Giving software you wrote access to your or your firm’s cash account is a scary thing. Making a mistake when manually executing a trade is bad enough when it happens (you can take my word for it if you haven’t yet), but when unintended transactions are made by a piece of software in a tight loop

Recent asset allocation articles (tactical or otherwise) that you might have missed: 40 Shades of Tactical Asset Allocation Across Bull And Bear Markets (Earl Adamy) Earl walks readers though his own approach to finding the best TAA strategies using the data available in our members area. We try not

Factor investing promises outperformance at low cost. But to add value in a portfolio, it must deliver positive risk-adjusted returns and with low correlation to existing holdings. Historically, pure factor exposures have earned similar risk-adjusted returns to buying and holding plain vanilla asset

Following ideas, proposals, pushes and comments similar and disimilar to those, for example, in this post Community - What is the direction of backtrader, the last weeks have been used to craft an idea about the potential future of backtrader. It has been named Algotopian and it’s being shared

Here is a link to our podcast on Behind the Markets Wes and Jeremy chat with Katy Kaminski, Visiting Lecturer in Finance at the MIT Sloan School of Management and co-author of the book, “Trend Following with Managed Futures: The Search for Crisis Alpha.” They discuss trend following and managed

As most of you know my last proper job (part time lecturing and occasional consulting gigs do not count) was managing the fixed income portfolio for AHL, a large systematic hedge fund. I had the pleasure of that job from late 2010 until mid 2013. It's fair to say that the main topic of

What are the research questions To most readers, it’s no surprise that our ears perk up a little bit anytime someone attempts to broaden the understanding of the value anomaly. The precise reason why high book to market equities have higher expected returns has been a long-standing debate among

Survivorship bias is one of the most common biases in finance, and it’s easy to fall victim to it. Let’s find out how to remain vigilant and overcome this hurdle. “History is written by the victors”. – Winston Churchill A cognitive bias is a consequence of subjective judgement. When it

We carry out a study to evaluate and compare the relative performance of the distance and mixed copula pairs trading strategies. Using data from the S&P 500 stocks from 1990 to 2015, we find that the mixed copula strategy is able to generate a higher mean excess return than the traditional

This post will cover two aspects: the first will be a function to convert daily returns into a table of monthly returns, complete with drawdowns and annual returns. The second will be an interview I had with David Lincoln (now on youtube) to talk about the events of Feb. 5, 2018, and my philosophy

What are the research questions? Institutional Investors are increasingly allocating to multi-asset strategies (p.17 ) as they seek to access greater diversity, liquidity, and reduced volatility (survey results from Greenwich Associates, 2015). The main research questions of the paper are as

This is an intraday ES strategy that I was testing for a client. The client was not interested in it due to the low frequency of trades, hence I may post it for others to view. It shows how a strategy was proved through stress testing and looking for optimal conditions to apply the strategy. The

See . This research demonstrates a systematic trading strategy development workflow from theory to implementation to testing. It focuses on the concept of using Gaussian Mixture Models as a method for return distribution prediction and then using a simple market timing strategy to take advantage of

The sequential model ranks stocks by factors sequentially Allows investors to prioritise factors and results in concentrated portfolios However, the factor sequence matters and only a few factors can be considered INTRODUCTION In a recent research report we showed how investors can combine factors

Sunday Feb 18th marks the 10th anniversary of the Quantifiable Edges Subscriber Letter. I can hardly believe I have been writing it for 10 years, but it is true. A few highlights and anecdotes from the last 10 years… · When the letter began, there was not even a website – just a blogspot blog

Does history offer a reason to be cautious on the outlook for stocks if inflation and interest rates are rising? Yes, sort of, according to a New York Times article published on Thursday. Hedging just a bit, the Times piece relates that “it’s long been a truism that higher inflation and its

Spx had a rather long streak of low volatility. There is no predictive value or signal here, i just wanted to eyeball & visualize how long the low vol streak lasted and how it compared to other low vol streaks. Here are all the Spx low vol streaks (close to close change > +/-1%) that lasted

One notable bit of evidence that emerged on Wednesday was the fact that it qualified as an IBD Follow Through Day (FTD). I have done a lot of research on FTDs over the years. Much of that research can be found on the blog. Here is a link. 2018-02-15 The failure rate here is substantial no matter how

A popular method for determining if a strategy should be kept trading is trading the equity curve. What this means we apply an indicator, say 200-day moving average, to the equity curve. When the equity curve falls below this value we stop trading. We then continue to paper trade the strategy until

Forecasting the market or the outcome of a gamble is important. Deciding how much to invest or bet based on how confident you are about the prediction is similarly as important. But don’t let the pressure get to you; the Kelly criterion is here to help us make this decision. Betting with the Kelly

This paper examines price overreactions in the case of the following cryptocurrencies: BitCoin, LiteCoin, Ripple and Dash. A number of parametric (t-test, ANOVA, regression analysis with dummy variables) and non-parametric (Mann–Whitney U test) tests confirm the presence of price patterns after

Dollar-cost averaging (DCA) versus lump sum investing (LSI) is often a difficult decision fraught with emotion. The historical and theoretical evidence contradicts the notion that DCA leads to better results from a return perspective, and only some measures of risk point to benefits in DCA. Rather

Intra versus cross-sector Value portfolios share the major trends Neutralising the sector exposure increases the risk-return ratio of the Value factor However, the benefits are marginal and come with higher operational complexity INTRODUCTION 2018 started almost identical to 2017 in terms of factor

The sizable gap up, pullback, and then move back higher on Friday triggered an old Quantifinder study for the 1st time in a long time. Below is the full list of trades with a 5-day holding period. 2018-02-11 All 8 instances saw run-ups of at least 1%, and they all closed positive. While instances

What are the research questions? This research focuses on the relationship between the frequency of unexpected short selling behavior and abnormal returns surrounding credit watch and rating change announcements in the equity market. It is notable that it employs a unique database that affords the

Traditional capital structure theory in frictionless and efficient markets predicts that reducing banks’ leverage reduces the risk and cost of equity but does not change the overall weighted average cost of capital (and thus the rates for borrowers). We test these two predictions. We confirm that

I have discussed some lately that the market is acting outside of historical norms. Thursday’s action reinforced that. The pullback has come so fast and been so extreme that it is going beyond even many of the most extreme moves in similar situations. For instance, I looked back to 1960 with the

Similar to some better-known factors like size and value, time-series momentum is a factor which has historically demonstrated above-average excess returns. Time-series momentum, also called trend momentum or trend-following, is measured by a portfolio which is long assets which have had recent

Short-term reversals, including intraday and monthly reversals, are well-known in academic literature and are observable in the markets every day. This phenomenon persists across many different asset classes, especially stocks. There are many theories to explain this phenomenon. Some say the

The recent plunge in the US stock market ended the extended run of tranquility in equity returns. The media’s metric of choice to cite this change is the CBOE Volatility Index, or VIX, which surged earlier this week to the highest level in nearly three years, based on daily data. The upward

Thought you knew everything about correlation? Think there’s no fooling you with the question of correlation with financial prices or returns? Well maybe, just maybe, this post will enlighten you. Correlation: the debate is on Correlation can be a controversial topic. Things can go awry when two

How can machine investors beat humans? In the introductory chapter of his January 2018 book entitled “Financial Machine Learning as a Distinct Subject”, Marcos Lopez de Prado prescribes success factors for machine learning as applied to finance. He intends that the book: (1) bridge the divide

This is the fourth in a multi-part series in which we explore and compare various deep learning tools and techniques for market forecasting using Keras and TensorFlow. In Part 1, we introduced Keras and discussed some of the major obstacles to using deep learning techniques in trading systems,

What are the research questions? Despite Peter Bernstein’s suggestion in 2003 that adherence to a fixed and undiversified policy portfolio is dangerous, benchmarks ( the most used of which is the 60/40) are as popular today as they were 15 years ago. The authors study the following research

The State of Trend Following index starts the year with a strong performance to bounce back from the 2017 lows. Please check below for more details. Detailed Results The figures for the month are: January return: 7.25% YTD return: 7.25% Below is the chart displaying individual system results

The 4.1% plunge in the S&P 500 yesterday looks ominous, all the more so since it follows last week’s hefty 3.8% decline. But focusing on what just happened distorts our capacity to maintain a healthy sense of historical perspective. As an antidote, let’s step back and consider the latest

Technology moves at a startling speed and it has been the same case in the algorithmic and quantitative trading domain. Traders around the world are making use of Machine Learning, Artificial Intelligence, Blockchain, Neural Networks, Deep Learning and similar techniques to execute their trades. One

SUMMARY Some factors show structural sector exposure while others rotate sectors frequently Sector concentrations explain factor performance and may represent concentration risks Value is currently long Financials, Low Volatility is short Health Care, and Growth is short Energy INTRODUCTION Despite

January 2018 Trend Following: UP +6.94% / YTD: +6.94% Below is the full State of Trend Following report as of last month, opening the year with a strong performance in January. Performance is hypothetical. Chart for January: WSTF 201801 Index And the 12-month chart: WSTF 201801 Index 12months Below

Welcome! If you enjoy these posts, please follow this blog via email and check out my Twitter feed located on the sidebar. All of my previous analysis has focused on US equities, but today we begin the journey into another asset class, futures. Futures are traded via contracts where two parties

We believe that capital efficiency should remain a paramount objective for investors. The prudent use of leverage can help investors employ more risk efficient portfolios without necessarily sacrificing potential returns. Many investors, however, do not have access to leverage (be it via borrowing

How bad was last week’s rout in US equities? The slide is the biggest weekly drop for the S&P 500 Index in over two years. But that’s not saying much, given how calm the upside bias for the equity trend has been lately. Perhaps the bigger surprise is that we’ve gone so long without a

A couple of weeks ago I did a little study that looked at performance following the induction of a new Fed Chairman. With Jerome Powell starting his new job on Monday, I decided to expand on that study below. 2018-02-04 Obviously it appears to be a bit of a mixed bag. The most positive results came

Investors can directly access factor returns via ETFs in the US & futures in Europe However, neither of these come without some investor concerns Realised returns differ substantially from theoretical returns INTRODUCTION Despite factor investing having gained immense popularity in recent years,

Markets have started the month weak. We got spoiled last year. After such an abnormally long period of market calm, it’s natural for investors to feel a little anxious. We have no opinion on where the markets go from here. That’s why we’re quantitative traders. We put a lot of time into

On paper, momentum is one of the most compelling factors: simulated portfolios based on momentum add remarkable value, in most time periods and in most asset classes, all over the world. So, our title may seem unduly provocative. However, live results for mutual funds that take on a momentum factor

Order flow is signed trade size, and it has long been known to be predictive of future price changes. (See Lyons, 2001, or Chan, 2017.) The problem, however, is that it is often quite difficult or expensive to obtain such data, whether historical or live. This is especially true for foreign exchange

Momentum-based investing strategies may be one of the most reliable drivers of alpha, but like all sources of excess return this factor premium waxes and wanes through time. Accordingly, deciding when to exit the trade (or reduce exposure to it) is no less critical than determining when to jump on

Smart beta (or factor investing) seems to be the product du jour in ETFs. There are so many different factor products available that just about every fund company seems to offer them…even Vanguard is launching their own suite of factor-based stock funds. Note that nearly all of these products are

This is a summary of the recent performance of a wide range of excellent tactical asset allocation strategies. These strategies are sourced from books, academic papers, and other publications. While we don’t (yet) include every published TAA model, these strategies are broadly representative of