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Quantocracy’s Daily Wrap for 09/28/2015

This is a summary of links featured on Quantocracy on Monday, 09/28/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 09/26/2015

This is a summary of links featured on Quantocracy on Saturday, 09/26/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Empirical Finance: Meeting Fiduciary Standards Through Skepticism, Not Cynicism [GestaltU]

    Michael Edesses is out with a scathing article lambasting the field of empirical finance. He draws inspiration from Harvey, Liu and Zhus (HLZ) recent article, entitled and the Cross Section of Expected Returns, but extends HLZs conclusions to an absurd limit. In this article, we discuss why we embrace the framework of healthy skepticism described by HLZ, but in the context of a more

Quantocracy’s Daily Wrap for 09/25/2015

This is a summary of links featured on Quantocracy on Friday, 09/25/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • A story of poor statistical intuition [Investment Idiocy]

    In my last post I had a bit of a controversial pop at a brilliant and successful billionaire hedge fund manager; Jim Simons. In continuing my futile quest to raise the level of debate in the quantitative investment community I thought I'd have a go at another clever and very wealthy guy, Cliff Asness, founder of giant fund AQR. Cliff Asness. There is nothing wrong with his statistical
  • The S&P 500 Death Cross Time to Panic? [iMarketSignals]

    At the end of August 2015 the 50-day moving average of the S&P500 crossed its 200-day moving average to the downside the 33rd occurrence of a Death Cross since 1950. The performance of the S&P500 was investigated for periods ranging from one year before to two years after a Death Cross. During the last 65 years there were ten recessions. A Death Cross preceded six recessions and
  • Runge-Kutta Methods [Dekalog Blog]

    As stated in my previous post I have been focusing on getting some meaningful features as possible inputs to my machine learning based trading system, and one of the possible ideas that has caught my attention is using Runge-Kutta methods to project ( otherwise known as "guessing" ) future price evolution. I have used this sort of approach before in the construction of my perfect
  • Correlation and Cointegration [Quant Dare]

    I want a strategy that is able to choose the assets that makes it look like an index Yt. -Then take the ones most correlated to it. -Ok, but look: CC1 The Xt and the Xt+c series have exactly the same correlation with Yt -I prefer Xt+c!! -Yes, but I am trying to be very similar to Yt and Xt+c have a large deviation. -Cointegration? -If two or more series are individually integrated (in the time

Quantocracy’s Daily Wrap for 09/23/2015

This is a summary of links featured on Quantocracy on Wednesday, 09/23/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Sorry Jim, trend following probably still works (though not the fast stuff) [Investment Idiocy]

    Sorry Jim, trend following probably still works (though not the fast stuff) Sometimes really smart people still get things wrong. Even really smart people, who have been very successful, and are thus very rich. Jim Simons. Very Rich. Very Smart (www.pbs.org) During a recent TED talk Jim Simons said: Trend-following would have been great in the 60s, and it was sort of OK in the 70s. By the
  • ‘Javascript for Financial Analysts’ Chapter 3 – First Draft [John Orford]

    The first chapter ended with code which included a map and a filter which we will dive back into now with a less applied more intuitive example. Open up the JavaScript console and paste or type in the following code, [0,1,2,3,4,5,6,7,8,9] .filter( function(j){ return j%2===1; } ); This code filters the array of numbers and returns an array of odd numbers. > [1,3,5,7,9] One feature of filter and
  • Out-of-sample testing of Sell in May market timing rule [Quantitative Investor]

    In one of the previous posts I considered market timing with moving averages on 9 quite different equity indices that were chosen in other post, and came to the conclusion that the rule is the viable alternative to the standard B&H, allowing to avoid large drawdowns in one cases and even improve performance in others (e.g. it is bad idea to passively invest in Nikkei index, but even with
  • Momentum trends with Andreas @Clenow [Automated Trader]

    Andreas Clenow is CIO of Zurich-based ACIES Asset Management ($300+ million AuM), and author of 'Stocks on the Move: Beating the Market with Hedge Fund Momentum Strategies'. Why would he give up the super secret sauce in a tell-all? Automated Trader finds out. CTAsHedge Funds Andreas Clenow, CIO, ACIES Asset Management Andreas Clenow, CIO, ACIES Asset Management "People think that
  • Using a Random Forest and Hidden Markov Model to Improve Trade Performance [Inovance]

    Machine learning is a powerful tool for not only coming up with new strategies (like we do in TRAIDE) but also for improving your existing strategies. In this article, well cover adjusting your position size using a random forest algorithm and turning your strategy on an off using a Hidden Markov Model. You can copy and paste the R code to try it yourself on your own strategies. This article

Quantocracy’s Daily Wrap for 09/21/2015

This is a summary of links featured on Quantocracy on Monday, 09/21/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Active Share Debate: AQR versus the Academics [Alpha Architect]

    There is an interesting discussion in the geeky world of academic finance literature between the intellectual muscle at AQR and academia. aqr versus the academics on active share The discussion revolves around the following question: Does Active Share matter? This is an important topic for active ETFs and Mutual Funds in the marketplace. The original paper on this measure was written by
  • Risk Management for Automated Trading I : Lack of it [Quant Insti]

    Impact of Proliferation of Automated Trading Systems and Technology on Financial Markets With the advent of automated trading everything has become computerized. Risk management takes a whole new level in this technologically fast paced world. The trends in day-to-day trading have been changing. This change has led to many automated trading failures where risk was not managed in a sound manner.
  • Correlation and correlation structure [Eran Raviv]

    This post is about copulas and heavy tails. In a previous post we discussed the concept of correlation structure. The aim is to characterize the correlation across the distribution. Prior to the global financial crisis many investors were under the impression that they were diversified, and they were, for how things looked there and then. Alas, when things went south, correlation in the new
  • Forecasting interest rates [Econbrowser]

    There was lots of action in financial markets last week, with much of the attention focused on the U.S. Federal Reserve. The interest rate on a 10-year U.S. Treasury bond edged up 10 basis points early in the week in anticipation that the Fed might finally raise its target for the short-term interest rate. But it shed all that and more after the Fed announced it was standing pat for now. Price of

Quantocracy’s Daily Wrap for 09/20/2015

This is a summary of links featured on Quantocracy on Sunday, 09/20/2015. 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, 09/19 as voted by our readers: Hacking the Random Walk Hypothesis [Turing Finance] Getting Started: Building a Fully Automated Trading System [Quants Portal] Interview with Euan Sinclair [EP Chan] Interview with Dr Ernest Chan [Factor Wave] Probability Investing [Price Acti
  • Getting Started with Javascript – First Draft [John Orford]

    First draft of 'Javascript for Financial Analysts' Chapter 1. ~ Much of our coding time is spent in an interactive environment, colloquially called the 'REPL', 'Read-Eval-Print Loop' or console. The REPL reads input, evaluates it according to our code and prints it. Javascript's REPLs, can be found in any browser, by pressing Ctrl+Shif
  • When is a Backtest Too Good to be True? Part Two [Quintuitive]

    In the previous post, I went through a simple exercise which, to me, clearly demonsrtates that 60% out of sample guess rate (on daily basis) for S&P 500 will generate ridiculous returns. From the feedback I got, it seemed that my example was somewhat unconvincing. Lets dig a bit further then. Lets add Sharpe ratio and maximum drawdown to the CAGR and compute all three for
  • Will Yesterday s Shooting Star Make Bears Wishes Come True? [Dana Lyons]

    Like its bullish counterpart, the hammer, this bearish reversal pattern has been inconsistent in its forecasting abilities, except under certain conditions. Weve covered the hammer candlestick chart pattern on a couple occasions over the past few years, most extensively in this October 2014 post. The pattern, which involves a significant selloff from the open followed b
  • SPX Straddle – 38 DTE – Manage Profits at 25% [DTR Trading]

    In this post we look at the backtest results of selling a one-lot, at-the-money (ATM) straddle on the S&P 500 Index (SPX), initiated at 38 days-to-expiration (DTE). In this third post of five on 38 DTE straddles, we look at trades that use the same loss exits as shown in the first post, and in addition, take profits at 25% of the credit received. The results displayed in this post rep

Quantocracy’s Daily Wrap for 09/18/2015

This is a summary of links featured on Quantocracy on Friday, 09/18/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Interview with Euan Sinclair [EP Chan]

    I have been a big fan of options trader and author Euan Sinclair for a long time. I have cited his highly readable and influential book Option Trading in my own work, and it is always within easy reach from my desk. His more recent book Volatility Trading is another must-read. I ran into him at the Chicago Trading Show a few months ago where he was a panelist on volatility trading, and
  • Can Investors Achieve Commodity Exposure via Equities? [Alpha Architect]

    This past year we examined the possibility of replicating commodity exposure via equities. The project was spurred by an insightful research report from MSCI, which showed some impressive results. Other research outfits have proposed similar concepts. The figure below, taken from the MSCI report, highlights how well the MSCI Select Commodity Producers Index replicates various commodity
  • An Update on Jay s Pure Momentum Sector Fund System [Jay On The Markets]

    Todays article is an update on this oldie but goodie. When people ask me if momentum investing works, at this point because I am older and (even) crankier than I used to be I typically refer them to the linked article above and grunt decide for yourself. Sorry, its just my nature. (See also: The Signpost Up Ahead: The September Danger Zone)
  • SPX Straddle – 38 DTE – Manage Profits at 10% [DTR Trading]

    In this post we look at the backtest results of selling a one-lot, at-the-money (ATM) straddle on the S&P 500 Index (SPX), initiated at 38 days-to-expiration (DTE). In this second post of five on 38 DTE straddles, we look at trades that use the same loss exits as shown in the first post, and in addition, take profits at 10% of the credit received. The results displayed in this post re

Quantocracy’s Daily Wrap for 09/16/2015

This is a summary of links featured on Quantocracy on Wednesday, 09/16/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Hypothesis Driven Development Part IV: Testing The Barroso/Santa Clara Rule [QuantStrat TradeR]

    This post will deal with applying the constant-volatility procedure written about by Barroso and Santa Clara in their paper "Momentum Has Its Moments". The last two posts dealt with evaluating the intelligence of the signal-generation process. While the strategy showed itself to be marginally better than randomly tossing darts against a dartboard and I was ready to reject i
  • Out-of-sample test of market timing with moving averages or avoid death cross strategy [Quantitative Investor]

    Usign 9 equity markets I talked about in the previous post, Im going to compare avoid death cross or moving average crossover market timing rule with vanilla B&H. Formal specification of the rules used: if at day t we have for some index that MA(10) < MA(250) sell the index at the Close of day t+1 (if we hold it long) and buy 3-month T-bills if
  • The Health of Stock Mean Reversion: Reader s Ideas [Alvarez Quant Trading]

    My previous post The Health of Stock Mean Reversion: Dead, Dying or Doing Just Fine generated good readers suggestions on other ways to check on mean reversion health. Let us see what these tests tell us. The Base Test Date Range: 1/1/1995 to 6/30/2015. Entry: Stock is part of the Russell 1000 Close > $1 RSI(2)
  • ORBP with Price Channel Filter | Trading Strategy (Filter & Exit) [Oxford Capital]

    I. Trading Strategy Developer: Toby Crabel (ORBP: Opening Range Breakout Preference); Richard D. Donchian (Price Channel Filter). Source: Crabel, T. (1990). Day Trading with Short Term Price Patterns and Opening Range Breakout. Greenville: Traders Press, Inc. Concept: Volatility expansion with a price channel filter. Research Goal: Performance verification of a trend filter
  • Interview with Dr Ernest Chan [Factor Wave]

    Dr Ernie Chan does something difficult well: he explains quantitative trading ideas to retail traders without over-simplifying them. He has written two books," Quantitative Trading:How to Build Your Own Algorithmic Trading Business" and "Algorithmic Trading: Winning Strategies and Their Rationale" and blogs at epchan.blogspot.com. Because he operates in an fairly unusual s
  • Some Simple Shorting Systems For Downtrends [Quantifiable Edges]

    SPX closed at a 10-day high on Tuesday. New short-term (and intermediate-term) highs will sometimes get traders excited. When the market is in long-term downtrend mode, this excitement is often misplaced. Way back in a blog post on 4/3/09 I showed a number of systems that looked to sell short when the SPX made X-day highs but was below the 200ma. I have updated the results table of th
  • Corporate Sport Sponsorship and Stock Returns [Alpha Architect]

    The NFL is back!!! Unfortunately, the Eagles may need a new kickerand now we have to listen to Wes talk trash about the Cowboys victory around the office. Tragic! In the spirit of the new NFL season, I figured it was a good time to highlight a newer paper titled Corporate Sport Sponsorship and Stock Returns: Evidence from the NFL written by Assaf Eisdorfer a
  • [Academic Paper] Robust Gaussian Filtering [@Quantivity]

    Robust Gaussian Filtering