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Quantocracy’s Daily Wrap for 03/29/2020

This is a summary of links featured on Quantocracy on Sunday, 03/29/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Mean expectations [OSM]

    Were taking a break from our extended analysis of rebalancing to get back to the other salient parts of portfolio construction. We havent given up on the deep dive into the merits or drawbacks of rebalancing, but we feel we need to move the discussion along to keep the momentum. This should ultimately tie back to rebalancing, but from a different angle. Well now start to examine capital
  • Some Basic Code Housekeeping [Dekalog Blog]

    Since my last post, back in late November last year, I have been doing a few disparate things such as: improving the coding of some functions in R to use the Oanda API to automatically download data using cronjobs coding some Octave functions to plot/visualise the above data more work on Random Vector Functional Link networks trying my hand at some discretionary day trading to take advantage of
  • Corporate Governance, ESG, and Stock Returns around the World [Alpha Architect]

    Figuring out exactly how to score companies on social issues isnt as simple as tossing around a universal ESG Ratio that works for all. Instead, we have to dig into the details and find the nuanced answer to discover which companies are performing and delivering on social issues. This paper takes on the challenge of discovering methods that may work in deciphering ESG performance.
  • The basics of low-risk strategies [SR SV]

    Low-risk investment strategies prefer leveraged low-risk assets over high-risk assets. The measure of risk can be based on price statistics, such as volatility and market correlation, or fundamental features. The rationale for low-risk strategies is that leverage is not available for all investors (but required to increase the weight of low-risk longs) and that many investors pay over the odds for

Quantocracy’s Daily Wrap for 03/26/2020

This is a summary of links featured on Quantocracy on Thursday, 03/26/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Correlations go to One [Alvarez Quant Trading]

    There is a saying: in bear markets correlations go to one. I wanted to see how true that is for both stocks and a basket of ETFs. Now they dont go to exactly one, not that I expected that, but they take some large steps towards one. Definitions When calculating correlation, I am using the daily percentage move of the stock. When I give a date range, the last day of the range is the day
  • Correlation Between the VVIX and VIX indices [Relative Value Arbitrage]

    The VIX index is an important market indicator that everyone is watching. VVIX, on the other hand, receives less attention. In this post, we are going to take a look at the relationship between the VIX and VVIX indices. While the VIX index measures the volatility risks, VVIX measures the volatility-of-volatility risks. Its calculation methodology is similar to the VIXs except that instead of

Quantocracy’s Daily Wrap for 03/25/2020

This is a summary of links featured on Quantocracy on Wednesday, 03/25/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • This Crisis Has Not Been Kind to Tactical ETFs [Allocate Smartly]

    DIY tactical asset allocation (i.e. the types of public strategies that we cover on this site) has been strong through this crisis. Tactical ETFs on the other hand have struggled badly. We track 50+ DIY TAA strategies, allowing us to draw some broad conclusions about TAA as a style. In the graph below we show the YTD performance of the average strategy that we track in orange, versus the 60/40
  • Econometric GDP Models Struggle With Coronavirus Fallout [Capital Spectator]

    The widespread disruption from the coronavirus pandemic is obvious to everyone, but economic nowcasting and forecasting models are only just beginning to reflect the damage to what had been a moderately expanding US economy. Thanks to the lag in economic data, which can arrive with as long as two to three months after the fact, formerly robust methodologies for tracking the US macro trend have

Quantocracy’s Daily Wrap for 03/24/2020

This is a summary of links featured on Quantocracy on Tuesday, 03/24/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • OCR for financial documents (h/t @PyQuantNews) [Nanonets]

    If you have a relative working in the banking industry, ask the person what annoys him/her most about the job. You will surely receive an answer that is related to the task of data entry i.e. the practice of manually entering serial numbers and names from financial documents into the banks database. This can also lead to the following problems: Lapses in Data Entry: Manual data entry would
  • Is There Something Wrong with the Value Premium? [Alpha Architect]

    The dramatic underperformance of the value premium since 2018, among the largest drawdowns in history, has led many to question its existence. It is certainly possible that what economists call a regime change could cause assumptions for why the premium should exist/persist to have changed. For example, if it was purely behavioral-based, the publication of the findings of a premium could
  • YTD Performance of Equity Factors [Quantpedia]

    Actual situation on financial markets changes extremely fast. At the time we are writing this blog post (Monday morning at 23rd of March) we have End-of-Day data to Fridays close (20th of March) and a few hours of trading action from Monday and VIX currently stands over 70. Markets are in turmoil, and there exist very few investors who are unscathed by current global events related to
  • Managing Expectations By Simulating S&P 500 Drawdowns [Capital Spectator]

    The US stock market tumbled again yesterday, falling to a 3-1/2-year low, thanks to expanding coronavirus threat. The economic outlook is grim, at least for the near term, and so the market is attempting to price in this stark change. The result, not surprisingly, is a sobering, rapid fall from grace for stocks, which a bit more than a month ago reached a record high, based on the S&P 500. For

Quantocracy’s Daily Wrap for 03/23/2020

This is a summary of links featured on Quantocracy on Monday, 03/23/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Where Tactical Asset Allocation Stands Now (Monday 03/23) [Allocate Smartly]

    Tactical Asset Allocation (TAA) as a whole continues to weather the fallout well, significantly paring down losses versus a conventional buy & hold portfolio. Individual strategies vary widely. We track 50+ published TAA strategies, allowing us to draw some broad conclusions about TAA as a style. In the table below we show the MTD/YTD returns of these 50+ strategies as of Friday, 03/20: How we
  • What the Trend [Flirting with Models]

    In this research note, we explore the performance of simple trend equity strategies and funds in the recent market rout. We find a significant dispersion in realized performance, with some strategies shifting entirely to cash at the end of February and some remaining entirely invested. We explain why we would expect different strategies to behave differently based upon their model specification.
  • Markov Model – An Introduction [Quant Insti]

    In this post, we will learn about Markov Model and review two of the best known Markov Models namely the Markov Chains, which serves as a basis for understanding the Markov Models and the Hidden Markov Model (HMM) that has been widely studied for multiple purposes in the field of forecasting and particularly in trading. In this post we will try to answer the following questions: What is a Markov
  • Thematic Investing: Thematically Wrong? [Factor Research]

    Thematic investing can be viewed as performance chasing with a narrative A systematic approach to thematic investing would have underperformed the stock market Thematic hedge fund managers have not generated attractive returns PERFORMANCE CHASING WITH A NARRATIVE? Thematic investing is like venture capital for asset managers. For every 10 products launched, most fail to generate interest from

Quantocracy’s Daily Wrap for 03/21/2020

This is a summary of links featured on Quantocracy on Saturday, 03/21/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Calculating a VIX6M Style Index back to 1990 Reveals Some Volatility Trends [Six Figure Investing]

    The Cboes VIX, VIX3Msm (93-day), and VIX6Msm (184-day) indexes enable us to quantify volatility term structures but until now, historical analyses between VIX style indexes have been limited to dates after December 2001 in the case of VIX3M and January 2008 for VIX6M. This post introduces the results of VIX6M style calculations back to 1990 and reviews issues and trends that were revealed. In
  • What we have been reading to stay calm [Two Centuries Investments]

    This crisis is bringing out the best in many people. When the stakes become real, alertness is heightened, thinking is crystallized. Here is an eclectic collection of thought pieces weve enjoyed over the past two weeks. Bin There Done That by Morgan Stanley Ample research shows that most experts do not make great forecasts. BIN Model, where B refers to bias, I to information,
  • Rebalancing history [OSM]

    Our last post on rebalancing struck an equivocal note. We ran a thousand simulations using historical averages across different rebalancing regimes to test whether rebalancing produced better absolute or risk-adjusted returns. The results suggested it did not. But we noted many problems with the testsnamely, unrealistic return distributions and correlation scenarios. We argued that if we used
  • Cuemacro s TCA software is now open sourced [Cuemacro]

    Its a difficult time at present around the world. You obviously dont need me to tell you that. Lets hope that we can conquer the coronavirus soon and we all give thanks for those on the front lines, working in hospitals caring for the sick, those working in supermarkets and all those keeping society going through this difficult period. In the meantime, like most you reading this, Ive
  • How loss aversion increases market volatility and predicts returns [SR SV]

    Loss aversion means that people are more sensitive to losses than to gains. This asymmetry is backed by ample experimental evidence. Loss aversion is not the same as risk aversion, because the aversion is disproportionate towards drawdowns below a threshold. Importantly, loss aversion implies that risk aversion is changing with market prices. This means that the compensation an investor requires

Quantocracy’s Daily Wrap for 03/18/2020

This is a summary of links featured on Quantocracy on Wednesday, 03/18/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Is robustness an ally? [Quant Dare]

    Many investment strategies use the mean like an official parameter. However, this estimator can be considered non-robust, being easily affected by outliers. But if we take a look at almost any financial series, we will notice that outliers may appear more often than we might think. Introduction In this post, we will try to study what happens if we introduce a robust parameter (such as the median)

Quantocracy’s Daily Wrap for 03/17/2020

This is a summary of links featured on Quantocracy on Tuesday, 03/17/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Risk Parity in the Time of COVID [Invest Resolve]

    Consistent with misapprehensions expressed during other recent market crises, there has been a chorus of alarmist speculation about the actions and state of risk-parity strategies during the current crash. We felt it would be helpful to revisit the concept of risk parity and take a snapshot of how a typical global risk parity strategy might have been expected to behave this year. As a quick
  • The Use and Value of Financial Advice for Retirement Planning: Part 1/2 [Alpha Architect]

    What are the Research Questions? Planning for the expenditures needed to fund a successful retirement is one of the most important tasks individuals face, and its not an easy one. In fact, it is pretty common (and smart) for some investors to turn to a professional advisor to help guide them through the several aspects of the retirement planning process. 1 According to Foerster et al. (2017),

Quantocracy’s Daily Wrap for 03/16/2020

This is a summary of links featured on Quantocracy on Monday, 03/16/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Tactical Strategies and The Anatomy of A Bear Market [Invest Resolve]

    The last few weeks have been some of the toughest in recent memory for investors, as we have observed an intense global market selloff that began in late February and continued into early March of 2020 (as of the writing of this report). Equity markets have experienced the steepest losses since 2008, at the depths of the Global Financial Crisis. As fears surrounding the outbreak of the COVID-19
  • Bitcoin in a Time of Financial Crisis [Quantpedia]

    This is the article we had prepared around 1-2 weeks ago (data sample starts in October 2014 and ends on 4th of March 2020). But then coronavirus hit our country (Slovak Republic), and we were doing a lot of crisis management tasks and therefore were not able to publish it on time. Now, after the Bitcoins negative performance between 5th of March and current date, the conclusion of our short
  • Vortex Indicator: Trading Strategy Review & Sensitivity Test [Oxford Capital]

    Developer: Etienne Botes and Douglas Siepman. Source: The Vortex Indicator. Stocks & Commodities, January 2010. Concept: Momentum trading strategy based on Vortex Indicator. Research Goal: Performance verification of momentum signals. Specification: Table 1. Results: Figure 1-2. Trade Setup: Long Setup: Positive Vortex Indicator (+VI) crosses above Negative Vortex Indicator (VI). Short
  • EM Debt: To Hold, or Not To Hold? [Factor Research]

    Hard currency emerging market debt outperformed local currency EM debt since 2013 EM government and corporate debt traded comparably Adding EM debt to a traditional US equity-bond portfolio would have generated only marginal benefits INTRODUCTION Forecasting the short-term outlook for the S&P 500 is like predicting the weather in Scotland. The likelihood of getting it right is not particularly

Quantocracy’s Daily Wrap for 03/15/2020

This is a summary of links featured on Quantocracy on Sunday, 03/15/2020. To see our most recent links, visit the Quant Mashup. Read on readers!

  • Petra on Programming: The Smoothed OBV [Financial Hacker]

    In his article in the S&C April 2020 issue, Vitali Apirine proposed a modified On Balance Volume indicator (OBVM). The hope was that OBVM crossovers and divergences make great trade signals, especially for stock indices. I got the job to put that to the test. The original OBV indicator was invented by Joseph Granville in 1963. It differs from other indicators insofar as it takes trade volume
  • Speeding up your Python code [R Trader]

    I know this topic is addressed on a very regular basis on the web but Im pretty sure sharing my experience will help some finance people. Im currently working on Limit Order Book modeling. This means dealing with fairly big data sets. I have around 1 million observations per stock and per day. So modeling the behavior of the order book just over 10 days is already a decent big data exercise.