not looking into this? Little did I realize this would lead to Backtesting is Hard and How much does not having
  • Deep Reinforcement Trading [Quant Dare]

    Deep Reinforcement Learning applications in finance are still largely unknown. Nonetheless, recent developments in other fields have pushed researchers towards exciting new horizons. I believe that there is a huge potential for Reinforcement Learning in finance. As investment guru Ray Dalio, founder of Bridgewaters, defends in his book Life and Work Principles, investment is an iterative process.
  • When SPX Closes Higher On Bad Breadth [Quantifiable Edges]

    While the SPX closes higher on Tuesday, NYSE breadth was weak both from an % Up Issues and % Up Volume standpoint. This triggered the study below from the Quantifinder. I also discussed it in last nights subscriber letter. 2018-11-28-1 Here we see numbers suggesting a substantial bearish edge over the next 1-4 days. Below is the full list of instances and their 4-day returns. 2018-11-28-2

Quantocracy’s Daily Wrap for 11/27/2018

This is a summary of links featured on Quantocracy on Tuesday, 11/27/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Create own Recession Indicator using Mixture Models [Eran Raviv]

    Broadly speaking, we can classify financial markets conditions into two categories: Bull and Bear. The first is a todo bien market, tranquil and generally upward sloping. The second describes a market with a downturn trend, usually more volatile. It is thought that those bull\bear terms originate from the way those animals supposedly attack. Bull thrusts its horns up while a bear swipe its

Quantocracy’s Daily Wrap for 11/26/2018

This is a summary of links featured on Quantocracy on Monday, 11/26/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Tactical Statistical Arbitrage [Factor Research]

    SUMMARY Statistical arbitrage behaves similarly across markets Volatility is the main performance driver Attractive strategy for diversifying an equity portfolio INTRODUCTION Strategies like Value or Momentum are like staples that deserve a permanent allocation in investors portfolios. In contrast, other strategies are more like sunscreen, which is mainly used tactically to minimize the risk of
  • A Proxy for the Unobservable Global Market Portfolio [Alpha Architect]

    What are the Research Questions? The authors propose an estimation of the capital stock that involves all identifiable and measurable financial and nonfinancial assets in the world economy. This portfolio seeks to represent the so-called Global Market Portfolio, that all MBA students learn to know and love when studying the CAPM. (discussion here). As a selection rule, they include assets

Quantocracy’s Daily Wrap for 11/25/2018

This is a summary of links featured on Quantocracy on Sunday, 11/25/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Maximising the potential of portfolios with Adam Butler of @InvestReSolve [Better System Trader]

    With so much focus often on the actual trading strategies or investments, portfolio construction can sometimes become an afterthought or not even considered. However, as were going to hear about today, portfolio construction and optimization has the potential for huge increases in wealth But there are a number of aspects we need to carefully consider if we want to maximise the potential
  • CDS term premia and exchange rates [SR SV]

    The term structure of sovereign credit default swaps (CDS) is indicative of country-specific financial shocks, because rising country risk affects short-dated maturities more than longer-dated ones. This feature allows disentangling global and local risk factors in sovereign CDS markets. The latter align with the performance of other local asset markets. In particular, recent empirical research

Quantocracy’s Daily Wrap for 11/23/2018

This is a summary of links featured on Quantocracy on Friday, 11/23/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Is trend following dead? [Investment Idiocy]

    I get asked this question at least once a week. As those of you that have met me IRL ('in real life') will know I have limited patience and I'm easily bored. I'm definitely bored of answering this question. This post is the last time I'll answer it. There are broadly two ways to answer this question: Looking at fundamental reasons why trend following is less likely to work
  • Investment Strategy Development Coursework [CXO Advisory]

    In a series of five presentation slide sets (Lectures 1-8 of 10) on Advances in Financial Machine Learning, Marcos Lopez de Prado provides part of Cornell Universitys ORIE 5256 graduate course at the School of Engineering (Special Topics in Financial Engineering V). The course description includes: Machine learning (ML) is changing virtually every aspect of our lives. As it

Quantocracy’s Daily Wrap for 11/22/2018

This is a summary of links featured on Quantocracy on Thursday, 11/22/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Queue Position Simulation [Systematic Edge]

    First off, Happy Thanksgiving! If time permits in the coming months Id like to explore more on how I look at High Frequency (HF) data. Hopefully along the way I can spark some new discussion and improve on my thought process. HFT strategy simulation is no easy task. I am referring to this as an simulation because its purely an approximation of how a strategy would have performed given a
  • Decision Tree For Trading Using Python [Quant Insti]

    Decision Trees, are a Machine Supervised Learning method used in Classification and Regression problems, also known as CART. Remember that a Classification problem tries to classify unknown elements into a class or category; the output always are categorical variables (i.e. yes/no, up/down, red/blue/yellow, etc.) A Regression problem tries to forecast a number such as the return for the next day.
  • Estimating the probability of something that never happened [Quant Dare]

    Have you ever needed to estimate the probability of a rare event? So rare that you havent been able to encounter it in real data? Well, what if I told you that there exists a way to calculate a statistically correct approximation. Oh, and you wont even need a calculator! Recently I have just heard of the statistical Rule of three. No, this is not the mathematical Rule of three

Quantocracy’s Daily Wrap for 11/19/2018

This is a summary of links featured on Quantocracy on Monday, 11/19/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Directionally Right and Precisely Wrong [Flirting with Models]

    Portfolio construction decisions tell us about more than just our objective: they tell us about our beliefs. In practice, our beliefs extend beyond views of returns, volatilities, and correlations; we also hold views about our ability to measure these concepts and our confidence in those measures. We explore the use of data transformations functions applied to data that manipulate how
  • Short volatility strategies are extensive and widespread [Alpha Architect]

    Who are the buyers and sellers of volatility-contingent strategies? How extensive is volatility trading and put selling currently? Could a volatility cascade cause a crash across correlated asset classes? Are there mechanisms that might provide stabilization? What are the Academic Insights? QUITE EXTENSIVE. Institutional investors such as sovereign wealth funds, larger public pension funds,
  • The Rise of Zombie Stocks [Factor Research]

    This research note was originally published by the CAIA Associations AllAboutAlpha blog. Here is the link. SUMMARY Zombie firms, where interest payments exceed operating profits, are on the rise Zombie stocks perform surprisingly well They are expensive, volatile stocks from diverse sectors INTRODUCTION The Bank for International Settlements (BIS) recently published research on the rise of
  • Thanksgiving Week Seasonality An Updated Look [Quantifiable Edges]

    The time around Thanksgiving has shown some strong tendencies over the years both bullish and bearish. I have discussed them a number of times over the years. In the updated table below I show SPX performance results based on the day of the week around Thanksgiving. The bottom row is the Monday of Thanksgiving week. The top row is the Monday after Thanksgiving. 2018-11-19 Monday and Tuesday of
  • Realistic volatility risk premia [SR SV]

    The volatility risk premium compensates investors for taking volatility risk. Conceptually it is based on the difference between options-implied and expected realized volatility. In equity markets this premium should be positive in the long run and fluctuate overtime depending on the markets willingness to pay for protection against future changes in price volatility. In practice, measuring the
  • Weekly Recap: Factors, Opportunity Zones, and HFs [Alpha Architect]

    This week Ryan and I discuss three topics. First, we examine the returns to U.S. stock broken down by (1) size and (2) factors (mega-cap stocks were the place to invest over the last 5 years!). Second, we examine a post by Adam Tkaczuk on Opportunity Zonesa must read for those with low basis securities. Third, we examine a post by Tommi on Hedge Funds and their role in reducing mispricing.

Quantocracy’s Daily Wrap for 11/16/2018

This is a summary of links featured on Quantocracy on Friday, 11/16/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Asset Allocation Roundup [Allocate Smartly]

    Recent asset allocation articles (tactical or otherwise) that you might have missed: When Simplicity Met Fragility (Newfound Research) Yes, yes, yes. A must read. Research suggests that simple heuristics are often far more robust than more complicated, theoretically optimal solutions. Taken too far, we believe simplicity can actually introduce significant fragility into an investment

Quantocracy’s Daily Wrap for 11/15/2018

This is a summary of links featured on Quantocracy on Thursday, 11/15/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Is maths in portfolio construction bad? [Investment Idiocy]

    First an apology. It's been quite a few months since my last blog post. I've been in book writing mode and trying to minimise outside distractions. Though looking at my media page since my last blog post I've done two conferences, a webinar, a book review, a guest lecture, a TV panel discussion and written six articles for efinancialcareers.com. So maybe I haven't done a great
  • Factor Investing Fact Check: Are Value and Momentum Dead? [Alpha Architect]

    The stock market, at least as measured via the S&P 500, has been on an epic performance run especially relative to almost all asset classes. It doesnt matter whether you look at the other asset classes by geography (e.g., US, developed, emerging), style (e.g., value, momentum), or type (e.g., stocks, bonds, commodities), one thing is clear: the S&P 500 is king. Below is a

Quantocracy’s Daily Wrap for 11/14/2018

This is a summary of links featured on Quantocracy on Wednesday, 11/14/2018. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The History of Russell 2000 Death Crosses & SPX Performance Following Them [Quantifiable Edges]

    I have seen a fair amount of hubbub about the Russell Death Cross that is happening today and the potential bearish implications for the market. A Death Cross is a catchy (though perhaps not terribly accurate) term for when the 50-day moving average of a security cross below its 200-day moving average. It is being promoted as a warning of a potential bear market. Of course all bear