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Quantocracy’s Daily Wrap for 07/08/2015

This is a summary of links featured on Quantocracy on Wednesday, 07/08/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • All Strategies Blow Up [GestaltU]

    We are a quantitative finance shop, right down to the ground. All of our portfolios are driven by supervised quantitative models with no discretionary intervention. As such, I was inspired to respond to a recent article on the risk of quant strategies, as I think the way our team approaches quantitative research diverges from how many outsiders perceive quant, and also from how many qua
  • The Comfort of Following the Index by Saarthak Gupta [Factor Wave]

    FactorWave is built on the premise that factors are important investing. And if these factors are so important, then we should be asking ourselves why everyone doesn't seem to use them. If I may briefly invoke the specter of Rational Economic Theory, in an efficient market, these factors shouldn't even exist. So maybe we can beat these "professional investors." And I
  • XIV a heart attack waiting to happen [Alvarez Quant Trading]

    A research friend recently sent me a link to The #1 Stock In The World. Besides being a blatant title to get ones attention (and it worked on me), I found the idea interesting along with my research friends. I have been trying to add either XIV or VXX to my trading in some small way. The article is only doing a buy and hold on XIV but it peaked my interest to try some other ideas.
  • Quantitative Financial Risk Management [Reading the Markets]

    Quantitative Financial Risk Management: Theory and Practice, edited by Constantin Zopounidis and Emilios Galariotis (Wiley, 2015) is a collection of 15 papers, written primarily by academics. The papers deal with five main topics: supervisory risk management, risk models and measures, portfolio management, credit risk modeling, and financial markets. One paper that I think

Quantocracy’s Daily Wrap for 07/06/2015

This is a summary of links featured on Quantocracy on Monday, 07/06/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Video: James Simons – Numberphile [YouTube]

    James Harris Simons has been described as "the world's smartest billionaire", amassing a fortune through the clever use of mathematics and computers. He is now a renowned philanthropist.
  • Adding a VIX Signal to Momentum [EconomPic]

    Michael Batnick, Director of Research at Ritholtz Wealth Management, and blogger of the always interesting Irrelevant Investor, recently shared the historical performance of U.S. stocks when they fall below their 200-day moving average, something that occurred early last week (bold mine, quotes Michael's). Increased odds at a material sell-off When bad
  • Efficient Frontier Portfolios Impractical But Still Useful [Capital Spectator]

    The concept of building optimal portfoliosmaximizing return and minimizing riskis a foundational concept in quantitative finance. Unfortunately, its not terribly practical. The problem, as many researchers have demonstrated over the years, is the elusive aspect of developing reliable estimates of return and risk. Mere mortals are notoriously ill-suited for such things. But crunchin
  • Practical academic paper related to #100 – Trading WTI/BRENT Spread [Quantpedia]

    #100 – Trading WTI/BRENT Spread Authors: Donninger Title: The Poverty of Academic Finance Research: Spread Trading Strategies in the Crude Oil Futures Market Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2617585 Abstract: Harvey, Liu and Zhu argue that probably most of the Cross-Section of Returns literature is garbage
  • Backtesting in Excel: Adding position sizing [Quants Portal]

    In my previous article I started with an example of a vectorised backtest. In this one I will build on homework exercise 2 by adding position sizing. Please download this Excel document to follow the example, Click Here. Now there are many different ways in which to add position sizing and this would generally form part of the risk model. In this example Im going to pair p
  • Prices Convolution, A Practical Approach [Quant Dare]

    othing could be further from my intention than to give an extensive mathematical approach to this post but an slightly idea is desirable. In this post we will approach to the problem of convolution from a matricial point of view. Well, what we mean by convolution is about composing 2 different functions to have a third one. The particularity of the convolution is that we ha
  • China Market Analysis [John Orford]

    The core of capitalism is its extremely democratic nature. The masses crush wily contrarians on a daily basis, The market can stay irrational longer than you can stay solvent Being correct in science however, is never democratic. One contrarian can commit mass killings amongst cherished beliefs. Science progresses
  • [Academic Paper] Can Anomalies Survive Insider Disagreements? [@Quantivity]

    Can Anomalies Survive Insider Disagreements?
  • [Academic Paper] Mispricing Factors [@Quantivity]

    Mispricing Factors

Quantocracy’s Daily Wrap for 07/02/2015

This is a summary of links featured on Quantocracy on Thursday, 07/02/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Time series analysis and data gaps [EP Chan]

    Most time series techniques such as the ADF test for stationarity, Johansen test for cointegration, or ARIMA model for returns prediction, assume that our data points are collected at regular intervals. In traders' parlance, it assumes bar data with fixed bar length. It is easy to see that this mundane requirement immediately presents a problem even if we were just to analyze daily bars
  • For The VIX, It s All About The Recovery [Dana Lyons]

    We mentioned in a post yesterday on 90% Down Days that one of the challenges for risk managers is to correctly distinguish a minor market dip from something that is developing into a more serious decline. One potential aid in addressing that challenge comes from the behavior of the S&P 500 Volatility Index, the VIX. As most market observers are likely aware, the VIX tends to rise duri
  • Insuring tomorrow s decline, today [MKTSTK]

    As of pixel time the VIX is up over 7% and the S&P 500 is basically unchanged; we feel this situation arises when traders desire protection today for the possibility of danger tomorrow. In other words, the price of risk is rising and markets are stabilizing. Intuitively (i.e. the feeling our rat brains get from too many years spent scurrying around the markets) we feel this sets the sta
  • The First Academic Paper with a Shotgun Picture in it [Alpha Architect]

    Here is one of the figures in a Journal of Finance paper published in 2013 by N. Garleanu and L Pedersen. The figure depicts various portfolio optimizations under different assumptions and then has a visualization equivalent with hockey players, skeet shooters, and missile systems. Im not sure how many readers follow hard-core academic publications, but this i

Quantocracy’s Daily Wrap for 06/30/2015

This is a summary of links featured on Quantocracy on Tuesday, 06/30/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 06/28/2015

This is a summary of links featured on Quantocracy on Sunday, 06/28/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Best Links of the Week [Quantocracy]

    The best five links of the week ending Saturday, 06/27, as voted by our readers: Interview with Ernest Chan [Better System Trader] Think MPT Doesnt Work? Clearing Up Some Misconceptions [CSS Analytics] Creating an Open Source Hedge Fund Strategy [Quants Portal] Losing Streak Indicator [System Trader Success] A Random Ass Kicking
  • Interview with Andreas Clenow [Better System Trader]

    Andreas Clenow is a hedge fund manager who specialises in developing and trading quantitative strategies across all asset classes. He is currently a principal at ACIES Asset Management, which he joined after having successfully established his own hedge fund. Prior to his role as a hedge fund trader he had a lightning career with Reuters, where he, as Global Head of Equity
  • Lazy Backtesting Update [John Orford]

    The S&P Dow Jones data source is now available to use in the Lazy Backtesting IDE. All manner of interesting investable strategies and asset classes, including volatility and retirement date targeting; Vix contango & backwardation and other quant-style strategies; which you can combine, repurpose and benchmark against. Other than that, there is an ever growing
  • Bad Breadth Milestone A Warning For Stocks? [Dana Lyons]

    Weve been discussing the weakening market breadth recently, especially as it pertains to New Highs vs. New Lows. Again, our contention is that the more stocks participating in a rally, the healthier the rally is. The most recent example of this weak breadth was Wednesdays post on the fact that Nasdaq New Highs-New Lows have not hit a 52-week high in over 400 days. Today brings another

Quantocracy’s Daily Wrap for 06/26/2015

This is a summary of links featured on Quantocracy on Friday, 06/26/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Decision Moose Asset Allocation Framework [CXO Advisory]

    A reader suggested a review of the Decision Moose asset allocation framework of William Dirlam. Decision Moose is an automated framework for making intermediate-term investment decisions. Decision Moose focuses on asset class momentum, as augmented by monetary policy, exchange rate and interest rate indicators. Its signals tell followers when to switch from one index fund
  • The Market For Lemons : A Lesson For Dividend Investors [Research Affiliates]

    Central banks the world over are buying high-quality bonds, thereby removing them from the market and forcing savers to find alternative strategies to meet their income needs. In this environment of financial repression and near-zero interest rates, dividend-yield (or equity income) investing has become increasingly popular. Investors are understandably reallocating their portfolios fro
  • Estimating Crash-Risk Potential For The US Stock Market [Capital Spectator]

    History shows rather clearly that the stock market is prone to extreme events, aka crashes. The challenge is deciding when the risk for a repeat performance is unusually high. The literature offers endless possibilities, which is a reminder that the market can crumble for any number of reasons. The leading factor, of course, is the business cycle. But internal market issues cant be ign
  • Risk Aversion, Information Choice, and Price Impact [Alex Chinco]

    Kyle (1985) introduces an information-based asset-pricing model where informed traders keep trading until the marginal benefit of holding one additional share of the asset is exactly offset by the marginal cost of this last trades price impact. This model has really nice intuition, but it also has some undesirable features. For instance, traders in Kyle (1985) are risk neutral and don

Quantocracy’s Daily Wrap for 06/25/2015

This is a summary of links featured on Quantocracy on Thursday, 06/25/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Think MPT Doesn t Work? Clearing Up Some Misconceptions [CSS Analytics]

    I have spent many years toiling with creating different asset allocation methodologies including the application of traditional and non-traditional portfolio optimization. Given the recent flare of articles on this topic in the blogosphere, I felt it was worthwhile to share my two cents. Applying optimization to a tactical approach is a topic that readers may already be familiar with,
  • Backtesting A Cautionary Example [Scott’s Investments]

    My previous article detailed backtest results for the ETFReplay.com portfolio. Aggregate, risk-adjusted results since 2004 were impressive when compared to a 60/40 Vanguard mutual fund. However, results over the past 2-3 years lagged the benchmark. The test below was conducted using Portfolio123 (P123?). It uses a similar ranking system to the ETFReplay 6/3/3 system but
  • Lazy PCA Site Update [John Orford]

    There's been a bunch of feature suggestions since the last update to the Lazy PCA site. All the code is on Github, if you have a little Javascript experience, I will gladly walk you through it. Please keep shooting feature ideas over too though. You know when you're done with an app when you can't remove any more features, and that's where my minds
  • How to Get a List of all NASDAQ Securities as a CSV file using Python? [Quant at Risk]

    This post will be short but very informative. You can learn a few good Unix/Linux tricks on the way. The goal is well defined in the title. So, whats the quickest solution? We will make use of Python in the Unix-based environment. As you will see, for any text file, writing a single line of Unix commands is more than enough to deliver exactly what we need (a basic text file processing)

Quantocracy’s Daily Wrap for 06/24/2015

This is a summary of links featured on Quantocracy on Wednesday, 06/24/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Mutual Fund Sector Rotation Ideas from readers [Alvarez Quant Trading]

    he post ETF Sector Rotation generated good ideas on what to try differently. This post will research two ideas using Fidelity sector mutual funds. The previous post focused on two ideas on the Select Sector SPDR ETFs. Mutual Fund Universe These tests will use the Fidelity Sector Mutual Funds. The list was provided by a reader from the original post. The data is
  • How to Make Money in Markets: Understanding Expectation Errors [Alpha Architect]

    A new working paper from Gennaili, Ma, and the one-the-only Andrei Shleifer. Expectations and Investment Using micro data from Duke University quarterly survey of Chief Financial Officers, we show that corporate investment plans as well as actual investment are well explained by CFOs expectations of earnings growth. The information in expectations data is not sub
  • A Random Ass Kicking of Wall Street [Following the Trend]

    A random number generator can beat your mutual fund. Given a choice between a random portfolio and a mutual fund, Ill go with the randomizer every day of the week and twice on Sundays. You think Im joking? Im not joking. Trashing the mutual fund industry is almost like beating a dead horse. Except of course that its a thriving, multi billion dollar dead horse. Still, po
  • Stops IV: The Trailing Stop [Factor Wave]

    A reader asked if there was any real difference between using a fixed stop at a given distance from our entry price or a trailing stop which we move so it stays a certain distance from the highest amount the investment has made. A trailing stop is a very comforting strategy. It seems to protect us from the painful experience of seeing our winners turn into losers (covered in this post).
  • Will the quants blow up the markets again? [Humble Student of the Markets]

    Josh Brown had a fascinating post which postulated that the quants pose a significant systemic risk to market volatility: Theres an interesting idea going around that asset management specifically the metastasizing quantitative strategies run via black box are where the next big scare is due to come out of. Volatility has been so low, for so long, that winning trades
  • Modeling Interest Rates Meucci Style [Return and Risk]

    I have signed up for Attilio Meuccis ARPM Bootcamp next month (July 13-18) in NYC http://www.symmys.com/arpm-bootcamp, and need to do quite a bit of prep as its going to be a deep-dive The Advanced Risk and Portfolio Management Bootcamp provides in-depth understanding of buy-side modeling from the foundations to the most advanced statistical and optimization techniqu
  • A Conjecture Which Unifies Timing Strategies [John Orford]

    When arrested in Asia (many countries, not everywhere) never step into the station. Once you put a foot inside, there's an unstoppable force pulling you deeper into the bowels of the judicial system. Conviction rates in Japan, Korea and China are 99%+. For comparison, conviction rates are in the 70s in the UK and US. Why?
  • New related paper to #8 – FX Momentum [Quantpedia]

    Authors: Grobis, Heinonen Title: Is Momentum in Currency Markets Driven by Global Economic Risk? Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2619146 Abstract: This article documents a robust link between the returns of the momentum anomaly implemented in currency markets and global economic risk, measured by the currency r