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Quantocracy’s Daily Wrap for 02/16/2021

This is a summary of links featured on Quantocracy on Tuesday, 02/16/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The coastline paradox and the fractal dimension of markets [Philipp Kahler]

    Coastlines are fractal curves. When you zoom in, you will see similar shaped curves on every scale. The same is true for market data. On a naked chart you can hardly tell if it is a daily or hourly chart. This article will explore this feature of crinkly curves and show how much markets and coastlines have in common. The coastline paradox When trying to measure the length of the British coastline
  • ESG Factors and Traditional Factors [Alpha Architect]

    Environmental, Social, and Governance (ESG) investing has become a priority for a lot of investors. We have previously written on ESG being combined with factor investing here and here. However, if one chooses to ignore our previous musings on the subject and only pursue ESG, how would that decision impact the overall factor exposure of the portfolio? In this paper, the authors address the

Quantocracy’s Daily Wrap for 02/15/2021

This is a summary of links featured on Quantocracy on Monday, 02/15/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Advanced Pairs Trading Lecture Videos [Hudson and Thames]

    ArbitrageLab is a python library filled with algorithms from the best academic journals and graduate-level textbooks, which focuses on the branch of statistical arbitrage known as pairs trading. This playlist is a series of lecture videos that explore advanced topics and highlight how your team can compete with the worlds best hedge funds! The Distance Approach Presentation Slides From at least
  • Do ETFs Adversely Affect Market Quality? Nope. [Alpha Architect]

    Editors note: Seeing how the results may have shifted since the ARK phenomenon would be a great robustness test for this paper. ETFs are growing at a rapid pace and becoming a significant contributor to intraday activity (and we are only making the problem worse!). Naturally, some will begin to wonder how the ETF innovation impacts trading in the underlying securities that ETFs own.
  • Research Review | 12 February 2021 | Equity Factor Risk [Capital Spectator]

    Why Are High Exposures to Factor Betas Unlikely to Deliver Anticipated Returns? Chris Brightman (Research Affiliates) et al. January 11, 2021 By choosing investment strategies that intentionally create exposure to factor betas, investors may be obtaining uncompensated risks. We show across a wide variety of factors and geographical markets that factors constructed from fundamental characteristics

Quantocracy’s Daily Wrap for 02/10/2021

This is a summary of links featured on Quantocracy on Wednesday, 02/10/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Three types of systematic strategies that “work” [Robot Wealth]

    Broadly, there are three types of systematic trading strategy that can work. In order of increasing turnover they are: Risk premia harvesting Economically-sensible, statistically-quantifiable slow-converging inefficiencies Trading fast-converging supply/demand imbalances This post provides an overview of each. 1. Risk Premia Harvesting Risk Premia Harvesting is typically the domain of wealth
  • Second chances with momentum [Quant Dare]

    A couple of days ago we were seeing in the news the story about GameStop, and how small investors made some hedge funds abandon their short-selling positions after some big losses. After reading the article I couldnt resist thinking about short-selling strategies and their performance in the stock market. In todays post, and hoping to find an answer, we will try to evaluate the impact of
  • Persistent Moves To New Highs Rarely End Abruptly [Quantifiable Edges]

    I have not posted many price-action studies to the blog lately, so I thought I would share this one from last nights subscriber letter. A theme I have seen many times over the years is that persistent uptrends dont often end abruptly. The study below is an example of this. It considers what happens after the market moves up at least 5 days in a row to a 50-day high, and then pulls back. $SPX

Quantocracy’s Daily Wrap for 02/09/2021

This is a summary of links featured on Quantocracy on Tuesday, 02/09/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Trading with the ISEE Sentiment Index? [Qusma]

    The ISEE sentiment index is the ratio of opening long call options to opening long short options. The idea is that the greater the ratio of calls, the more bullish the sentiment, and that this is a more reliable indicator (compared to other sentiment indices) because its based on actual trades as opposed to surveys. Compared to the AAII sentiment numbers it also has the enormous advantage of
  • Will the Real Value Factor Funds Please Stand Up? [Alpha Architect]

    If youre a value investor who has determined that you have better things to do with your time, at some point you may have decided to outsource the investment task to a fund manager. And if you read our blog (especially this post) youre probably looking to oursource to a systematic process versus a discretionary one. The first step in your due diligence process is easy: ask your smart friends

Quantocracy’s Daily Wrap for 02/08/2021

This is a summary of links featured on Quantocracy on Monday, 02/08/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Risk-constrained optimization [OSM]

    Our last post parsed portfolio optimization outputs and examined some of the nuances around the efficient frontier. We noted that when you start building portfolios with a large number of assets, brute force simulation can miss the optimal weighting scheme for a given return or risk profile. While optimization finds those weights (it should!), the output can lead to infinitesimal contributions
  • Contagion and self-fulfilling dynamics [SR SV]

    Contagion and self-fulfilling feedback loops are propagation mechanisms at the heart of systemic financial crises. Contagion refers to the deterioration of fundamentals through the financial network, often through a cascade of insolvencies. A critical factor is the similarity of assets held by financial institutions. The commonality of assets erases some of the benefits of diversification because

Quantocracy’s Daily Wrap for 02/05/2021

This is a summary of links featured on Quantocracy on Friday, 02/05/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Copula for Pairs Trading: Sampling and Fitting to Data [Hudson and Thames]

    This is the second article of the copula-based statistical arbitrage series. You can read the first article: Copula for Pairs Trading: A Detailed, But Practical Introduction. Overview Whether it is for pairs trading or risk management, two natural questions to ask before putting copula for use are: How to draw samples from a copula? How should one fit a copula to data? The necessity of fitting is
  • Improving time series animations in matplotlib (from 2D to 3D) [Quant Dare]

    Animating time series is a very powerful tool to show evolution over time, but matplotlib default animations are boring and they are not well suited for comparison purposes. Along this blog, animations are widely used: from explaining how neural networks train, to showing synthetic time-series statistics or indicating which funds are selected by the low volatility anomaly. Imagine that you want to
  • Heatmap Plot of Forex Temporal Clustering of Turning Points [Dekalog Blog]

    Following up on my previous post, below is the chart of the temporal turning points that I have come up with. This particular example happens to be 10 minute candlesticks over the last two days of the GBP_USD forex pair. The details I have given about various turning points over the course of my last few posts have been based on identifying the "ix" centre value of turning point
  • Do Security Analysts Follow the Academic Evidence? [Alpha Architect]

    As my co-author Andrew Berkin and I explain in our new book Your Complete Guide to Factor-Based Investing, there is considerable evidence of cross-sectional return predictability. Citing more than 100 academic papers, we presented evidence of predictability for both equity and bond factors. And since the research is well known, one would think that sophisticated professional investors would

Quantocracy’s Daily Wrap for 02/02/2021

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

  • When a correlation matrix is not a correlation matrix and what can be done about it [Portfolio Optimizer]

    Estimating how individual assets are moving together is an important part of many financial applications1 and the most commonly used measure for this is the Pearson correlation. Unfortunately, for a variety of reasons, what sometimes appears to be a correlation matrix is actually not a valid correlation matrix, which might prevent algorithms using such a matrix in input from providing meaningful
  • Understanding Variance Explained in PCA – Matrix Approximation [Eran Raviv]

    Principal component analysis (PCA from here on) is performed via linear algebra functions called eigen decomposition or singular value decomposition. Since you are actually reading this, you may well have used PCA in the past, at school or where you work. There is a strong link between PCA and the usual least squares regression (previous posts here and here). More recently I explained what does
  • The failure of anomaly indicators in finance [Mathematical Investor]

    Recent public reports have underscored a crisis of replicability in numerous fields of science: In 2012, Amgen researchers reported that they were able to replicate fewer than 10 of 53 cancer studies. In March 2014, physicists announced with fanfare that they had detected evidence of gravitational waves from the inflation epoch of the big bang. However, other researchers were unable to

Quantocracy’s Daily Wrap for 02/01/2021

This is a summary of links featured on Quantocracy on Monday, 02/01/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • So you want to be a quant/systematic trader? [Investment Idiocy]

    One of the upsides of having a (very, very minor) public profile is that you get a lot of people asking you for advice, which is flattering (and if you say otherwise, you need to consider just how first world that particular 'problem' is). The only downside of this is you get asked the same sort of question a number of different times. At some point it becomes worth writing a blog
  • Myth-Busting: Low Rates Don’t Justify High Valuations [Factor Research]

    High equity valuations are frequently justified by low interest rates There is no long-term evidence in the US to support this theory P/E ratios in Japan and Europe have remained low, despite zero or negative yields INTRODUCTION One of the more peculiar transactions I worked on as an investment banker at Citigroup was the initial public offering (IPO) of a Kuwaiti property company. This was during
  • Hot Topic: Does Gamma Hedging Actually Affect Stock Prices? [Alpha Architect]

    More and more evidence seems to suggest that social Media impacts daily momentum and volatility. Some hedge funds that were short GME the past couple of months should have read these blog posts. In a similar vein, there is plenty of twitter chatter on the topic and anecdotal evidence that during the last week of February 2020 ( when the US market crashed more than 10%), market volatility was

Quantocracy’s Daily Wrap for 01/31/2021

This is a summary of links featured on Quantocracy on Sunday, 01/31/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Parsing portfolio optimization [OSM]

    Our last few posts on risk factor models havent discussed how we might use such a model in the portfolio optimization process. Indeed, although weve touched on mean-variance optimization, efficient frontiers, and maximum Sharpe ratios in this portfolio series, we havent discussed portfolio optimization and its outputs in great detail. If we mean to discuss ways to limit our exposure to
  • Are there sources of free data for markets? [Cuemacro]

    So wheres the best place to get a burger? I get asked that a lot. Ill try to give my best answer, but if you live in a place I havent visited, Ill probably draw a blank. Yes, you can read reviews, but the only real way to tell if a burger joint is good, is to try it. Everyone has their own different taste, some prefer greasier burgers, others prefer lots of cheese on a burger etc. When
  • Probing Price Momentum of Bitcoin during its Bull Runs with a Piecewise Linear Model [Quant At Risk]

    In 2020 Bitcoin delivered us another spectacular bull run. It was as impressive as the one we witnessed in 2017. The analysis of Bitcoin price time-series during its bull runs can uncover interesting results. By comparing a selected set of characteristics we could find some commonalities in trading. In todays learning note we will have a look at the most recent Bitcoins bull run and fit its
  • Temporal Clustering Times on Forex Majors Pairs [Dekalog Blog]

    In the following code box there are the results from the temporal clustering routine of my last few posts on the four forex majors pairs of EUR_USD, GBP_USD, USD_CHF and USD_JPY. This is based on 10 minute bars over the last year or so. Readers should read my last few previous posts for background. The first set of results, EUR_USD, are what the charts of my previous posts were based on and

Quantocracy’s Daily Wrap for 01/30/2021

This is a summary of links featured on Quantocracy on Saturday, 01/30/2021. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Trend Persistence Indicator [Financial Hacker]

    Financial markets are not stationary: price curves can swing all the time between trending, mean reverting, or entire randomness. Without a filter for detecting trend regime, any trend following strategy will bite the dust sooner or later. In Stocks & Commodities February 2021, Richard Poster proposed a trend persistence indicator for avoiding unprofitable market periods. The TPR indicator