The January barometer is the claim, often mentioned in financial circles, that the performance of the stock market in January is a reliable portend of its performance for the full year — as January goes, so goes the year. The term was first coined by Yale Hirsch in 1972. Many market analysts take

Nothing gets the adrenaline rushing as strong backtesting results of your latest equity trading idea. Often, however, it is a mirage created by a subset of equities, which have performed particularly well or poorly thereby inflating the results beyond what seems reasonable to expect going forward.

This paper suggests an alternative explanation for the recently documented betting against beta anomaly. Given that the equity of a levered firm is equivalent to a call option on firm assets and option returns are non-linearly related to underlying stock returns, linear CAPM-type regressions are

First draft of 'JavaScript for Financial Analysts' Chapter 13. Download all the code here and give it a test run! ~ The central theme of this book has been transforming data in a stateless manner using map and reduce. Data flows through our code until it's in the form we want it to

In this post we will discuss about building a trading strategy using R. Before dwelling into the trading jargons using R let us spend some time understanding what R is. R is an open source. There are more than 4000 add on packages,18000 plus members of LinkedIn’s group and close to 80 R Meetup

Wesley Gray, Jack Vogel and David Foulke preface their 2015 book, DIY Financial Advisor: A Simple Solution to Build and Protect Your Wealth, by stating that: “This book is a synopsis of our research findings developed while serving as a consultant and asset manager for large family offices. …Our

Persistent selling has resulted in an unprecedented stretch of elevated levels of New 52-Week Lows. One of the most noteworthy aspects to the ongoing stock market correction has been the persistence of selling pressure. Unlike declines in recent years, there has been little to no let up, even when

This is a follow up to my RUT Straddle Backtest Results Summary and presents the RUT straddle results in a slightly different format. Basically tabular results in a structure similar to my iron condor and strangle results articles (here, here, and here) ... with each row associated with a strategy

I've just added the ability to estimate forecast scalars to pysystemtrade. So rather than a fixed scalar specified in the config you can let the code estimate a time series of what the scalar should be. If you don't understand what the heck a forecast scalar is, then you might want to read

Suppose that you had the magical ability to foresee turns in the business cycle before they happened. As an investor, what would you do with that ability? Presumably, you would use it to time the stock market. You would sell equities in advance of recessions, and buy them back in advance of

After graduation I moved into a small, empty, apartment in the city. My grandmother, I’ll never forget, told me that moving into a new house is like meeting someone for the first time, you need to pick one room and make it yours, go slowly through the house, be polite and introduce yourself, so

The term ‘curse of dimensionality’ is now standard in advanced statistical courses, and refers to the disproportional increase in data which is needed to allow only slightly more complex models. This is true in high-dimensional settings. Here is an illustration of the ‘Curse of

Larry Williams has been a guest of the podcast before, sharing insights from 50 years of trading in Episode 20. In 1987 he won the World Cup trading championship, turning $10,000 in to over $1.1 million in 12 months. He is a published author, with a long list of best-selling books and has also

World markets have been extremely volatile recently. TASI changed -12.68% in 1-month, -25% in 3-months and -31.73% in 12-months. How do the changes in TASI compare to other GCC stock markets? In this post, I use QQ plots for comparing the log returns distribution of TASI index versus other GCC stock

These are the best quant mashup links for the week ending Saturday, 01/16 as voted by our readers: If you’re going to sin, sin systematically [Flirting with Models] On The Relationship Between the SMA and Momentum [QuantStrat TradeR] Components of a black box, humans vs computers, and HFT w/

Accruals are the non-cash component of earnings. They represent adjustments made to cash flows to generate a profit measure largely unaffected by the timing of receipts and payments of cash. Prior research finds that expected returns increase in firm profitability. However, firms with high accruals

Over the past few months, a number of new CRAN packages have appeared that make it easier for R users to gain access to curated data. Most of these provide interfaces to a RESTful API written by the data publishers while a few just wrap the data set inside the package. Some of the new packages are

Early this week, Rob Hanna at Quantifiable Edges put out some research showing what happens when you get Repeated Hard Selling at Intermediate-Term Lows. The definition he used was: S&P 500 ($SPX) closes down more than 1% for three straight days. Each close is a new 20-day low. The final close

Despite recent stock market carnage, the reaction by the VIX has been a relative yawner. Well, the New Year hangover continues. Another day, another drubbing in the stock market. With indices pushing double digit losses just 8 days into the new year, it certainly seems reasonable to expect some

A reader on my blog (Thanks Kris!) suggested that I explore how much noise is needed to send Genotick off the deep end. You’ll recall from my earlier post on the subject that I was looking for hidden biases that Genotick might have, and explored how it responded to pure and noisy sine waves of

We use industry multiples-based market-to-book decomposition of Rhodes-Kropf, Robinson and Viswanathan (2005) to study the value premium. The market-to-value component drives all of the value strategy return, while the value-to-book component exhibits no return predictability in both portfolio sorts

Happy new year. This post will be a quick one covering the relationship between the simple moving average and time series momentum. The implication is that one can potentially derive better time series momentum indicators than the classical one applied in so many papers. Okay, so the main idea for

If you knew the future price of assets when you are creating a portfolio, it would be the best way to be a millionaire. However, this is difficult if not impossible, so what if you knew what would be the movement of the price? It could be enough to earn money! To predict the trend of the price is

A really interesting paper hit the NBER wires recently. The central argument of the paper is that “rock star” thought leaders dominate a field, but when they die, new thought leaders are able to emerge. In summary, there seems to be a cost and a benefit attached to a powerful intellectual: On

Over the last seven weeks we reviewed the backtest results of 28,840 short options straddles on the Russell 2000 Index (RUT). In this post, I won't discuss how these trades were structured and managed. For background on the setup for the backtests, as well as the nomenclature used in the charts

By far the greatest source of personal consternation as a professional in markets is investors’ obsession with finding the best stocks, or the best stock pickers. The fact that investors pursue this objective at all undermines all meaningful arguments about efficient markets. After all, why on

Algorithmic automated trading or Algorithmic Trading has been at the centre-stage of the trading world for a few years now. The percentage of volumes attributed to this form of trading has been increasing in the past few years. As a result, it has become a highly competitive market that is heavily

Do you know where the risk in your portfolio is coming from? Well, of course, you do. After all, you designed the portfolio and so the asset weights reflect the risk contribution. A 50% weighting in stocks translates into a 50% contribution to risk for the portfolio overall, right? That’s a

Last Monday, we posted a piece regarding what was one of the worst year-opening days ever for stocks. In it, we looked at prior years that saw very weak days to open the year to see what it might mean (if anything) going forward. Well, it must have been some New Year’s Eve party because the

The past year was challenging for investors and particularly difficult for investors in strategies like ours. At Blue Sky our goal is to provide consistent results in any environment, however in 2015 we failed to achieve that goal. Our Dynamic Asset Allocation Strategies strive to do well in bull

Factor-based equity investing has shown remarkable results against passive buy-and-hold strategies. However, our research shows that the magic may have diminished over the years. Equity factor models are used by many successful hedge funds and asset management firms. Their ability to create rather

There is no holy grail investment style that will out-perform in all market environments. Being systematic and disciplined in our use of active strategies is the best way to capture out-performance because we don’t know when the out-performance will happen. Diversifying across several active

Friday marked the 3rd day in a row of hard selling at intermediate-term lows. The study below shows that such hard selling is rare, and has often been met with a strong upside reversal. 2015-01-11 image1 While instances are low, the stats so far appear impressive. I will also note that 7 of the 10

The best quant mashup links for the week ending Saturday, 01/09 as voted by our readers. Exploring mean reversion and cointegration: part 2 [Robot Wealth] Dear Brokers… [Financial Hacker] Quant Strategies: From Idea to Execution in Python [Quant Insti] New Book from Meb Faber: Invest With The

A good discussion not to long ago led me to start a revolution against some data management aspects of my technology stack. Indeed it is one of the areas where the decisions made will impact every project undertaken down the road. Time is one of our most valuable resources and we need to minimize

We’ve been very lucky to have a number of trading champions on the podcast before and this episode we get to talk to another champion trader, Michael Cook, who won the World Cup Trading championships in 2007 (Futures), 2011 (Stocks) and 2014 (Futures). Michael worked in the institutional world for

To start the year with a bang, I have a very special guest on the podcast this week, who I’d like you to meet – his name is, Rishi Narang. Rishi has an impressive background, and has been involved with financial markets for over 20 years now. He originally started out as an analyst at Citibank,

Today marks the sixth day in the row that the S&P 500’s RSI(2) value was under 25.* Since Jan 1 2000, this has happened only 15 times prior to today. So I thought it would be fun to see what the forward return has been after these events. Here’s a handy spreadsheet. I calculated the forward

We show that interest rates drive mispricing at the turn of a tax period as investors face the trade-off between selling a temporarily-depressed stock this period and selling next period at fundamental value, but with tax implications delayed accordingly. We confi rm these patterns in US returns,

From August of 2012 until May of 2015 the night before the US Employment Report was a strong and consistent. Over that time period ES gapped up 76% of the time and the average employment night registered 5.00 ES points. I reported on the hot streak a number of times while it was in progress. But

About two weeks ago I decided to attempt to write a blog series on Pairs trading and statistical arbitrage. What I found is that everyone tends to reference the ADF test but I really don’t see a lot of posts that explain the test in full. As you read about building a pairs trading strategy there

I have been looking at its REST API for OANDA, for potential use with an FX trading system I developed. The API has two streaming endpoints, one for prices and one for account events such as trades opening and stuff like that. Asynchronous IO is always a bit fiddly, and I wanted separate processes

I have been playing around with Genotick some more, the open-source genetic learning trading software by Lukasz Wojtow. One thing that has been puzzling me is that the software seems to do well on certain types of data, but not others. And I’m having trouble identifying what sort of data it’s

I recently gave a presentation on Better System Trader about using stops on a breakout strategy. The research produced results I was not expecting and may be surprising to you. The stops tested are No stops Maximum Loss using ATR (Intraday and End of Day) Maximum Loss using percentage (Intraday)

This is the first destination from our Roadmap where what to post about my technologies screening. This was, and still is an exciting journey and I want to do it in several parts. Feel free to comment this blog or send me a mail with suggestions and I would come over it into the next part. The good

An interesting out of sample test on return drivers in the Vietnamese market from 2006 to 2014. Not surprisingly, value and momentum show some mojo - Liquidity as well…size, not so much. But size only matters if you control your junk, apparently. This is in line with our own research and the

The Fama and French (F&F) factors do not reliably estimate the size and book-to-market effects. Our paper shows that the former has been underestimated in the US market while the latter overestimated. We do so by replacing F&F's independent rankings by the conditional ones introduced by

There are some statistical anomalies in the Chinese stock market, i.e., positive return skewness, anti-leverage effect (positive returns induce higher volatility than negative returns); and reverse volatility asymmetry (contemporaneous return-volatility correlation is positive). In this paper, we

One of the most frequent questions we receive when it comes to tactical strategies is “how do I benchmark this?” Another way of asking this question is, “how else can I get this exposure and what would it cost me?” Strategies that provide downside protection often come with some sort of

Apparently it’s easy to beat the market. Randomly-selected stocks can beat the market, as recently discussed on the Predictive Alpha website. You can even beat the market just by choosing stocks whose names begin with the letters that make up your own name (as discussed in an amusing blog post by