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Quantocracy’s Daily Wrap for 12/07/2021

This is a summary of links featured on Quantocracy on Tuesday, 12/07/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • US Market Valuations: Looking down the Abyss! [Nava Capital]

    Value investing is at its core the marriage of a contrarian streak and a calculator. S. Klarman The first principle is that you must not fool yourself, and you are the easier person to fool. R. Feynman In this brief note, our goal is to show readers, as objectively as possible, the current discrepancy between the intrinsic and the current value of the S&P 500. Our conclusion is
  • Stock Market Returns and Volatility [Factor Research]

    Average stock market returns are similar regardless if volatility was high or low However, given skewed returns, it was not attractive investing when volatility was high Unfortunately implementing a strategy to avoid high volatility periods is emotionally challenging INTRODUCTION Active fund managers frequently complain about stock market volatility being too low for their taste and articulate a

Quantocracy’s Daily Wrap for 12/04/2021

This is a summary of links featured on Quantocracy on Saturday, 12/04/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • You Thought P-Hacking was Bad? Let’s talk about “Non-Standard Errors” [Alpha Architect]

    Most readers are familiar with p-hacking and the so-called replication crisis in financial research (see here, here, and here for differing views). Some claim that these research challenges are driven by a desire to find positive results in the data because these results get published, whereas negative results do not get published (the evidence backs these claims). But this research project
  • Book Review: Advanced Portfolio Mgmt – A Quant’s Guide for Fundamental Investors [Gautier Marti]

    Great book, I absolutely recommend. Precise and concise (less than 200 pages). This book will especially be useful to grads or analysts in the early stages of their career. A junior analyst/quant/data scientist who masters the content of this book will definitely be useful in a pod of fundamental discretionary portfolio managers and analysts. This book wont teach you anything about how to
  • Market data, investor surveys, and lab experiments [Alex Chinco]

    An asset-pricing model is a claim about which optimization problem people are solving when they choose their investment portfolios. One way to make such a claim testable is to derive a condition that should hold if people were actually solving this optimization problem. And the standard approach to testing whether an asset-pricing model is correct involves using market data to estimate the key
  • Size, Value, Profitability, and Investment Factors in International Stocks [Alpha Architect]

    The current workhorse asset pricing model is the Fama-French five-factor model (2015), which added the profitability and investment factors to their original (1992) three factors of market beta, size, and valueincreasing the models explanatory power. Nusret Cakici and Adam Zaremba contribute to the factor literature with their May 2021 study, Size, Value, Profitability, and Investment

Quantocracy’s Daily Wrap for 12/02/2021

This is a summary of links featured on Quantocracy on Thursday, 12/02/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • My trading system [Investment Idiocy]

    I realise that I've never actually sat down and described my fully automated futures trading system in all it's detail; despite having runit for around 7.5 years now. That isn't because I want to keep it a secret – far from it! I've blogged or written books about all the various components of the system. Since I've made a fair few changes to my over the last year or so, it

Quantocracy’s Daily Wrap for 12/01/2021

This is a summary of links featured on Quantocracy on Wednesday, 12/01/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Volatilities and Correlations of Cross Rates, a Geometrical Understanding [Quant Dare]

    In this post we will show how the properties of a triangle can be used to intuitively obtain insights about the volatilities and correlations of currency pairs. Once the dominant branch of mathematics, geometry plays now a secondary role. However, its graphical arguments still seem to be better suited for our brains, as they are often easier to understand and to remember. This is the path followed

Quantocracy’s Daily Wrap for 11/29/2021

This is a summary of links featured on Quantocracy on Monday, 11/29/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • A Complete Starter System for New Traders: Trading Multiple Instruments [Raposa Trade]

    Systematically trading a single instrument can be a bit dull. There are times when your chosen stock isnt trending or doing much. So your system just sits there and waitsand waits..and waits. Obviously we dont want to trade just to trade thats a good way to start losing money. But if youre bored, youre probably not going to stick to your system especially if youre
  • Can Prospect Theory Explain the Value and Momentum Factors? [Alpha Architect]

    Traditional finance academics lean towards risk-based models to explain why various return characteristics, such as value and momentum, predict returns. But there is another school of thought often referred to as behavioral finance. This field has some of its own ideas (see below) on why different stock factors might predict returns. Prospect Theory was first introduced by Kahneman and
  • Trading the Inflation Theme [Light Finance]

    While the holiday season has long been regarded as a time of excess, folks this year are bracing for another challenge besides annual waistline expansion: price inflation. As we gather with family and friends for the holidays in coming weeks many are predicting that this years turkey will be the most expensive in the history of the holiday with food prices having risen a remarkable 5.4% yoy.
  • Building a Long-Term Equity Portfolio [Factor Research]

    With a long-term time horizon, investors should consider alternatives to the market-cap weighted equity indices A valuation-based approach for creating an equities portfolio may seem more sensible Using EBITDA / EV yield seems to avoid some of the quality issues of other value metrics INTRODUCTION All the evidence points to active management providing negative alpha and most investors being best

Quantocracy’s Daily Wrap for 11/28/2021

This is a summary of links featured on Quantocracy on Sunday, 11/28/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Should We Never Invest in Individual Stocks? [Alpha Architect]

    Hendrik Bessembinder published a fascinating paper, which finds that nearly all publicly traded stocks in the U.S. if held as buy and hold investments underperform Treasury bills. This finding is incredibly surprising and interesting. Of course, when bold claims are made, they tend to attract a lot of attention. For example, Alpha Architect has covered the fascinating Bessembinder research
  • Action After Strong Friday Selloffs [Quantifiable Edges]

    Todays study is one of several that will be appearing in the Quantifiable Edges Subscriber Letter in a few hours. Quantifiable Edges Black Friday sale has been extended through Cyber-Monday. Act now to take advantage. After Monday its gone. Black Friday was a tough one for the market, with the major indices all closing down over 2%, and the VIX spiking over 10 points to close at 28.62. Big
  • Research Review | 26 November 2021 | Bitcoin and Crypto [Capital Spectator]

    We present a theoretical and empirical methodology that reflects the Cryptocurrency version of VIX, which we name it as CVIX (Crypto VIX), and captures the future 30 days forward Crypto risk (fear). Our framework is built on idiosyncratic and systematic Crypto risk, and is not based on the option implied volatility model, that developed by the CBOE for the S&P Volatility Index VIX. For back
  • How to construct a bond volatility index and extract market information [SR SV]

    Volatility indices, based upon the methodology of the Cboe volatility index (VIX), serve as measures of near-term market uncertainty across asset classes. They are constructed from out-of-the-money put and call premia using variance swap pricing. Volatility indices for fixed income markets are of particular importance, as they allow inferring market expectations about discount factors and credit

Quantocracy’s Daily Wrap for 11/24/2021

This is a summary of links featured on Quantocracy on Wednesday, 11/24/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Live Algo Trading on the Cloud – AWS [Algo Trading 101]

    Table of contents: What does live algorithmic trading on the Cloud mean? What are the pros and cons of deploying your trading strategies to the Cloud? What is the Cloud Service? What is Cloud used for? What cloud providers are good? What are Amazon Web Services (AWS)? Why should I use AWS? Why shouldnt I use AWS? Kraken Bot How to sign up for an AWS server? How to pick a good AWS server
  • Transformers: is attention all we need in finance? Part I [Quant Dare]

    In recent years weve seen an increase in the accuracy of NLP models through the use of Transformers. These models rely on the attention mechanism to identify key features but, how do they work? And most importantly, can we somehow use them in finance? Transformers The transformer is a relatively new network architecture that is solely based on attention mechanisms, dispensing with recurrence
  • The Value of the Value Factor: Cheaper now than a year ago? [Alpha Architect]

    About a year and a half ago, after one of the worst relative drawdowns the value factor has ever seen, I wrote a piece showing the value factor was cheap relative to history. Since then, value strategies are on a solid run (look at pretty much any type of value strategy and I think youd agree). Today? The valuation spread between the cheapest 10% and the universe of stocks is cheaper. We are at
  • A Consolidation After A New $SPY High [Quantifiable Edges]

    The range over the last week has been very tight. Every SPY close in the 5 days since 11/16 has been within the intraday range of that 11/16/21 bar. It is said that consolidations are often resolved in the direction of the trend. This guideline suggests that were more likely to see another leg up from here than a breakdown. The study below tests this concept. It was last seen in the 11/15/19

Quantocracy’s Daily Wrap for 11/22/2021

This is a summary of links featured on Quantocracy on Monday, 11/22/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Enhancing Portfolio Income With the Equity Volatility Premium [Simplify]

    With more than 118 million Americans in or nearing retirement (age 50 or older)[1], income has become a key component for many portfolios. But as asset allocators reach for yield in a low-rate environment, they must be extra mindful of the additional risks they may be accepting. In this blog we demonstrate that the equity volatility premium is a compelling strategic income holding given its
  • Musing about S&P 500 Valuations [Factor Research]

    The valuation of the S&P 500 depends on portfolio construction Analyst EPS projections are likely overly optimistic PEG ratios of other stock markets are more attractive INTRODUCTION Striking a bargain seems to bring joy to all people, regardless of their location and their beliefs. It is almost as if it was genetically coded into us to feel good about having acquired something below its
  • The Quant Cycle – The Time Variation in Factor Returns [Quantpedia]

    Although the factors in asset pricing models offer a premium in the long run, they are undergoing bull and bear market cycles in the short term. One would expect that it is due to their connection to the business cycles as the factor premium represents a reward for bearing the macroeconomic risks. A novel study by Blitz (2021) finds that traditional business cycle indicators cant explain much

Quantocracy’s Daily Wrap for 11/20/2021

This is a summary of links featured on Quantocracy on Saturday, 11/20/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Mr Greedy and the Tale of the Minimum Tracking Error Variance – Part two [Investment Idiocy]

    My last blog post was about a new method for a daily dynamic optimisation of portfolios with limited capital, to allow them to trade large numbers of instruments. (Although I normally write my blog posts to be self contained, you'll definitely have to read the previous one for this to make any sense!) Subsequent to writing that post I implemented the method, and quickly ran into some
  • Community Alpha of @QuantConnect Part 4 [Quantpedia]

    This blog post is the continuation (and finale) of series about Quantconnects AlphaMarket strategies. This part is related to the multi-factor strategies notoriously known from the majority of asset classes. We continue in the examination of factor strategies built on top of social trading strategies, but the investment universe is reduced based on the insights of the last part. So, without
  • Another Look At Thanksgiving Week [Quantifiable Edges]

    The time around Thanksgiving has shown some strong tendencies both bullish and bearish. I have discussed them a number of times over the years. In the updated table below I show SPX performance results based on the day of the week around Thanksgiving. The bottom row is the Monday of Thanksgiving week. The top row is the Monday after Thanksgiving. SPX performance during Thanksgiving week Monday
  • Chasing Low Beta Loses Alpha [Alpha Architect]

    One of the big problems for the first formal asset pricing model developed by financial economists, the CAPM, was that it predicts a positive relationship between risk and return. However, empirical studies have found the actual relationship to be basically flat, or even negative. Over the last 50 years, the most defensive (low-volatility or low-beta, low-risk) stocks have delivered both

Quantocracy’s Daily Wrap for 11/17/2021

This is a summary of links featured on Quantocracy on Wednesday, 11/17/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Diving Deeper: Does the Day of the Month Matter? [Allocate Smartly]

    Most Tactical Asset Allocation (TAA) strategies trade just once a month. Backtests of those strategies usually assume trades are executed on the last trading day of the month. Why? Monthly asset data is often available further back into history than daily data. Assuming trades are executed at month-end allows for longer backtests, showing how the strategy has performed in a wider variety of