Quantocracy

Quant Blog Mashup

Quantocracy’s Daily Wrap for 01/13/2017

This is a summary of links featured on Quantocracy on Friday, 01/13/2017. To see our most recent links, visit the Quant Mashup. Read on readers!

  • A Caveat On Backtesting Caveats [Capital Spectator]

    Ben Carlson at Ritholtz Asset Management reminds us that backtesting offers no shortcuts to investment nirvana. As he correctly points out, there are numerous shortcomings in the art/science of reconstructing the historical results of an investment strategy. But its also true that backtesting, if used wisely, can be a powerful tool for sensibly managing expectations with regards to return and
  • A Decade of Trend Following [Wisdom Trading]

    Last year was not a good year for trend following, with many commenting that the performance for the strategy has been declining over the last few years. We decided to look at the performance of the Wisdom State of Trend Following index on a long timeframe, to let the results speak over the long term, rather than focusing on recent performance. Here are the results over the last decade:
  • It’s 2017: Do You Know Where Your Risk Is? [Flirting with Models]

    Last weeks commentary highlighted why we believe traditionally built portfolios may face return headwinds going forward. Traditionally built stock/bond allocations also exhibit extremely high risk concentrations. Non-traditional exposures, now available as low-cost ETFs, can help introduce non-standard risk exposures. By combining non-traditional exposures, we can build a portfolio that has a

Quantocracy’s Daily Wrap for 01/12/2017

This is a summary of links featured on Quantocracy on Thursday, 01/12/2017. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Aluminum Smelting Cointegration Strategy in QSTrader [Quant Start]

    In previous articles the concept of cointegration was considered. It was shown how cointegrated pairs of equities or ETFs could lead to profitable mean-reverting trading opportunities. Two specific tests were outlinedthe Cointegrated Augmented Dickey-Fuller (CADF) test and the Johansen testthat helped statistically identify cointegrated portfolios. In this article QSTrader will be used to

Quantocracy’s Daily Wrap for 01/11/2017

This is a summary of links featured on Quantocracy on Wednesday, 01/11/2017. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The January Effect: An Evidence-Based Perspective [Alpha Architect]

    January is here again and market commentators are already telling stories about the so-called January Effect. Some articles (examples here and here) are saying the effect is an illusion, while others are claiming the effect can help you make some profits (examples here and here). Before we dig into the academic research on the subject, lets first understand the January Effect. Put simply, the
  • Cointegrated ETF Pairs Part I [Quantoisseur]

    The next two blog posts will explore the basics of the statistical arbitrage strategies outlined in Ernest Chans book, Algorithmic Trading: Winning Strategies and Their Rationale. In the first post we will construct mean reverting time series data from cointegrated ETF pairs. The two pairs we will analyze are EWA (Australia) EWC (Canada) and IGE (NA Natural Resources) EWZ (Brazil). 1
  • When Noise Overwhelms Signal Sorting out Sorts Review [Alphaism]

    In his 1998 paper, Jonathan Berk illustrated that by sorting stocks based on a variable (e.g. B/E ratio) correlated to a known variable (e.g. beta), the power of the known variable to predict expected return within each group diminishes when tested with cross-sectional regression. This is very likely why Fama and French found the explanatory power of beta disappeared (1992) and Daniel and Titman

Quantocracy’s Daily Wrap for 01/10/2017

This is a summary of links featured on Quantocracy on Tuesday, 01/10/2017. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Go Skew Yourself with Managed Futures [Alpha Architect]

    Skewness is a statistical measure of how returns behave in the tails of a probability distribution. Wikipedia has a more robust definition of skewness with some good visuals here. If an investment (e.g., stocks) has negative skewness this means that the extreme returns are more likely to be negative than positive (it has a tendency to crash). However, if its return has a positive skewness (e.g.,

Quantocracy’s Daily Wrap for 01/09/2017

This is a summary of links featured on Quantocracy on Monday, 01/09/2017. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Asymmetry of Reaching for Yield at Low Spreads [EconomPic]

    Bloomberg Gadfly's Lisa Abramowicz (follow her on twitter here) outlined in a recent piece The Credit Boom that Just Won't Die the insatiable demand for investment grade credit. Last month, bankers and investors told Bloomberg's Claire Boston that they expected U.S. investment-grade bond sales to finally slow after six consecutive years of unprecedented issuance. But the exact
  • Webinar: Alpha Generation 01/10/2017 [Portfolio Effect]

    Asset returns based on low frequency prices (e.g. end-of-day quotes) are still dominating modern portfolio analysis. To make portfolio metrics more relevant intraday and improve the precision of estimates, new data frequency needs to be explored. In this presentation we demonstrate how using high frequency market data for portfolio risk management and optimization could improve the classic
  • The Laguerre RSI vs Classic RSI [System Trader Success]

    John Ehlers is a name youll run across when you start your journey into testing various indicators and filters to be used in your trading models. I remember reading about the Laguerre Filter and Laguerre RSI many years ago when they first appeared on the scene. At the time I was not nearly into quantitative trading as I am today. So lets take a closer look at the Laguerre RSI and answer a

Quantocracy’s Daily Wrap for 01/08/2017

This is a summary of links featured on Quantocracy on Sunday, 01/08/2017. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Quantitative Momentum with Jack Vogel (@jvogs02) [Better System Trader]

    The guest for this episode is Jack Vogel from Alpha Architect, a quantitative asset management and consulting firm. Jack has published a number of papers on SSRN and also co-authored a couple of books including Quantitative Momentum: a practitioners guide to building a momentum-based stock selection system. In our chat with Jack you will hear:
  • Seasonalities in Stock Returns [Quantpedia]

    Existing research has documented cross-sectional seasonality of stock returns the periodic outperformance of certain stocks relative to others during the same calendar month, weekday, or pre-holiday periods. A model based on the differential sensitivity of stocks to investor mood explains these effects and implies a new set of seasonal patterns. We find that relative performance across stocks

Quantocracy’s Daily Wrap for 01/07/2017

This is a summary of links featured on Quantocracy on Saturday, 01/07/2017. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Advanced Time Series Plots in Python [Black Arbs]

    POST OUTLINE Motivation Get Data Default Plot with Recession Shading Add Chart Titles, Axis Labels, Fancy Legend, Horizontal Line Format X and Y Axis Tick Labels Change Font and Add Data Markers Add Annotations Add Logo/Watermarks MOTIVATION Since I started this blog a few years ago, one of my obsessions is creating good looking, informative plots/charts. I've spent an inordinate amount of

Quantocracy’s Daily Wrap for 01/06/2017

This is a summary of links featured on Quantocracy on Friday, 01/06/2017. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Beat the Market with Meucci and Markowitz [Propfolio Management]

    I am very excited to finally share some of my research exploring Meuccis (Meucci (2005)) portfolio optimization methods, and how the resulting portfolios compare to the use of historical data. For those unfamiliar with Attilio Meucci, he runs an annual Advanced Risk and Portfolio Managment Bootcamp in New York City every summer. The bootcamp attracts academics and professionals within the
  • Writing Puts, Or Just Pretending To [Throwing Good Money]

    Which color do you like better? Green or brown? Im partial to the green curve myself. That green curve comes from writing putssort of. Writing puts can be a lower volatility play that makes you money in choppy or flat markets, falls more softly in down markets, and seriously under-performs when the market goes on a tear upward. Whats a put and where do you put them? If youre an

Quantocracy’s Daily Wrap for 01/05/2017

This is a summary of links featured on Quantocracy on Thursday, 01/05/2017. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Site News: Dabbling in Ads and Where All the Clicks Went in 2016 [Quantocracy]

    Two bits of site news: First, after 4+ years of running this site mostly gratis, Ive decided to dabble in adding advertisements, so expect to begin seeing the first baby steps with a handful of ads from Google. Ive tried to keep the ads as unobtrusive as possible and my hope is that your reading experience will be essentially unchanged. On to more fun news, heres an updated view of where

Quantocracy’s Daily Wrap for 01/04/2017

This is a summary of links featured on Quantocracy on Wednesday, 01/04/2017. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Trend Following UP in December, Down in 2016 [Wisdom Trading]

    December 2016 Trend Following: UP +1.38% / 2016: -18.15% December closed 2016 on a slight positive note, avoiding six straight months of negative returns for our State of Trend Following index. An inflection point was felt in the markets towards the close of the year, but this was obviously not enough to offset what has been a strong under-performance in the second half of the year. The first half
  • R/Finance 2017: Call for Papers [Foss Trading]

    The ninth annual R/Finance conference for applied finance using R will be held on May 19 and 20, 2017 in Chicago, IL, USA at the University of Illinois at Chicago. The conference will cover topics including portfolio management, time series analysis, advanced risk tools, high-performance computing, market microstructure, and econometrics. All will be discussed within the context of using R as a
  • A Modern, Behavior-Aware Asset Allocation [Flirting with Models]

    Happy New Year! To kick off the year, we want to share a white paper we penned mid-December containing our views on building a modern strategic asset allocation. The white paper covers: Why we believe tailwinds from the last 30 years are turning into headwinds for traditionally allocated stock-bond portfolios. Why the normative optimal portfolio may not be the optimal achievable portfolio and the
  • Using Trend-Following Rules to Enhance Factor Performance [Alpha Architect]

    After reviewing the 2016 performance of trend-following (-18.15%), its unclear why anyone would mention the word trend following in a public forum. But well give it a whirl anyway The comedian Victor Borge once famously observed, Santa Claus has the right idea visit people only once a year. In studying investment markets, many have taken a similar approach, preferring a
  • The Bayesian Information Criterion [Alex Chinco]

    Imagine that were trying to predict the cross-section of expected returns, and weve got a sneaking suspicion that x might be a good predictor. So, we regress todays returns on x to see if our hunch is right, \begin{align*} r_{n,t} = \hat{\mu}_{\text{OLS}} + \hat{\beta}_{\text{OLS}} \cdot x_{n,t-1} + \hat{\epsilon}_{n,t}. \end{align*} The logic is straightforward. If x explains enough of
  • N-Day exits with Mean Reversion [Alvarez Quant Trading]

    My last post on using PercentRank to measure mean reversion proved very popular. A reader looked at the trades and wondered if it would be best to exit after five days because the average trade with longer holds was a loser. I am surprised I have not covered this topic before. Background Early in while working for Larry Connors, I had done a mean reversion test. I was looking at the trades and
  • State of Trend Following in December [Au Tra Sy]

    Happy new year to all readers! With best wishes for your trading in the coming twelve months, which Im sure youll agree will prove interesting from several perspectives. We start the year by looking back at the performance of trend following over the year just passed. Unsurprisingly the State of Trend Following posted a loss for 2016. There was a long downtrend in the performance of
  • Are you Ready to Witness Finance Research on Steroids? [Alpha Architect]

    The 2017 American Finance Association conference is kicking off later this week in Chicago. If you havent been before check it out. The conference is the biggest meeting of top-tier academic researchers on the planet. You can review all the research being presented at the following link. Some of the more exciting sessions that Im reviewing: Behavioral Finance I Behavioral Finance II
  • 38 DTE Iron Condor Results Summary – Part 2 [DTR Trading]

    In the last post, 38 DTE Iron Condor Results Summary, I showed the backtest results from 97,416 iron condor (IC) trades. All of those test results were based on weekly expiration data at 38 days to expiration (DTE). In this post, we'll look at a few key metrics and how those metrics differ between weekly data and monthly data. The charts below are organized similar to those in the prior post.