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Quantocracy’s Daily Wrap for 11/05/2020

This is a summary of links featured on Quantocracy on Thursday, 11/05/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Deflated Sharpe Ratio (how to avoid been fooled by randomness) [Quant Dare]

    As we test more and more strategies the overall probability of choosing at least one poor strategy grows. So we must be very careful with how many backtests we run. We should always record all of them, to later deflate the Sharpe Ratio accordingly. In this post, we are going to analyze how the Deflated Sharpe Ratio, exposed by Marcos Lpez de Prado and David H. Bailey in this paper, can help us
  • Should Treasury Bills Be The Risk-Free Asset in Asset Pricing Models? [Alpha Architect]

    In virtually all studies on asset pricing and asset pricing models, the one-month Treasury bill is the choice as the risk-free rate. In his study The Risk-Free Asset Implied by the Market: Medium-Term Bonds instead of Short-Term Bills, published in the September 2020 issue of The Journal of Portfolio Management, David Blitz challenged that choice. He began by noting that the choice of the
  • 3 Takeaways from Quantopian Shutting Down [Quant Rocket]

    Quantopian announced that it is shutting down its community platform. This doesnt entirely come as a surprise. Quantopian returned money to investors earlier this year after its investment strategy underperformed. It shut down paper trading in 2019 (having already ended live trading in 2017), then terminated its daily contests in May of this year. Since that time, Quantopian's website has

Quantocracy’s Daily Wrap for 11/03/2020

This is a summary of links featured on Quantocracy on Tuesday, 11/03/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Improving the use of correlations in portfolio optimisation when handcrafting [Investment Idiocy]

    Remember the handcrafting method, which I described in this series of posts? Motivating portfolio construction Methodology Implementing Testing Adjusting portfolio weights for Sharpe Ratios All very nice, all very theoretically grounded, except for one thing: the 'candidate matrices'. Remember, what we do is group our portfolio into subportfolios of 2 or 3 assets, and find some initial

Quantocracy’s Daily Wrap for 11/02/2020

This is a summary of links featured on Quantocracy on Monday, 11/02/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • The Dead versus The Living Stocks [Factor Research]

    Zombie stocks are a diverse group, both from a country and sector perspective Zombie stocks were fundamentally riskier, yet outperformed non-zombie stocks over the last year Oddly, investors need to pay up as they are also more expensive INTRODUCTION Walking through financial centers like London or New York in the spring of this year felt in many ways like being a zombie movie. Shops were boarded
  • What Assumptions Are You Making About Time In Your Trading? [Robot Wealth]

    I recently listened to a podcast about one of the earliest human civilizations the ancient Sumerians. Apparently, our system of minutes, hours, and days has been with us since the time of these ancient people, who developed it based on a simple base-12 counting system: There are three joints in each of the four fingers You can count twelve by tapping each joint in turn with the thumb of the
  • How Do You Think the Global Market Portfolio Has Performed from 1960-2017? [Alpha Architect]

    This paper complements Doeswijk, Lam, and Swinkels 2014 paper, which documents the historical composition of the market portfolio. Doeswijk, Lam, and Swinkel stopped their research in building the market portfolio, but left the work of the market portfolios historical returns undone. In this post, the original authors pick up where they left off and work on finding the returns of the

Quantocracy’s Daily Wrap for 11/01/2020

This is a summary of links featured on Quantocracy on Sunday, 11/01/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • New Site! Stock Market Valuation and the 2020’s in R [Light Finance]

    Ive been thinking about valuations a lot lately. If youve been following the stock market in recent months, then you will doubtlessly be aware that the past 6-months have witnessed a historic 44% rally across global markets. This rally has drawn particular attention because it has been dominated by tech stocks which deftly shrugged of lockdowns and the ensuing recession. The combination of
  • Podcast with Wes Gray of @AlphaArchitect [System Trader Show]

    Wes Gray after serving as a Captain in the United States Marine Corps earned an MBA and a PhD in the finance from the University of Chicago where he studied under Nobel Prize Winner Eugene Fama. He worked as a finance professor at Drexel University. He then found Alpha Architect a research-intensive asset management firm with a focus on high-conviction value and momentum factor exposures. In
  • Scanning Crypto Exchange for Available Cryptocurrency Close Price-Series [Quant at Risk]

    One of the most common problem encountered by all novice researches of the crypto-markets and (algo-)traders is knowing a list of all cryptocurrency pairs being actively traded at specific crypto exchange. This knowledge is a gateway to a vast research over correlations of crypto-assets, looking for arbitrage trading opportunities, targeting exchanges with most liquid assets or lowest spreads,
  • Fundamental trend following [SR SV]

    Fundamental trend following uses moving averages of past fundamental data, such as valuation metrics or economic indicators, to predict future fundamentals, analogously to the conventions in price or return trend following. A recent paper shows that fundamental trend following can be applied to equity earnings and profitability indicators. One approach is to pool fundamental information across a

Quantocracy’s Daily Wrap for 10/31/2020

This is a summary of links featured on Quantocracy on Saturday, 10/31/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Using AWS Timestream for tick data [Cuemacro]

    Whats the most important thing we need to have in order to follow financial markets? Burgers ok, I made that up, the real answer is market data! Whilst there are many other datasets including those drawn from alternative data, which are becoming increasingly important, having a handle on the asset prices is still key. When it comes to daily data, storing it is pretty easy. We can use an SQL
  • Combining Value and Profitability Factors to Improve Performance [Alpha Architect]

    The 1997 publication of Mark Carharts paper On Persistence in Mutual Fund Performance led to the four-factor model, which added momentum to market beta, size, and value, becoming the workhorse model in financereplacing the Fama-French three-factor model. The next major contribution came from Robert Novy-Marx. His 2013 paper The Other Side of Value: The Gross Profitability Premium
  • Momentum Trading Strategies Course [CSS Analytics]

    This post contains affiliate links. An affiliate link means CSSA may receive compensation if you make a purchase through the link, without any extra cost to you. CSSA strives to promote only products and services which provide value to my business and those which I believe could help you, the reader. One of the biggest barriers to creating a quantitative strategy is knowing how to code. The other

Quantocracy’s Daily Wrap for 10/30/2020

This is a summary of links featured on Quantocracy on Friday, 10/30/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Migrating from @Quantopian to QuantConnect [Quant Connect]

    As some may know, on October 29th, Quantopian users received notification the company would be terminating its free community platform on November 14th, leaving users with two weeks to download their code and find another home. We understand this closure has come suddenly, leaving many quants adrift. While we know not all will migrate to Quantconnect, our goal with this post is to let the
  • My Thoughts on Quantopian’s Closing [Robot Wealth]

    I was very sad to learn that Quantopian is shutting down its community services. Quantopians efforts to bring quant finance outside of institutions was a genuine game-changer. The educational content was solid, the tech was excellent, and the QuantCon conferences were professional, well-run, and inclusive in a way that you never see at the finance insider equivalents. Any of us who are

Quantocracy’s Daily Wrap for 10/29/2020

This is a summary of links featured on Quantocracy on Thursday, 10/29/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Trading the US Election Profiting from Known Unknowns [Robot Wealth]

    Youve probably noticed that theres a US election on the horizon. This is an event of known uncertainty: a known unknown in the now immortal language of Donald Rumsfeld. In trading, we sometimes observe marginal pricing inefficiencies around these known unknowns. For example, ahead of stock earnings announcements or significant economic or policy announcements, we tend to find:
  • Slippage and low liquidity stocks [Alvarez Quant Trading]

    Recently, I have been working on a strategy that trades stocks with low dollar turnover. The initial performance was attractive and I was liking the strategy. But there were two issues that I needed to deal with in the backtesting. How much slippage to add to these stocks. The strategy enters and exits on the open and while looking over the trade list, I noticed some trades entered at the low of
  • Dream team: Combining classifiers [Quant Dare]

    When you are in front of a complex classification problem, often the case with financial markets, different approaches may appear while searching for a solution. These systems can estimate the classification and sometimes none of them is better than the rest. In this case, a reasonable choice is to keep them all and then create a final system integrating the pieces. At least we would have a more
  • Best Ways to Use Momentum [Dual Momentum]

    There are many ways to use momentum. Some are better than others. Let us look at some of the best approaches. Stock Momentum In 2018, Dimensional Fund Advisors (DFA) issued a report on the performance of all public momentum funds from June 2003 through 2017. Only one fund had outperformed the Russell 3000 broad market benchmark. That fund was the iShares Edge MSCI USA Momentum Factor ETF (MTUM).

Quantocracy’s Daily Wrap for 10/26/2020

This is a summary of links featured on Quantocracy on Monday, 10/26/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Kernel of error [OSM]

    In our last post, we looked at a rolling average of pairwise correlations for the constituents of XLI, an ETF that tracks the industrials sector of the S&P 500. We found that spikes in the three-month average coincided with declines in the underlying index. There was some graphical evidence of a correlation between the three-month average and forward three-month returns. However, a linear
  • Does Portfolio Timing Based on Volatility Signals Outperform Buy and Hold? [Alpha Architect]

    The popularity of using volatility to inform portfolio strategies has grown as the research tying volatility-managed techniques and improved risk/return portfolio performance has proliferated in the literature. The portfolios examined in the empirical literature generally utilize conservative positions in underlying factors (market, momentum, betting-against-beta, financial distress, size, and so

Quantocracy’s Daily Wrap for 10/25/2020

This is a summary of links featured on Quantocracy on Sunday, 10/25/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Build a Financial Data Database with Python [Python For Finance]

    Hi all, and welcome back to the site I appreciate it has been an unexpectedly long time since I last postedin fact my last post was around this time last year. Hopefully I can get back on the treadmill and churn out some articles at a somewhat faster rate than 1 a year over the next couple of months! Well thats my aim anyway. Ok so this post will be based on how to build and

Quantocracy’s Daily Wrap for 10/22/2020

This is a summary of links featured on Quantocracy on Thursday, 10/22/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Correlation and correlation structure (4) – asymmetric correlations of equity portfolios [Eran Raviv]

    Here I share a refreshing idea from the paper Asymmetric correlations of equity portfolios which was published in the Journal of financial Economics, a top tier journal in this field. The question is how much the observed conditional correlation on the downside (say) differs from the conditional correlation you would expect from a symmetrical distribution. You can find here an explanation
  • Building Factor Portfolios Based with the Lowest Correlations [Alpha Architect]

    The two basic rules of asset allocation are: i) identify assets with positive expected payoffs, and ii) ensure that the assets are not too highly correlated, so that diversification benefits can be harvested. Although the rules are simple, implementation is often complex. Equities have a positive expected return over the long-term as stocks represent risk capital in for-profit companies. Bonds pay