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Quantocracy’s Daily Wrap for 10/29/2015

This is a summary of links featured on Quantocracy on Thursday, 10/29/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • US recessions, the Value Factor (HML) and current status [RRSP Strategy]

    The Fama-French value factor HML exhibits a fairly reliable 4 year cycle. Growth and Value out-performance oscillates with a 4 year period (see my previous post on this). Liew and Vassilou (1999), show that annual change in HML is related to future GDP change (see my blog post here). Therefore tracking HML allows us to glean insight into upcoming economic conditions. Where are we in the current
  • High Frequency Market Microstructure: Part 1 (Microstructure Noise) [Portfolio Effect]

    Microstructure noise describes price deviation from its fundamental value induced by certain features of the market under consideration. Common sources of microstructure noise are: bid-ask bounce effect order arrival latency asymmetry of information discreteness of price changes Noise makes high frequency estimates of some parameters (e.g. realized volatility) very unstable. The situation gets
  • Cycle Factor Can Predict Returns [Larry Swedroe]

    Anna Cieslak and Pavol Povalaauthors of the paper Expected Returns in Treasury Bonds, which was published in the September 2015 issue of The Review of Financial Studiesexamined the time variation in the risk premium that investors require for holding Treasury bonds. While most of the authors analysis relies on data starting in 1971 (when data for bond maturities 10 years and longer
  • SPX Straddle – 73 DTE – Results Summary [DTR Trading]

    Over the last five blog posts we looked at the automated backtest results for 4160 options straddles sold on the S&P 500 Index (SPX) at 73 days-to-expiration (DTE). Eight different loss approaches were tested on these straddles. On top of these eight loss approaches, tests were conducted with no profit taking, and profit taking at 10%, 25%, 35%, and 45% of the credit received. For background
  • All firms can benefit from the positive influence of women [Alpha Architect]

    Marisa Mayers recent announcement that she is again pregnant, and does not plan to take maternity leave after her twins arrive, has once again raised the age-old question about how far women have really come in making a gender equitable workplace. While women are undoubtedly making progress, recent research from specialists in behavioral finance suggests that in many respects, the discussion to

Quantocracy’s Daily Wrap for 10/27/2015

This is a summary of links featured on Quantocracy on Tuesday, 10/27/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How to Write a Great Quant Blog [Quant Start]

    Today's post is a guest post from Jacques Joubert, who runs QuantsPortal. Jacques emailed me recently and asked if I'd be willing to contribute to a post about how to get started in quant blogging. I was more than happy to do so, and Jacques wondered if it would make a good guest post for QuantStart. Many very well respected individuals in the quant blogosphere have contributed to the
  • Why Sector Investing [Flirting with Models]

    I just came across a great post on sector investing by Dave Mazza, Head of Research for SSGA's ETF and mutual fund businesses. There is a lot of great information he walks through, but I thought there were three tidbits particularly interesting to us as risk managers. First, he points out that investing in index based sector products still offers significant diversification against single
  • Which Asset Allocation Weights Work the Best? [Alpha Architect]

    Okay, we're sold on a closet-indexing approach to the markets. Now we're investigating a variety of smart-beta products available in the market that weigh a large portfolio of stocks with some algorithm. But a natural question arises when trying to pick smart beta ETFs: What is the optimal method to weigh an index? Everyone seems to have a story these days for the "best" way to
  • 5 Words on How To Write A Quant Blog [Quant at Risk]

    Do not commence working over your blog without the vision. If you dont know where you are going, any road will get you there! You want to avoid that mistake. Spend some time dreaming of the final form of your site. Highly sought after content is important but not as much as your commitment to excel in its delivery. Write from your heart. Listen to your inner voice. Follow your own

Quantocracy’s Daily Wrap for 10/26/2015

This is a summary of links featured on Quantocracy on Monday, 10/26/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Cold Blood Index [Financial Hacker]

    Youve developed a new trading system. All tests produced impressive results. So you started it live. And are down by $2000 after 2 months. What now? Carry on in cold blood, or pull the brakes in panic? This is a situation all too familiar to any algo trader. There can be several reasons why a strategy loses money right from the start. It can be already expired since the market inefficiency
  • You do not experience summary statistics [Flirting with Models]

    In due diligence, we often evaluate summary statistics like annualized return, volatility, alpha, beta, up-capture, and down-capture. These statistics can unify years of returns into a single number. While this can be convenient for comparing different strategies, it fails to provide adequate insight into the actual week-to-week experiences an investor will face. We highlight how even in the best
  • Buy the Winners [Systematic Relative Strength]

    People come up with all kinds of reasons not to buy stocks with strong momentum. Some of the most common reasons that I hear: Stocks with high momentum are risky Stocks with high momentum are overvalued Stocks with high momentum are susceptible to reversals As for the first point, yes, buying stocks with high momentum is risky. So is buying stocks with weak momentum. As far as that goes, buying
  • A Complementary Approach To Trading Technical Indicators [System Trader Success]

    In the October issue of Futures magazine author Jean Folger discusses an important aspect when selecting two or more indicators when developing a trading system. While I dont recommend simply combining indicators to create a trading system, and I dont think thats what Folger is suggesting either, when there comes a time to introduce two or more technical indicators to a trading system,

Quantocracy’s Daily Wrap for 10/25/2015

This is a summary of links featured on Quantocracy on Sunday, 10/25/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Best Links of the Week [Quantocracy]

    My fellow quant nerds, we need to vote more. Less than 2% of clickthroughs result in a vote. Thats just not enough. A vote doesnt mean a link is the greatest of all time, only that its good and deserves to be read by others. Higher rated links are read significantly more often, so help me to encourage bloggers to write quality content by making your voice heard. I do my part by providing
  • Highlights from Episodes 1-20 [Better System Trader]

    This weeks show is going to be a little different to previous episodes. A couple of weeks ago I went back through all the guests weve had on the show so far and realised how very fortunate weve been to have so many fantastic guests on the show, sharing their knowledge and experience, some of them with more than 50 years of trading experience! To be honest, Id actually forgotten some of

Quantocracy’s Daily Wrap for 10/21/2015

This is a summary of links featured on Quantocracy on Wednesday, 10/21/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • How well can you scale your strategy? [QuantStrat TradeR]

    This post will deal with a quick, finger in the air way of seeing how well a strategy scalesnamely, how sensitive it is to latency between signal and execution, using a simple volatility trading strategy as an example. The signal will be the VIX/VXV ratio trading VXX and XIV, an idea I got from Volatility Made Simples amazing blog, particularly this post. The three signals compared will be
  • Stock Volatility Moves Treasurys [Larry Swedroe]

    Understanding the volatility of Treasury bond returns, as well as the volatility of both the level and slope of the Treasury term-structure, are fundamental issues in finance. Whats more, they have important implications for investors and portfolio design. Researchers have offered both theory and empirical evidence that suggest important linkages between equity risk and the Treasury bond
  • Utilizing the Value of Value to Make Value / Growth Tilts [EconomPic]

    Back in August I outlined why I thought the plain-vanilla value premium had been compressed to the point growth had and was likely to continue to outperform in my post Death of (Plain Vanilla) Value – Long Live GARP. This post is meant as a follow up and suggests a few frameworks as to how an investor might allocate based on the given "value of value". Backdrop: Value of Value Matters
  • Sir Bayes: all but not na ve! [Quant Dare]

    Is it possible to classify and predict (yes, predict!) if market trends will be bullish, bear or ranged by using a method called nave and based on something as simple as Bayes theorem is? Lets see! Predicting trends with nave Bayesian classifier Our main objective is to explore techniques of machine learning that can help us not only to label series in a posteriori analysis, but
  • Information Ratio Hypothesis Testing [John Orford]

    Spurned by reading an account of a trader who swears by machine learning, few days ago I wrote about aesthetics in finance. Maths and tech without a narrative is pointless. My own attempts at providing a narrative foundered a few months back. Suspend Your Disbelief! I started using the Sharpe as a hypothesis test. So for example, the S&P 500 (not including dividends) has a Sharpe of ~0.462
  • Insider Trading During the 8-K Trading Gap [Alpha Architect]

    SEC rules allow companies to delay the public disclosure of significant corporate events for up to 4 business days. This information is reported on an 8-K. This 4-day gap between an event and the disclosure creates an interesting situation. As an insider, if I know an 8-K is going to report news, I may want to try and trade in that 4 day window when the information is not available to the broader
  • Biotech: My love-hate relationship [Alvarez Quant Trading]

    The two charts above are from recent trades I have taken. Charts created in AmiBroker. On July 20, 2015 IBB, iShares Nasdaq Biotechnology ETF, made a closing high of 398. About three months later it closed at 289 for 27% loss. A very common thing I hear from traders is that they dont trade biotechnology or pharmaceutical stocks. I completely understand. These stocks tend to be very

Quantocracy’s Daily Wrap for 10/19/2015

This is a summary of links featured on Quantocracy on Monday, 10/19/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Did the CME Data change impact your strategies? [System Trader Success]

    Effective September 21, 2015 the CME changed the closing time for futures that closed at 5:15 PM ET from 5:15 to 5:00 PM. The CME did this because the volume from 5:00 PM to 5:15 PM just wasnt that significant. My initial thought was no big deal, my strategies hardly ever traded during that time anyhow. Turns out, I was wrong. It could be a HUGE deal, depending on your strategies.
  • Changing Notions of Risk Management in Automated Trading [Quant Insti]

    Algorithmic trading risks can be categorized into the following: Access Consistency Quality Algorithm Technology Scalability There are 2 places where Risk Management is handled Within the application We need to ensure that wrong parameters are not set by the trader. It should not allow a trader to set grossly incorrect values nor any fat-finger errors. Before generating an order in the

Quantocracy’s Daily Wrap for 10/18/2015

This is a summary of links featured on Quantocracy on Sunday, 10/18/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Best Links of the Week [Quantocracy]

    The best quant mashup links for the week ending Saturday, 10/17 as voted by our readers: Returns clustering with K-means algorithm [Quant Dare] Absolute Strength Momentum Investing Strategy [Alpha Architect] Guns, Bombs and eSports: Applying Data and Portfolio Analytics to Counter-Strike Gambling [Kevin Pei] I Hired a Contract Coder [Financial Hacker] Volatility Stat-Arb Shenanigans [QuantStrat
  • Interview with Alan Clement [Better System Trader]

    Alan Clement is a Certified Financial Technician, full time independent trader, quantitative trading systems designer and private investment consultant. He is also a councillor with the Australian Technical Analysts Association and contributes to the technical analysis articles for Fairfax press. In this episode we talk about Rotational trading systems, the impact of stops on results and
  • Multi-Factor Investing [Dual Momentum]

    Multi-factor investing that combines value, momentum, quality/profitability, or low volatility factors is todays hot new investment approach. There has been an explosion of multi-factor ETFs recently with nine of the fourteen existing U.S. multi-factor funds coming to market this year, and five of them showing up within the past 60 days. Multi-factor funds may be a good thing, since single
  • Sovereign High Yield Bond Strategy [Meb Faber]

    There is ample research that shows that sorting government bonds on yield works great. The outperformance has been very consistent over the years at about 2% a year. The Dimson, Marsh, Staunton crew examined this in their 2012 GIRY issue, and graphic is below. These are returns from going long high yielding and short low yielding countries, but one issue with that strategy is that the drawdowns

Quantocracy’s Daily Wrap for 10/16/2015

This is a summary of links featured on Quantocracy on Friday, 10/16/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Site News [Quantocracy]

    Three bits of site news for both readers and webmasters: For readers: Our new filter mashup feature For webmasters: Our policy on voting for your own link and vote padding For webmasters: Quantocracy badge For readers: Our new filter mashup feature Each site on our blogroll in the sidebar to the right now includes the following three icons (if you dont see a sidebar to the right,
  • Backtesting Long Short Moving Average Crossover Strategy in Excel [Quant Insti]

    Now for those of you who know me as a blogger might find this post a little unorthodox to my traditional style of writing, however in the spirit of evolution, inspired by a friend of mine Stuart Reid (TuringFinance.com), I will be following some of the tips suggested in the following blog post. Being a student in the EPAT program I was excited to learn the methodology that others make use of when
  • Surprise…Trading More is Profitable for Active Funds! [Alpha Architect]

    Warren Buffett make it clear why frequent trading damages ones wealth: Wall Street makes its money on activity. You make your money on inactivity. (source) But is activity always a bad thing? Implicit in Buffetts quote is an assumption that frictional costs outweigh any benefits of enhanced returns due to increased activity. Surely this is true for retail investors with high

Quantocracy’s Daily Wrap for 10/15/2015

This is a summary of links featured on Quantocracy on Thursday, 10/15/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Guns, Bombs and eSports: Applying Data and Portfolio Analytics to Counter-Strike Gambling [Kevin Pei]

    Since the publication of Bill James' seminal work, Baseball Abstract, and the rise to stardom for the Oakland A's, Sports Analytics – the application of statistics to competitive sports – has been (and still is) a prominent topic within the industry. Thus, it is only reasonable for practitioners to apply this movement to the new and upcoming playing field called eSports, which has gained
  • Intraday Strategy Backtesting in R Part 2 (Rule-based Strategies) [Portfolio Effect]

    In this post we take intraday backtesting with PortfolioEffectHFT package one step further by adding a simple signal-based rebalancing rule. Using this rule we will create two trading portfolios a high frequency strategy portfolio and a low frequency portfolio and compare them with each other in terms of their intraday risk and performance. Both strategies would employ a price moving average
  • I Hired a Contract Coder [Financial Hacker]

    Youre a trader with serious ambitions to use algorithmic methods. You already have an idea to be converted to an algorithm. Only problem: You do not know to read or write code. So you hire a contract coder. A guy whos paid for delivering a script that you can drop in your MT4, Ninja, TradeStation, or Zorro platform. Congratulations, now youre an algorithmic trader. Just start the script
  • Seasonality debunked (partially) [RRSP Strategy]

    Ive previously written about a bi-annual seasonality pattern in US equity markets: https://rrspstrategy.wordpress.com/2014/05/16/bi-annual-seasonality/ The quarterly average market (Mkt-RF) returns from 1950 to present are shown below (data from Ken Frenchs library). Quarters 1-4 are even years and 5-8 are odd years. seas-Q The table shows that mean returns of quarters 4-6 are greater than
  • Ben Graham Would be Proud: Fundamental Analysis Works [Alpha Architect]

    Here is an interesting working paper on the use of fundamental analysis in stock selection. The authors take a machine learning approach to building out statistical fair-value Ben Graham and David Dodd would be proud. Of course, this isnt surprising if youve read our treatise on systematic value investing. Fundamental Analysis Works Stock prices cannot be the outcome of a rational
  • ‘Javascript for Financial Analysts’ – Help Wanted [John Orford]

    The still-in-progress 'Javascript for Financial Analysts' book is now up on Leanpub. The goal of the book is to help financial analysts automate their daily tasks by using Javascript in the browser. Not only that, but do it elegantly. Giving people a viable alternative to Excel is a lofty goal, I could do with some help. If you want to pitch in, take a look at the Github repo or send me
  • SPX Straddle – 59 DTE – Results Summary [DTR Trading]

    Over the last five blog posts we looked at the backtest results for 4120 options straddles sold on the S&P 500 Index (SPX) at 59 days-to-expiration (DTE). Eight different loss approaches were tested on these straddles. On top of these eight loss approaches, tests were conducted with no profit taking, and profit taking at 10%, 25%, 35%, and 45% of the credit received. For background information