As in 2018, Low Volatility produced the best and Value the worst performance Value did not recover significantly further after a short rally in Q3 2019 However, Momentum broke its upward trajectory since then INTRODUCTION We present the performance of five well-known factors on an annual basis for

In 2019, we published 45 research notes (not including video + audio commentary), totaling over 100,000 words. Our research spanned a number of topics, including: ensemble techniques, deep dives on trend following, factor and sector rotation, fixed income analysis, and – of course – rebalance

We are closing 2019 with much gratitude to our clients, collaborators and online visitors. We have launched this blog less than a year ago and have had the pleasure of seeing many visitors from all over the world ranging from buy-side investors, financial advisors, asset owners, thought leaders,

The end of the year is a good time for a short recapitulation. Apart from other things we do (which we will summarize in our next blog in a few days), we have published around 50 short blog posts / recherches of academic papers on this blog during the last year. We want to use this opportunity to

We’ve taken a lot of time reviewing multi-factor allocation techniques within the equity portion of a portfolio here and here. But thus far we have only written on the concept of utilizing a multi-factor investment technique in contrast with traditional asset allocation here. In this post, we are

Liquidity is a critical force behind market price distortions (and related trading opportunities). First, the cost of trading in and out of a contract gives rise to a liquidity premium. Second, the risk that transaction costs will rise when market conditions necessitate trading commands a separate

Google dictionary defines the word robust thusly: sturdy in construction able to withstand or overcome adverse conditions … and offers the following definitions for the word fragile: easily broken or damaged flimsy or insubstantial; easily destroyed not strong or sturdy; delicate and vulnerable

In this post I take a look a popular and quite simple quant strategy that combines value and profitability, the Greenblatt Value Strategy. Results are impressive and the strategy has held up better than most value strategies over the last 10 years. And even more impressive it has even outperformed

Klaus Grobys contributes to the literature on asset pricing models with his October 2019 paper, “Another Look on Choosing Factors: The International Evidence.” Using bootstrap simulations, Grobys examined international markets, specifically the four regions of North America (NA), Europe, Japan

Transaction costs are a major concern for practitioners attempting to implement factors investing strategies identified in academic literature. Naturally, this is a subject that has been covered before here, here, and here, but a new look at transaction costs never hurts. The authors of this paper

Author: Wes Gray. Wes is the CEO/CIO of Alpha Architect. He has published multiple academic papers and four books, including Quantitative Value (Wiley, 2012), DIY Financial Advisor (Wiley, 2015), and Quantitative Momentum (Wiley, 2016). After serving as a Captain in the United States Marine Corps,

Over the last several years, we have written several research notes demonstrating the potential benefits of diversifying “specification risk.” Specification risk occurs when an investment strategy is overly sensitive to the outcome of a single investment process or parameter choice. Adopting an

For the quant community, it was arguably the most awaited book of 2019. Finally a peek behind the curtains into the most successful hedge fund manager in history. The +66% average (gross) returns that Jim Simons and his army of data scientists produced over the last 17 years in their Medallion fund

In 2019 we published more than 50 research notes on mostly factor investing and smart beta ETFs, but also on topics like ESG, activist investors, hedge fund replication, and artificial intelligence. The Research Compendium 2019 contains all of our research published this year. We would like to thank

This post introduces a quant trading model based on volatility. More specifically it uses the prices of volatility futures contracts based on the SP500 to make risk-on and risk-off decisions that can be used to trade various risk-assets. Why Volatility? There is a bunch of research that shows that

Trend-following funds and strategies were once extremely popular after the 2008/2009 crisis. They offered attractive performance, and diversification properties made them a nice addition to investor’s portfolios. Ten years later, “trend-following strategy” is not such a popular word.

Value Bubbles Messaoud Chibane and Samuel Ouzan (Neoma Business School) February 27, 2019 According to several extended behavioral theories, value profits should mirror momentum profits, and vary over time. We test these theories in the cross section of returns. Value returns depend on market

The Current Ratio is a vital metric for understanding a company’s liquidity position as well as its ability to pay its obligations on time. It is defined simply as the company’s total current assets divided by its current liabilities. Current assets are defined as assets that are cash or

Robert Carver worked in the City of London for over a decade. For seven years he was a portfolio manager at AHL — one of the world’s largest systematic hedge funds — before, during and after the global financial meltdown of 2008. In this interview, we talk about many trading topics, mostly

It has been more than a year since my last post, I’ve been super busy with consulting assignments working on algorithmic/electronic trading. The workload is still heavy but I managed to find a few hours to write this post as I came across a new great tool: LOBSTER (and before anyone asks I’ve no

In Part 1 of this article, we reviewed the performance of using a more complex form of simple trend following (i.e. adding a channel breakout rule alongside a simple time-series momentum rule). The simple trend signal (S) used was based on the sign of the trailing 12-month return of the asset. The

This is our third post in our series on “net-nets” having previously analyzed “Benjamin Graham’s Net Current Asset Values: A Performance Update” by Henry R. Oppenheimer and “Graham’s Net-Nets: Outdated or Outstanding?” by James Montier. The focus of this post is the research paper

The Fama French three-factor model provides a powerful tool for assessing exposures to equity risk premia in investment strategies. In this note, we explore alternative specifications of the value (HML) and size (SMB) factors using price-to-earnings, price-to-cash flow, and dividend yield. Running

The outlook for US equity and bond returns is low based on historical data The return assumptions of US public pension funds are difficult to achieve Only an extreme allocation to alternatives would meet the expected rate of return THE GLOBAL PENSION FUND CRISIS Tens of thousands of Dutch workers

I have written many times over the years about the bullish tendency of the market during opex week in December. I’ve even referred to it as “The Most Wonderful Week of the Year”. And it was…up until last year. So below is an updated look at the stats and profit curve for owning SPX from the

This post will be a quickie detailing a rather annoying…finding about the pandas package in Python. For those not in the know, I’ve been taking some Python courses, trying to port my R finance skills into Python, because R seems to have fallen out of favor in the world of finance. (If you know

Price distortions are an important source of short-term trading profits, particularly in turbulent markets. Here price distortions mean apparent price-value gaps that arise from large inefficient flows. An inefficient flow is a transaction that is not motivated by rational risk-return optimization.

ESG Investing (sometimes called Socially Responsible Investing) is becoming a current trend, and its proponents characterize it as a modern, sustainable, and responsible way of investing. Some people love it, others see it as just another fad that will soon be forgotten. We at Quantpedia have

In a previous post, Trend-following vs. Momentum in ETFs, I compared trend-following and momentum to see which produced better results on a basket of ETFs. In the post, I mentioned combining trend-following and momentum into one strategy to see if combined they can beat buy and hold more often.

A large body of evidence demonstrates that investment strategies focused on buying stocks that are cheap relative to measures of fundamental value have achieved higher long-term returns than the broad market. Motivated by such legendary investors as Benjamin Graham, David Dodd, and Walter Schloss,

We’ve already talked about dimensionality reduction long and hard in this blog, usually focusing on PCA. Besides, in my latest post I introduced another way to reduce dimensions based on autoencoders. However, in that time I focused on how to use autoencoders as predictor, while now I’d like to

I have written about Fed Day edges for years. Much of the research can be found in the Fed Study category blog posts. Today I decided to share a chart showing historical performance on Fed Days over the course of the last 5 Fed chairpeople. 2019-12-10 Have a happy Fed Day tomorrow!

In my recent posts on skew and kurtosis I've put together a large number of ideas for possible trading strategies. The next step will be to create and test these ideas out. However I already know from my initial analysis that many of these ideas will probably have poor performance. This leaves

Years ago, I had made it to the final round in an interview for a Senior Delta One/Quantitative Futures position at an HFT firm (unnamed for privacy). Things were going well, I had answered two out of three of those ridiculous questions that are only applicable in Subsaharan Africa or Finance

The monthly US nonfarm payroll (NFP) announcement by the United States Bureau of Labor Statistics (BLS) is one of the most closely watched economic indicators, for economists and investors alike. (When I was teaching a class at a well-known proprietary trading firm, the traders suddenly ran out of

Smart beta ETFs can be compared via a factor score, which relates fees to the factor exposure Value-focused ETFs in the US show a wide range of factor scores Large firms offer more attractive factor scores, but largely due to lower fees INTRODUCTION Beta is like ice cream and comes in many flavors.

My guest today is … me. But rather than interview myself, my co-portfolio manager Nathan Faber joins the podcast to take the reigns. In this episode, we talk all things rebalance timing luck. It’s been an obsession of mine for years and something we believe to be a dramatically misunderstood and

We’ve done a poor job hiding our interest in Trend Following (see Trend, Trend, Trend, is your friend. And swing over to Corey Hoffstein’s site for even more!). So this paper hits on a subject we know and love. The authors of this study (part 1) have one basic objective: determine if the

One of my recent side projects was building an automated trading system for the crypto markets. To be fair, I probably spent more time on this than on my full-time job, so calling it a side project may not be completely accurate. The internet is full of people ready to teach you about trading. Most

Famed quantitative financial mathematician Marcos Lopez de Prado, who was recently featured as Master of the Robots by Bloomberg, testified today (6 December 2019) before the U.S. Congress, together with four other panelists. The topic for the panel, organized by the U.S. House Committee on

The vast range of academically researched equity return anomalies can be condensed into five categories: [1] return momentum, [2] outperformance of high valuation, [3] underperformance of high investment growth, [4] outperformance of high profitability, and [5] outperformance of stocks subject to

Interest rates measure the level of compensation that financial market participants get for lending money. The level of compensation for lending varies over time and is related to several other economic factors. Most important ones are rates set by central banks, inflation rates and underlying

This post is based on the experience I have got while taking part in a very interesting forecasting competition hosted by XTX. Participants were challenged by the task to forecast the future return of a (presumably) Forex asset based on the limit order book (LOB) data. No details of the asset or

This is a summary of the recent performance of a wide range of excellent Tactical Asset Allocation (TAA) strategies, net of transaction costs. These strategies are sourced from books, academic papers, and other publications. While we don’t (yet) include every published TAA model, these strategies

A large body of research demonstrates that “familiarity breeds investment.” For example, a study by Gur Huberman found that shortly after AT&T was broken up and shareholders were given shares in each of what were called the Baby Bells, the residents of each region held a disproportionate

Simulating returns using either the traditional closed-form equations or probabilistic models like Monte Carlo has been the standard practice to match them against empirical observations from stock, bond and other financial time-series data. (See Chan and Ng, 2017 and Lopez de Prado, 2018.) Some of

I tend to be a little skeptical when I see books aimed at retail traders with low amount of trading capital, focusing on leveraged trading on FX, CFDs and the like. The very mention of retail forex trading means that there’s a near certainty that whatever comes next is misinformed at best and a

In a recent article we introduced systematic tactical asset allocation (TAA) as a low-frequency example of quantitative trading strategy. For those who are taking their first steps in systematic trading, are wanting to consider systematic trading in the context of their retirement planning or are

In the last post I described a relatively simply method to incorporate the VIX into the well-known AMA or Adaptive Moving Average framework. The alpha formula requires two separate parameters- a short and a long-term constant which requires greater specification by the user. Ideally the fewer

According to Wikipedia “in finance, a trading strategy is a fixed plan that is designed to achieve a profitable return by going long or short in markets. The main reasons that a properly researched trading strategy helps are its verifiability, quantifiability, consistency, and objectivity. For