Quant Mashup Vix Below Low Redux [Voodoo Markets]Well, Its here, spot Vix close below 10. From what i read from the web, people are piling into short vol strategies on an escalating scale. I suspect unwinding of that trade will be rather brutal. I wish good luck to every short vol trader out there and dont forget to wear a helmet đ 1 2 3 4 5 6 7(...) Iron Condor Results Summary [DTR Trading]Over the last several months I have shared the results from an extensive set of backtests of SPX iron condors (IC). In all, I backtested 600,912 individual SPX IC trades entered at varying days to expiration (DTE) between January 2007 and September 2016. The prior articles can be found at the links(...) Expectations with Tactical Equity [Flirting with Models]Market expectations are a key input in the portfolio construction process. These expectations can be either qualitative or quantitative. How to form expectations for more complex strategies (e.g. managed futures, covered calls, and alternatives) is often less straightforward than forming(...) Trading Strategy: 52-Weeks High Effect in Stocks [Quant Insti]In todayâs algorithmic trading having a trading edge is one of the most critical elements. Itâs plain simple. If you donât have an edge, donât trade! Hence, as a quant, one is always on a look out for good trading ideas. One of the good resources for trading strategies that have been gaining(...) Factor Persistence & Diversification [Larry Swedroe]Financial research has uncovered many relationships between investment factors and security returns. Given that popularity is a curse in investing, the growing popularity of factor investing has led to worries that factors have become overvalued, posing risks to investors in these strategies. For(...) Pseudo-quants [Mathematical Investor]As the old joke says, âmath is what mathematicians do.â Somehow this simple tautology is lost in the dishonest world of finance Quantitative investing: A crisis waiting to happen In a recent WSJ article, Jason Zweig brilliantly summarizes the unbearable hype and hubris exhibited by some(...) âSell in Mayâ Over the Long Run [CXO Advisory]Does the conventional wisdom to âSell in Mayâ (and âBuy in Novemberâ, hence also the term âHalloween Effectâ) work over the long run, perhaps due to biological/psychological effects of seasons (Seasonal Affective Disorder)? To check, we turn to the long run dataset of Robert Shiller.(...) Research Review | 5 May 2017 | Forecasting [Capital Spectator]Credit Spreads, Daily Business Cycle, and Corporate Bond Returns Predictability Alexey Ivashchenko (University of Lausanne) May 4, 2017 The part of credit spread that is not explained by corporate credit risk forecasts future economic activity. I show that the link with aggregate business risk and(...) Wisdom State of Trend Following in April [Wisdom Trading]April 2017 Trend Following: DOWN -1.35% / YTD: -11.65% April was another down month for the Wisdom State of Trend Following, with the index already in double-digit territory, on the negative side, for the year. Below is the full State of Trend Following report as of last month. Performance is(...) Paradox Resolved: Why Risk Decreases Expected Log Return But Not Expected Wealth [EP Chan]I have been troubled by the following paradox in the past few years. If a stock's log returns (i.e. change in log price per unit time) follow a Gaussian distribution, and if its net returns (i.e. percent change in price per unit time) have mean m and standard distribution s, then many finance(...) (Fight) the Fed Model [Alpha Architect]Over the past few years, weâve been asked questions related to the relationship between stock prices and interest rates. Forms of the question typically look like the following: If interest rates rise, what happens to stock prices? What is the relationship between stocks prices and bond yields?(...) What to expect when you are the SPX [Quant Dare]The S&P 500 index (SPX) is an American market index based on the stocks of 500 large companies. Itâs one of the worldâs most important market indexes and, therefore, predicting its movements is the goal of many finance analysts. In previous posts we have reproduced the SPX through clustering(...) ConnorsRSI Strategy: Sensitivity Analysis [Alvarez Quant Trading]In Simple ConnorsRSI Strategy on S&P500 Stocks I showed a ConnorsRSI strategy on S&P500 stocks. In ConnorsRSI Strategy: Optimization Selection, I narrowed down the optimization to three potential variations that one could consider trading. This post will explore Sensitivity Analysis (also(...) Factor Investing in Multi-Asset Portfolios [Flirting with Models]Factor investing (value, momentum, low volatility, carry, trend, etc.) is well-known in equities but less discussed in other asset classes. However, many of these factors are just as prevalent in other asset classes, such as bonds, commodities, and currencies. In this case study, we explore the(...) How to Play US Treasury ETFs in an Era of Rising Rates [Allocate Smartly]In our previous post we demonstrated an approach to modeling US Treasury ETF performance in an era of rising interest rates. We showed results like the ones below, simulating the performance of various constant maturity ETFs from the interest rate peak in 1981 to the present (left half of the(...) Why Tuesdayâs 20-day High Mutes Todayâs Fed Day Potential [Quantifiable Edges]Wednesday is a Fed Day. Fed Days have historically shown an upside tendency. I have documented this tendency in great detail over the years, with the most complete documentation coming in The Quantifiable Edges Guide to Fed Days. Based on what the market did Tuesday, this does not seem to be the(...) Machine Trading from @ChanEP - Book Review [Eran Raviv]In trading and in trading-related research one could be quickly overwhelmed with the sea of ink devoted to trading strategies and the like. It is essential that you âpick your battlesâ so to speak. I recently finished reading Machine Trading, by Ernest Chan. Here is what I think about the book.(...) Swedroe Spotlight: Enhancing Momentum Strategies Via Idiosyncratic Momentum [Alpha Architect]Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. The momentum effect is one of the most pervasive asset pricing anomalies documented in the ďŹnancial literature: Stocks(...) Some reflections on QuantCon 2017 [Investment Idiocy]As you'll know if you've been following any of my numerous social media accounts I spent the weekend in New York at QuantCon, a conference organised by Quantopian who provide a cloud platform for python systematic trading strategy backtesting. Quantopian had kindly invited me to come and(...) What are the Career Paths in Systematic Trading? [Quant Start]This is the first in an exciting series of posts written by Frank Smietana, a new expert guest contributor to QuantStart. In this insightful new article Frank looks at the different career roles that are available in the systematic trading space. - Mike. The changing role of humans in capital(...) Using a Market Timing Rule to Size an Option Position [Relative Value Arbitrage]Position sizing and portfolio allocation have not received much attention in the options trading community. In this post we are going to apply a simple position sizing rule and see how it performs within the context of volatility trading. An option position can be sized by using, for example, a(...) Food for thought: Risk Backtesting? [Quant Bear]As you are reading this blog you are definitely familiar with the concept of backtesting trading strategies, and probably have done so a significant amount of times. But do you also backtest your risk metrics? They are as important of a building block of your portfolios overall performance as the(...) SPX Monthly Returns And Tail Risk [DTR Trading]I had some time yesterday while waiting for an appointment, and re-read "A Comparison of Tail Risk Protection Strategies in the U.S. Market". One particular sentence in the paper caught my attention: "Remarkably, of the 24 months with greater than 5% loss in the S&P 500 between(...) Scenarios for Momentum Investing [Sharpe Returns]In the previous post, we reviewed momentumâs robustness. We looked at how momentum has stood the test of time. We also stress-tested the Global Equities Momentum (GEM) strategy to see whether itâs performance is not overly sensitive to changes in the strategyâs settings (i.e. the 12-month(...) Tactical Asset Allocation in April [Allocate Smartly]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(...) Is VIX Index Manipulated? [Quantpedia]At the settlement time of the VIX Volatility Index, volume spikes on S&P 500 Index (SPX) options, but only in the out-of-the-money options that are used to calculate the VIX, and more so for options with a higher and discontinuous influence on VIX. We investigate alternative explanations of(...) The Capacity of Smart Beta Funds - Larger than Previously Thought? [Alpha Architect]ETFs and factor investing are on the tip of everyoneâs tongue these days. Factor investing is being couched as a ânewâ thing, despite the fact that institutional investors have been deploying these strategies for years. (See this working paper discussing the effective use of smart beta(...) Dual Momentum: A Review [Robot Wealth]I recently read Gary Antonacciâs book Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk, and it was clear to me that this was an important book to share with the Robot Wealth community. It is important not only because it describes a simple approach to exploiting(...) Podcast: How to find trading ideas every single day with Rob Hanna (@QuantEdges) [Better System Trader]I recently received an email asking me where all the trading ideas are. I think every episode provides at least 1 idea of value, but one that stands out in my mind was the chat with Rob Hanna in episode 7. In that episode he share loads of trading ideas. But he also goes one step further and(...) Tactical Asset Allocation and the US 60/40 Benchmark [Alpha Architect]Our firm Allocate Smartly provides independent analysis of Tactical Asset Allocation (TAA) strategies. TAA strategies dynamically allocate to broad asset classes like stock indices, bond indices or gold. Unlike a traditional buy & hold portfolio, TAA is able to increase allocation to assets(...) Creating a VIX Futures Term Structure In R From Official CBOE Settlement Data [QuantStrat TradeR]This post will be detailing a process to create a VIX term structure from freely available CBOE VIX settlement data and a calendar of freely obtainable VIX expiry dates. This has applications for volatility trading strategies. So this post, as has been the usual for quite some time, will not be(...) Vix Blues, Large Close to Close Declines in Vix [Voodoo Markets]This monday, we were witnesses to a rather large decline in Vix. Taking a quick look at how often drops like this happen and how has Vix behaved after large single day drops 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 import pandas as pd import numpy as np import matplotlib.pyplot as plt import(...) The Dividend Growth Myth [Meb Faber]A few weeks ago, I was sipping coffee, thumbing through Barronâs as I do every weekend. Itâs a way in which I keep a pulse on whatâs going on in our space. Though I never consciously pay attention to ads, on that particular morning, one caught my eye â a big full pager from Schwab, below.(...) The best investment strategy in Europe from 2000 to 2014 â data driven [Quant Investing]What investment strategy would have given you the highest returns in Europe over the 13 year period from July 2000 to July 2014? In this article I summarised the masterâs thesis of Andreas Hennes (completed at Goethe University Frankfurt am Main on 14 September 2015) where he set out to test(...) Academic Factor Exposure Versus Fund Factor Exposure [Alpha Architect]Tomorrow Iâll be sitting with Pat OâShaughnessy and Ben Johnson to discuss âStraight Talk About Smart Beta.â Here is a link to the big Morningstar event. In preparation for our discussion we were spitballing ideas and Ben brought up the concept of helping investors understand the(...) Great Academic Finance Research Papers at WFA 2017 [Alpha Architect]There are several big academic finance conferences that attract the best research and the best researchers in one bullpen â the AFA and the WFA meetings. We chatted about the AFA event last January (be sure to check that out). But now it is the WFAâs turn. I attended the WFA a few years back in(...) Why quants don't pick stocks [Flirting with Models]Quant is a broad word with many job descriptions in finance. In asset management, a quant is someone who applies mathematical (usually statistical) techniques to analyzing the securities market, usually with an eye towards identifying investment opportunities. Quants rely on factors: systematic(...) Constrained by capital or why rounding down is bad for you [Quant Bear]Imagine this, you have backtested a strategy adhering to all the âgeneral rulesâ: you did proper in/out of sample testing, you have stable parameters (if the strategy has any), you didnât overfit, you account for transaction costs and slippage, everything seems good and you are ready to deploy(...) "Alternative" Facts about Formulaic Value Investing [Alpha Architect]A new paper, âFacts about Formulaic Value Investing,â is making the rounds and professes to plunge a dagger directly into the heart of systematic value investors. Half of my inbox is filled with questions regarding this paper, since we are considered by some â rightly or wrongly â to be(...) Abnormal Returns Memberships (shout out to the inspiration for Quantocracy) [Abnormal Returns]I am excited to announce that Abnormal Returns now supports memberships. The most common compliment I get about Abnormal Returns is that it saves you time. We all well know that time is money. A great way to help keep Abnormal Returns an ongoing, independent entity is to contribute to its upkeep at(...) K-Means in investment solutions: fact or fiction [Quant Dare]Weâve spoken previously about different clustering methods many times: K-Means, Hierarchical Clustering, and so on. However, this field does not end here. In this post, I will try to find how K-Means clustering works in an investment solution. K-Means Clustering The K-Means algorithm partitions(...) Analysis of Commodity Futures Returns Over the Last Decade [Quantpedia]Long-only commodity futures returns have been very disappointing over the last decade, leading some to wonder if it was a mistake to invest in commodities. The poor performance is the result of poor âincome returnsâ and not of falling commodity prices. This observation may be surprising for many(...) Using the BayesOpt Library to Optimise my Planned Neural Net [Dekalog Blog]Following on from my last post, I have recently been using the BayesOpt library to optimise my planned neural net, and this post is a brief outline, with code, of what I have been doing. My intent was to design a Nonlinear autoregressive exogenous model using my currency strength indicator as the(...) Modelling Treasury ETF Performance in an Era of Rising Rates [Allocate Smartly]US Treasuries and other interest rate sensitive instruments form the backbone of many asset allocation strategies. Investors are justifiably concerned about a future of rising interest rates and the potential impact on those instruments. In this post we model that impact on constant maturity(...) Value and Momentum Investing in Frontier Stock Markets [Alpha Architect]Value and Momentum investing have been studied across many different markets and asset classes (Asness et al 2013) and have shown to be effective factors. A working paper, âFrontier Stock Markets: Local vs Global Factorsâ by Douglas W. Blackburn and Nusret Cakici examines Value and Momentum(...) A Simulation-Based Rebuttal to Research Affiliates (@RA_Insights) [Flirting with Models]Research Affiliates published a new piece of research exploring mutual fund returns over the last 25 years and the implied ability for managers to capture popular factor premiums published by the academic community. They argue that several factors accepted in academia may not be implementable after(...) Swedroe Spotlight: Does Market Sentiment Help Explain Momentum? [Alpha Architect]Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at least for a short period of time. In 1997, Mark Carhart, in his study âOn Persistence in Mutual Fund Performance,â was the first academic to use(...) Parallelized Random Portfolio Generation [Quant Bros]Generate an efficient frontier of random portfolios with custom constraints in R. Accelerate your project with the power of cloud computing using Techila Technologiesâ solution in combination with Râs plyr functions. Source code included. The embedded source code below is available due to the(...) Demystifying Bollinger Bands [Milton FMR]How do we know if a price is right and when do we enter the trade ? Is the S&P 500 Index trading at 2355 for that day to high or to low. Should I buy or sell ? Proponents of the Bollinger Band say that this indicator can greatly improve your odds in being on the right side of the market. The(...) Upcoming Webinar: How to use Mixture Models to Predict Market Bottoms w/ @BlackArbsCEO [Quant Insti]The webinar will explain Mixture Models and explore its application to predict an assetâs return distribution and identify outlier returns that are likely to mean revert. The webinar will cover Why bother? Motivating experimentation with Mixture Models How do Mixture Models work? (An intuitive(...)