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Quantocracy’s Daily Wrap for 05/28/2015

This is a summary of links featured on Quantocracy on Thursday, 05/28/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • What has Worked in June [Quintuitive]

    Time to start looking at the next month. Lets start with the top five performing futures (ordered by winning percentage): Future Total Months Winning Months Mean Return Median Return 30-Year Bond 37 68% (25) 9.62% 1.57% Canadian Dollar 37 68% (25) 0.07% 0.53% 10-Year Note 32 63% (20) 9.46% 1.45% Feeder Cattle 37 62% (23) 0.83% 0.
  • Basic Factor Analysis: Simple Tools to Understand What Drives Performance [Alpha Architect]

    Investors should know what they are buying and why they are buying it. Unfortunately, more often than not, investment products are jammed down the throats of unsuspecting victims who are either ignorant, easy to influence, and/or dont really care. We highlighted an extreme example of this in the form of a 3% front-end load, 60bp management fee S&P 500 Index Fu
  • Momentum Environments [Systematic Relative Strength]

    How consistent are Momentum returns? This is among the most frequently asked questions about Momentum (and about any investment strategy for that matter). One way to answer this question is to look at the following table from a white paper published by RBC Capital Markets. According to their research, Momentum outperformed the S&P 500 in every decade since the 1930?s. Yes, the margi
  • SPX Iron Condor – High Loss Threshold – 80 DTE [DTR Trading]

    This post looks at a standard (STD) one-lot iron condor on the S&P 500 Index (SPX), initiated at 80 days-to-expiration (DTE). The results in this post were derived from approximately 3200 individual trades entered by the backtester. For background on the setup for the backtests, as well as the nomenclature used in the charts and tables below, please see the introductory ar
  • Amazing paper related to several momentum strategies [Quantpedia]

    #2 – Asset Class Momentum – Rotational System #3 – Sector Momentum – Rotational System #8 – FX Momentum #14 – Momentum Effect in Stocks #15 – Momentum Effect in Country Equity Indexes Authors: Geczy, Samonov Title: 215 Years of Global Multi-Asset Momentum: 1800-2014 (Equities, Sectors, Currencies, Bonds, Commodities and Stocks)
  • Using Leadership Index to Time S&P 500 [Systematic Investor]

    To install Systematic Investor Toolbox (SIT) please visit About page. Following is code and plots used in RFinance 2015 presentation. We will use a C++ function to compute Lagged Correlations from the Run Leadership Rcpp post. First, lets load historical prices for S&P 500. Please note that we are using current companies in the S&P 500 index and a
  • A Statistical Interpretation of Black Scholes [John Orford]

    I love the tingling sensation when some new idea or revelation becomes clear. Perhaps not 100% clear, but you get close enough that you can almost taste it. That happened to me when I read about the Pythagorean interpretation of special relativity. Nice to understand 20th century physics first in terms of Euclidean space and then make a small jump into Minkowsk
  • Moved Quantscript to GitHub [Quintuitive]

    Quantscript is an old project of mine, which was hosted on google.code. Since google.code is shutting down, I had to either scrap it or migrate it to GitHub. I am not using this code on a daily basis anymore, and since the project is relatively small the natural thing would have been to scrap it. However, I found myself a few times over the years pulling out the source code of the pro
  • [Academic Paper] Uncovering Trend Rules [@Quantivity]

    Uncovering Trend Rules

Quantocracy’s Daily Wrap for 05/27/2015

This is a summary of links featured on Quantocracy on Wednesday, 05/27/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • ETF Sector Rotation Ideas from readers [Alvarez Quant Trading]

    The post ETF Sector Rotation generated some good ideas on what to try differently. This post will focus on two ideas on the Select Sector SPDR ETFs. The next post will look at two ideas using Fidelity sector mutual funds. ETF Universe These tests will use the Select Sector SPDR ETFs. The list is Consumer Discretionary (XLY) Consumer S
  • Using the Price-to-Book Ratio [Investor’s Field Guide]

    Having explored the history of the price-to-book ratio, we can now turn to its usefulness as a stock selection criterion. The data suggests a few important points about the price-to-book ratio: It has worked quite nicely in small-cap It has not worked as well in large-cap stocks Price-to-book delivers the best returns when it is used to compare each
  • Risk-Managed Momentum Outperforms [Larry Swedroe]

    Momentum has been found to be a persistent and pervasive factor in the returns not only of stocks, but of other asset classes (including bonds, commodities and currencies). Compared with the market, value and size risk factors, momentum in equities has earned both the highest premium and the highest Sharpe ratio. However, momentum has also experienced the wor
  • SPX After Quick Drops From 50-day Highs [Quantifiable Edges]

    The study below is one I have shown here on the blog for a long time. It looks at relatively sharp selloffs from intermediate-term highs. It shows that there has been a strong tendency for situations like the current one to bounce. Results are updated. The stats all suggest an upside edge over the next 1-5 days. Traders may want to keep this in mind the next few days. Want research like this
  • Weekly Commentary The 60/40 Forecast: 0% through 2025 [Flirting with Models]

    Benjamin Graham, father of value investing, once said: in the short run, the market is like a voting machine but in the long run, it is a weighing machine. The psychology factor that can dominate market returns and volatility in the short-run is often washed out in long-run annualized returns, which is dominated by economic and valuation factors. While valuations may ser
  • A Breakout To Nowhere [Dana Lyons]

    Weve spent a good deal of ink over the past few months on the trendless, range-bound action that has characterized the U.S. stock market recently. This trading range has been, after all, the dominant factor in the equity market. And an epic, even record-setting, trading range it has been. Our expectations based on much of the research weve done has been that once the market br
  • Good News Bonds, Bad News Bonds [Jay On The Markets]

    First the (potential) good news. The (potential) good news is that one trend in bonds that I wrote about a while back here and here may finally (potentially) be playing out the right way. Although, as there are still three more trading days left in the month of May, it is clearly a little early to declare victory. In any event, the trend I am referring to is the histo

Quantocracy’s Daily Wrap for 05/25/2015

This is a summary of links featured on Quantocracy on Monday, 05/25/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Development of Intermarket Trading Systems [System Trader Success]

    In my past article, Intermarket Is Fundamentally Sound, I covered some of the basic premises and history of intermarket trading systems. While the previous entry was more theoretical, this article is more practical. Indeed, I will be discussing how intermarket analysis can be used to generate mechanical signals. I will also walk you through the process I followed in developing and impr
  • Building Algorithmic Trading Systems for the Forex market. Part 2: Where to look [Mechanical Forex]

    On my last post we discussed the first step necessary to become a successful algorithmic trader: to get a solid formation in statistics and programming. Once youre done with this step you will then need to confront the problem of building profitable trading strategies to trade the currency markets. Doing this is no easy task since there are a myriad of things you can do to
  • SPX Iron Condor – High Loss Threshold – 66 DTE [DTR Trading]

    This post looks at a standard (STD) one-lot iron condor on the S&P 500 Index (SPX), initiated at 66 days-to-expiration (DTE). The results in this post were derived from approximately 3200 individual trades entered by the backtester. For background on the setup for the backtests, as well as the nomenclature used in the charts and tables below, please see the introductory ar
  • Accounting for Data Mining Bias [Dekalog Blog]

    I've recently subscribed to this forexfactory thread, which is about using machine learning to develop trading systems, and the subject of data mining/data dredging has come up. This post is a short description of how mining/dredging can be accounted for, but readers should be aware that the following is not a precise description of any particular test with accompanying code, but rather

Quantocracy’s Daily Wrap for 05/24/2015

This is a summary of links featured on Quantocracy on Sunday, 05/24/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Why Steady Vol Works [John Orford]

    Contrary to what people say every now and again, history never ends. Not like humans end with a monotonous beep out of a heart monitor. Life goes on, hearts keep thumping. When I was an English teacher in Germany. One of my students showed up for the first day of class. She was unemployed and the local 'work office' sent her to learn E

Quantocracy’s Daily Wrap for 05/20/2015

This is a summary of links featured on Quantocracy on Wednesday, 05/20/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Intermarket Analysis: The Pathfinder | Trading Strategy (Filter) [Oxford Capital]

    I. Trading Strategy Developer: Nelson F. Freeburg. Concept: The currency trading strategy based on the intermarket analysis. Source: Freeburg, N. F. (Dec. 1993). Formula Research, Quantitative Treatment of the Financial Markets. Memphis, TN: Formula Research, Inc. Research Goal: Performance verification. General Description: The Pathfinder currency trading system uses the
  • An Unfolding Finite Difference Algorithm in Javascript [John Orford]

    very model's assumptions get thrown out the window as soon as things get really rocky. Every model is short vol. Even those for which getting volatility right is crucial! Take the binomial tree approach to pricing options for example. See my previous post here. From 'Paul Wilmott Introduces Finance' Unfortunately as volati
  • The Europe Catch-Up Trade… $FEZ [@NautilusCap]

    The Europe Catch-Up Trade… $FEZ
  • New Paper from GestaltU and QuantStrat TradeR: Momentum and Markowitz: A Golden Combination (PDF)

    Mean-Variance Optimization (MVO) as introduced by Markowitz (1952) is often presented as an elegant but impractical theory. MVO is "an unstable and error-maximizing" procedure (Michaud 1989), and "is nearly always beaten by simple 1/N portfolios" (DeMiguel, 2007). And to quote Ang (2014): "Mean-variance weights perform horribly The optimal mean-variance portfolio is a
  • A Few Notes on Invest with the Fed [CXO Advisory]

    In the introduction to their 2015 book entitled Invest with the Fed: Maximizing Portfolio Performance by Following Federal Reserve Policy, authors Robert Johnson, Gerald Jensen and Luis Garcia-Feijoo state: Our purpose in writing this book is to provide a general overview of the Feds role in the financial markets, but, more important, to offer investors a road
  • Why We’ve Done Away with Down Voting [Quantocracy]

    After a few days of living with our (pretty awesome) new voting feature at Quantocracy, weve opted to do away with down voting. Readers can now choose to either vote up or not vote at all on each link. We try to keep things friendly around these parts, and the down voting just began to feel a little dirty. With up voting only, good content will still get more eyeballs, blo
  • A Magical Metric That Isn t [Larry Swedroe]

    I was recently asked to comment on an article that appears in the April 2015 issue of the American Association of Individual Investors Journal. The article is based on the paper Mutual Funds R2 as Predictor of Performance, which was published in the March 2013 issue of The Review of Financial Studies. As you may have already guessed, the study, which cover
  • Dow Divergences Part 2: Utilities [Dana Lyons]

    This is part 2 of our series (or mini-seriesTBD) on divergences. As we stated yesterday, divergences (in which one index achieves a new high whereas another does not) are generally over-cited as red flags. The problem is that the timing of their repercussions on the market – if any actually materialize – is extremely difficult to get right. Divergences can persist for a long time witho
  • Will Natural Gas Break Wind in June? [Jay On The Markets]

    See Jays recent post: One More Plunge for Crude Oil? If you are an ardent believer in the phrase if something looks too good to be true it probably is, then youd better brace yourself. Because a sure-fire, cant miss, you cant lose thing is on the horizon in natural gas. Well OK, at least thats the theory. A Bearish Seasonal Trend in Natural Gas
  • [Academic Paper] Modelling Systemic Price Cojumps with Hawkes Factor Models [@Quantivity]

    Modelling Systemic Price Cojumps with Hawkes Factor Models
  • Stock Returns Around Memorial Day [CXO Advisory]

    Does the Memorial Day holiday signal any unusual return effects? By its definition, this holiday brings with it any effects from three-day weekends and sometimes the turn of the month. Prior to 1971, the U.S. celebrated Memorial Day on May 30. Effective in 1971, Memorial Day became the last Monday in May. To investigate the

Quantocracy’s Daily Wrap for 05/19/2015

This is a summary of links featured on Quantocracy on Tuesday, 05/19/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Tactical Asset Allocation: Beware of Geeks Bearing Formulas [Alpha Architect]

    How Should I Tactically Allocate my Assets? A lot of investors ask this question as their wealth grows and the number of financial products grows exponentially. In order to generate a response, investors pay money to professional finance geeks who often present complex formulas as a solution to the asset allocation problem. Last year, when I was asked to present a seminar o
  • Dow Divergences Part 1: Transports [Dana Lyons]

    Divergences are one of the most oft-cited arguments in calling tops. They are also perhaps the least accurate. Thats because divergences (whereby one index reaches a new high while another fails to do so) both A) occur frequently and B) can persist for lengthy periods of time. For those reasons, we are not huge proponents of sending out alarm bells based solely on divergences. It is tr
  • Bayesian Inference of a Binomial Proportion – The Analytical Approach [Quant Start]

    In the previous article on Bayesian statistics we examined Bayes' rule and considered how it allowed us to rationally update beliefs about uncertainty as new evidence came to light. We mentioned briefly that such techniques are becoming extremely important in the fields of data science and quantitative finance. In this article we are going to expand on the coin-flip example
  • Daily Academic Alpha: Which Trend is Your Friend? [Alpha Architect]

    Which Trend Is Your Friend? Managed-futures funds (sometimes called CTAs) trade predominantly on trends. There are several ways of identifying trends, either using heuristics or statistical measures often called "filters." Two important statistical measures of price trends are time series momentum and moving average crossovers. We show both empirically and theoretically
  • Is your glide path too risky? [Flirting with Models]

    The theory behind the glide path is easily distilled: as we grow older and approach retirement, we transition from an primary objective of growth to one of capital preservation. Our allocation profile, therefore, should follow this transition. Close to retirement, when capital preservation is paramount, stocks are riskier than bonds. Further from retirement, when growth i
  • SPX Iron Condor – High Loss Threshold – 38 DTE [DTR Trading]

    This is the first article in a series where we will look at the performance of the iron condor options strategy, where the loss exits will be greater than the profit exits. For background on the setup for the backtests, as well as the nomenclature used in the charts and tables below, please see the introductory article for this series: Iron Condor Series – Higher Loss Thresholds

Quantocracy’s Daily Wrap for 05/17/2015

This is a summary of links featured on Quantocracy on Sunday, 05/17/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Interview with Rob Hanna [Better System Trader]

    Rob Hanna has been a full-time market professional since 2001. He first began publishing his market views and research in 2003. From 2003 to 2007 his column Rob Hannas Putting It All Together could be found twice a week on TradingMarkets.com. In 2008 Rob began Quantifiable Edges and in 2012 Rob opened his 2nd website, Overnight Edges. Both sites use historical analysis
  • Shorting extremes in a bear market [Better System Trader]

    In Episode 7 of the podcast Rob Hanna provides an idea for shorting extremes in a bear market: I got one in bear markets that shows all right, what happens if you sold short every 20 day high below the 200 day moving average or something like that and exited when it got back below the 20 day moving average or 10 day moving average or something like that. Its really si

Quantocracy’s Daily Wrap for 05/16/2015

This is a summary of links featured on Quantocracy on Saturday, 05/16/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Quant Geek Weekend Homework: Academic Finance Research [Alpha Architect]

    Post-discovery Performance: Will Anomalies Fade Away After Discovery? (Qu, Lu, Sun and Yan) The Search for Crisis Alpha: Weathering the Storm Using Relative Momentum (Newfound Research) Are Your Backtest Results fooling you? Try Monte Carlo Analysis (Better System trader) Buffetts Alpha (Frazzini, Kabiller and Pedersen) (older, but good)
  • Quasi-Maximum Likelihood [Eran Raviv]

    Beauty.. really? well, beauty is in the eye of the beholder. One of the most striking features of using Maximum Likelihood (ML) method is that by merely applying the method, conveniently provides you with the asymptotic distribution of the estimators. It cant get more general than that. The how you do, not the what you do permits proper inference. The only caveat, thou

Quantocracy’s Daily Wrap for 05/15/2015

This is a summary of links featured on Quantocracy on Friday, 05/15/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Singular Value Diversification Strategy [John Orford]

    Being a loser is an art. I am not interested in being a good loser, but in knowing when to quit. The art of quitting can be acquired after a little numerical analysis. (Not necessarily due to all the confusing linear algebra!) In the world of numerical solutions there is no correct answer. Knowing when your search for an answer is 'goo
  • New related paper to #5 – FX Carry Trade [Quantpedia]

    The paper gives evidence of a novel pricing factor for the cross-section of carry trade returns based on trade relations between countries. In particular, we apply network theory on countries' bilateral trade to construct a measure for countries' exposure to a global trade risk. A higher level of exposure implies that the economic activity in one country is highly dependent on the econo
  • Another commodity hits bull market threshold $UNG [@NautilusCap]

    Another commodity hits bull market threshold $UNG
  • Live Trading with Interactive Brokers [Quant Connect]

    We're very proud to announce our public release of live trading with Interactive Brokers! Now you can seamlessly design and trade your algorithm within QuantConnect. Automated live trading is one of the most challenging engineering problems in financial technology. It involves controlling large financial resources, while pushing computational power to its limits!
  • Lazy Backtest IDE Update [John Orford]

    Another week another Lazy Backtest IDE update. Now you can incorporate yield data into your strategies, oh, and also use it in your Sharpe ratio calculations. Also – no one likes little black boxes, right? No one! So, I included a link to download a CSV file of results. Meaning you can understand calculations in a spreadsheet – plus gr

Quantocracy’s Daily Wrap for 05/12/2015

This is a summary of links featured on Quantocracy on Tuesday, 05/12/2015. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Top 5 UK Universities For Becoming A Quant [Quant Start]

    In a previous article I outlined the best degree courses to take in order to help you get a job as a quant. I also mentioned that to discuss the best UK universities was an article in itself. This is that article! Coincidentally, the QS World University Rankings for 2014/15 have just been released and some of the best UK universities have made it into the Top 10. While rank
  • Stock Indicator Suggests Big Move (Lower?) Coming [Dana Lyons]

    We dont talk too often (because we dont use them) about traditional technical analysis indicators. We have nothing against them; its just that we have our own methodologies and processes that work for us. One indicator we do like to keep an eye on is the ADX, or Average Directional Index. It is essentially an indicator of the strength (or lack of strength) of the prevailing trend ove
  • Material improvement $XLB [@NautilusCap]

    Material improvement $XLB
  • One of My Favorite Websites for Trading Systems and Ideas [Jay On The Markets]

    A while back I got over my addiction to Elliott Wave analysis. I finally realized I needed help and joined a five wave, er, step program. But some obsessions still linger. As an admitted "systemaholic" ("Hi, my name is Jay") I am always on the lookout for new ways to make money without thinking. That's actually not quite a fair statement. With a trading system you do your
  • Be Careful How You Play Rising Rates [Flirting with Models]

    Many recent articles discuss rising rates with a focus on how to weather them along with some predictions of when they will occur and how much they will rise. Duration is a common theme among the articles since it quantifies how much a particular bond is likely to lose when rates rise. We've written many blog posts in the past about duration (for instance: this and this), and earlier th
  • The Case Against High Yield [EconomPic]

    Following up on my post The Relationship Between Stocks and Bonds, which outlined why it is probable that stocks will outperform Treasury Bonds over the next 10 years, let's take a look at what appears to be another expensive area of the bond universe… high yield U.S. corporate bonds. High yield bonds: Where's the high yield? As the right-hand chart be
  • Machine Learning in Forex Trading: Why many academics are doing it all wrong [Mechanical Forex]

    Building machine learning strategies that can obtain decent results under live market conditions has always been an important challenge in algorithmic trading. Despite the great amount of interest and the incredible potential rewards, there are still no academic publications that are able to show good machine learning models that can successfully tackle the trading problem in the real m
  • Q&A with Wes Gray on value and momentum part two [Abnormal Returns]

    A recent paper by Cam Harvey and his co-authors on the statistical validity of many so-called finance anomalies has attracted a great deal of attention in quantitative finance crowd. It seemed worthwhile to discuss the implications of the paper with one of our favorite quants, Wes Gray of Alpha Architect and manager of the ValueShares US Quantitative Value ETF ($QVAL) and the ValueShare
  • New Backtesting Platform: Quantler

    Quantler is an online trading system development and analysis platform, that uses templates to (co-)create new algorithms. You can develop your own templates or reuse existing ones. With Quantler, you can test your ideas quick and easy. Entry Entry templates tell us when, where and how we enter the markets. Timing is everything, efficiency is of vital i
  • Equity Ranking Backtest with Python/Pandas [Shifting Sands]

    I have been look at equities a bit of late, I am particularly interested in ranking a universe of equities for low frequency manual trading on a weekly or monthly basis. Every period I would rank each name on a bunch of different factors, then invest in the highest ranked ones for that month. I was initially working in R but the code grew unwieldy, and I want
  • Quantifying Technical Analysis [John Orford]

    I have disavowed myself from technical analysis. Life's too short. Similar to Saruman however, the lure of more power is drawing me perilously close to an ancient and dark evil. To paraphrase Nietzsche, When you take a long gaze into the financial blogosphere, the blogosphere also gazes back into you Prices are used in
  • Dual Momentum May Update [Scott’s Investments]

    Scotts Investments provides a free Dual ETF Momentum spreadsheet which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum. Antonacci has a new book out, Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk. If you want to see how he applies Dual Momentum t
  • [Academic Paper] Improving Neural Networks by Preventing Co-adaptation of Feature Detectors [@Quantivity]

    Improving Neural Networks by Preventing Co-adaptation of Feature Detectors
  • [Academic Paper] DART: Dropouts meet Multiple Additive Regression Trees [@Quantivity]

    DART: Dropouts meet Multiple Additive Regression Trees