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Quantocracy’s Daily Wrap for 07/22/2015

This is a summary of links featured on Quantocracy on Wednesday, 07/22/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Multiple Time Frames for Scoring ETF Rotational Strategies [Alvarez Quant Trading]

    Today we have a guest post from David Weilmuenster who I worked with while at Connors Research. A widely applied technique for scoring assets in rotational systems is to rank those assets by their price momentum, or return, over a given historical window and to rotate into the assets with higher momentum. This approach seeks to capitalize on the well-demonstrated tendency f
  • Market timing with Value and Momentum [Alpha Architect]

    Yesterday we wrote a post showing a potential way to time the market using valuation-based signals. In the past we have also examined how to use momentum-based signals (moving average rules and time-series momentum) to time the market. A natural question is what happens when we combine the valuation-based signals with the momentum-based signals? Here at Alpha A
  • White Noise and Random Walks in Time Series Analysis [Quant Start]

    In the last article of the Time Series Analysis series we discussed the importance of serial correlation and why it is extremely useful in the context of quantitative trading. In this article we will make full use of serial correlation by discussing our first time series models, including some elementary linear stochastic models. In particular we are going to discuss White
  • New Academic Research: ECB predicts stock market using social data [MKTSTK]

    The European Central Bank just released a research report that might be of some interest to readers of this blog. It turns out that Social Data can be useful in predicting the stock market (go figure!): Quantifying the effects of online bullishness on international financial markets [ECB] In our work, we develop a simple, direct and unambiguous indicator o
  • Fractal mathematics used to explain #14 – Momentum Effect in stocks [Quantpedia]

    Mandelbrot has significantly contributed in many ways to the area of finance. He was one of the first who criticized the oversimplifications centered around the early stochastic process models of Bachelier utilizing normal distribution. In his view, markets were fractal and much wilder than classical theory suggests. Additionally, he was a profound critic of the efficient markets hypoth
  • [Academic Paper] Night Trading: Lower Risk but Higher Returns? [@Quantivity]

    Night Trading: Lower Risk but Higher Returns?

Quantocracy’s Daily Wrap for 07/21/2015

This is a summary of links featured on Quantocracy on Tuesday, 07/21/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Eureka! A Valuation-Based Asset Allocation Strategy that Might Work [Alpha Architect]

    Weve had a few posts showing that asset allocation systems relying on market valuation indicators (e.g., Shiller CAPE ratios) as a timing signal may end up in disappointment Can market Valuations Be Effective Market-Timing Signals? Dissecting Goldmans 99 Percentile Market-Timing Signal Nonetheless, weve continued on the quest to improve tactic
  • Systems building – execution [Investment Idiocy]

    People often get systematic and automated trading mixed up. The latter is a subset of the first. You can't have a system which is fully automated if it relies on discretionary input, no matter how small. But you can have a system which needs a human to make it run, even though there is no discretion, and its fully systematic. The main area where humans are often used with s
  • Short Rates as a Predictor of Stock Returns [Factor Wave]

    In order to sell a stock short you first need to borrow it from someone else. The way that this typically happens is that your broker takes it from another clients account and loans it to you. You can then sell it to someone else. Although this means you end up with cash in your account, individuals typically don't receive interest for this. In fact they normally pay the broker a fee. (

Quantocracy’s Daily Wrap for 07/18/2015

This is a summary of links featured on Quantocracy on Saturday, 07/18/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 07/17/2015

This is a summary of links featured on Quantocracy on Friday, 07/17/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • High Conviction Buybacks [Investor’s Field Guide]

    Large U.S. companies spent nearly half a trillion dollars on net buybacks (cash spent on buybacks less cash raised through issuance) during the 12 months ending 6/30/2015. Thats almost as much as the buyback peak in 2007, which didnt turn out too well. Scary! But hold on. Something that gets lost beneath this broader trend is the level of conviction that the companies r
  • The Price Factor [Factor Wave]

    Stock splits lower the stock price. But what does that mean? Most straightforwardly, do lower price stocks perform better than higher priced stocks? Soosung Hwang and Chensheng Lu examined this and published their results in the paper, "Is Share Price Relevant?". They used survivor-adjusted data for the major US exchanges from 1963 to 2006 and each year formed portfolios co
  • Daily Academic Alpha: Why Women Should make MORE than Men… [Alpha Architect]

    As the proud father of 3 kids (to include 2 daughters), this set of papers, while a bit off the wall, made me smile a bit. In short, there seems to be a negative relationship between women and lawsuitsthe more women surround an organization, the less legal trouble the organization faces. It would be great if the relationship was 100% causal, but the data dont
  • Active Investment Managers and Market Timing [CXO Advisory]

    Do active investment managers as a group successfully time the stock market? The National Association of Active Investment Managers (NAAIM) is an association of registered investment advisors. NAAIM member firms who are active money managers are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day

Quantocracy’s Daily Wrap for 07/15/2015

This is a summary of links featured on Quantocracy on Wednesday, 07/15/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • New Paper from Markowitz: Introducing the Gerber Statistic [Flirting with Models]

    Harry Markowitz, father of modern portfolio theory, has a new paper out with Sander Gerber and Punit Pujara titled Enhancing multi-asset portfolio construction under Modern Portfolio Theory with a robust co-movement measure. You can download it here. The big take away is the introduction of a new co-movement measure called the Gerber Statistic, which is designed to be more
  • Daily Academic Alpha: Fresh Evidence on the Fama French 5-Factor Model [Alpha Architect]

    The past few weeks weve highlighted a set of research papers that go back and forth on the validity of the Fama and French 5-factor model. A sampling of the research: The Fama French 5-Factor Paper The Kewei, Xue, and Zhang (KXZ) 4-Factor Paper (critically assesses the FF 5-factor model) Cakici investigates the FF 5-Factor Internation
  • A New Factor: Illiquidity [Factor Wave]

    Value, size and low volatility "anomalies" have been studied for decades. Momentum has only been recently recognized by academics but a lot of practitioners have been firm believers in it for many years. Quality is the most recent of the well accepted factors but the components that go into its calculation are well accepted measures of what makes a business good. But we, and a large gro
  • A Diverse Momentum System Using Vanguard Allocation Funds [Scott’s Investments]

    One of the criticisms of momentum systems is they are prone to crashes when momentum reverts. The system highlighted in this article can be implemented using any number of life style or target-risk funds or ETFs. The system chooses from a small number of funds that reflect a range of asset allocation models. The purpose is to employ a diverse, momentum-based asset allocation system.

Quantocracy’s Daily Wrap for 07/14/2015

This is a summary of links featured on Quantocracy on Tuesday, 07/14/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

Quantocracy’s Daily Wrap for 07/09/2015

This is a summary of links featured on Quantocracy on Thursday, 07/09/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Research Links: Correlation Networks [MKTSTK]

    Evolution of worldwide stock markets, correlation structure and correlation based graphs [arXiv] We investigate the daily correlation present among market indices of stock exchanges located all over the world in the time period Jan 1996 – Jul 2009. We discover that the correlation among market indices presents both a fast and a slow dynamics. The slow dynamics reflects
  • A Mid-Summer’s Night(mare for) Beans [Jay On The Markets]

    Grain prices have a long record of exhibiting seasonal price trends. This is due primarily to the fact that the planting, growing and harvesting cycle in the Midwest remains the same year in and year out. In a nutshell: *Planting begins in early spring *Growing takes place during the summer *Harvesting occurs in the fall
  • New academic paper related to #12 – Pairs Trading with Stocks [Quantpedia]

    We analyse statistical arbitrage with pairs trading assuming that the spread of two assets follows a mean-reverting Ornstein-Uhlenbeck process around a long-term equilibrium level. Within this framework, we prove the existence of statistical arbitrage and derive optimality conditions for trading the spread portfolio. In the existence of uncertainty in the long-term mean and volatility o
  • Light At The End Of The Tunnel For Stocks…Or A Train? [Dana Lyons]

    So much for summer trading. Global markets are getting more interesting by the day. Last week, we wrote a post examining the phenomenon of 90% Down Days. Again, these are days in which at least 90% of volume on the NYSE occurred in declining stocks. Such days have often been signs of selling exhaustion and have often led to intermediate-term rallies. And if there has historically been a
  • The Origins of Momentum [Quants Portal]

    Momentum is a market anomaly which many people have tried to explain but have not succeeded to a satisfactory extent. As to the source of momentum profits, others have tried to rationalize their origins whereas an opposing school of thought has searched for their origins in behavioural finance. In this paper I will explore the possible origins of momentum profits through highlighting th
  • The Mojito Vix ETN Strategy [John Orford]

    I like girls like my asset classes. Bubbly. … What do you mean you don't know whether whether we should take the business or not? All money is green. … I like my cocktails like my money. Green! … ~~ That was the CEO sitting behind a younger me. He didn't have an off
  • Option Strangle Series – Higher Loss Thresholds [DTR Trading]

    During the next several weeks, I will show the backtest results for selling Strangles on the RUT and SPX. The prior post, Introduction To Options Strangles, introduced Strangles and compared them with Iron Condors. For this new series, we will look the following setup: RUT and SPX short strangle backtest setup (click to enlarge) These short Strangles wi

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