Quant Mashup Factor Investing: Buyer Beware [Dual Momentum]A highlight of the 2016 Morningstar ETF Conference was the keynote address by the former leader of U.S. Navy Seal Team Six, Rob O’Neill. Chief O’Neill shared some stories about his training and operations as an elite Navy Seal. The take away lessons from his talk were the importance of(...) A Persistent Kind Of Momentum [Larry Swedroe]Time-series momentum examines the trend of an asset with respect to its own past performance. This is very different than cross-sectional momentum (often referred to as Carhart momentum), which compares the performance of an asset with respect to the performance of another asset. Ian D’Souza,(...) Loading and Manipulating Historical Data From .csv Files [Dekalog Blog]In my last post I said I was going to look at data wrangling my data, and this post outlines what I have done since then. My problem was that I have numerous csv files containing historical data with different date formats and frequency, e.g. tick level and hourly and daily OHLC, and in the past I(...) Algorithmic Trading Strategies: Paradigms and Modelling Ideas [Quant Insti]‘Looks can be deceiving,’ a wise person once said. The phrase holds true for Algorithmic Trading Strategies. The term Algorithmic trading strategies might sound very fancy or too complicated. However, the concept is very simple to understand, once the basics are clear. In this article, I will be(...) Value investing is quite possibly the worst idea...EVER [Alpha Architect]We believe deeply in the value philosophy as first described by Ben Graham: view stocks as ownership in a firm; buy with a margin of safety; avoid stories; think independently; and so forth. In fact, I was so intellectually stimulated by value investing I wrote my dissertation on the subject,(...) The Expensive Lesson of Closet Indexing: Avoid Low Active Share and High Expenses [Alpha Architect]The promise of active investing is compelling: the opportunity to earn higher risk-adjusted returns! And paying a fee to an active manager–who is doing something unique–can make sense. And as we know, the only way to beat a benchmark is by being different from the benchmark, as we discuss here.(...) Carry Trade Returns and Political Risks [Quantpedia]This paper elucidates the channels through which sovereign risk, exchange rates and currency risk premia are related. I show that the channels are different depending on whether a country is classified as emerging or an advanced economy. Generally, for emerging market economies, local sovereign risk(...) Sharp Decline in VXO and the New Market Environment [Quantifiable Edges]Yesterday I showed a VIX-related study that suggested it was so stretched to the upside that the market was likely to get a quick bounce. And we certainly got one on Monday. The VIX is a measure of options pricing and is often referred to as a “fear index”. It saw a 13% drop on Monday.(...) Optimizing for Anxiety [Flirting with Models]When carried through a traditional mean-variance optimization process, J.P. Morgan’s capital market assumptions imply a significant overweight to satellite bonds. Investors can suffer from behavioral biases – particularly around reference points – that can make normative optimal portfolios(...) Ask Me Anything Video [Alvarez Quant Trading]In this short five minute video I will answer the following questions: I am interested in knowing a little bit more about your own trading. What types of strategies are you trading? Why do you not manage outside money? What are the trading books you recommend? Do you have a trading or AmiBroker or(...) Applications of Graph Theory In Finance [Jonathan Kinlay]Very large datasets – comprising voluminous numbers of symbols – present challenges for the analyst, not least of which is the difficulty of visualizing relationships between the individual component assets. Absent the visual clues that are often highlighted by graphical images, it is easy for(...) Trend Following after Drawdowns [Wisdom Trading]Historical Performance of Trend Following Post-Drawdown August marked a local low for our Trend Following index, reaching about two thirds of the max historical drawdown. We were commenting on the fact that, historically, drawdowns have typically proved a good time to invest or start trading a trend(...) What The VIX Spike Is Suggesting For The Next Few Days [Quantifiable Edges]Friday’s big drop was accompanied by a big spike in options prices as measured by the VIX. The VIX rose so sharply that it closed Friday 32% above its 10-day moving average. The study below examines stretches of 25% or more, and how the SPX has performed in the following days. Hidden Markov Models - An Introduction [Quant Start]A consistent challenge for quantitative traders is the frequent behaviour modification of financial markets, often abruptly, due to changing periods of government policy, regulatory environment and other macroeconomic effects. Such periods are known colloquially as "market regimes" and(...) The Coppock Curve Applied to Global Markets [Meb Faber]I get most of my quant research done while trying to avoid other less interesting work. So I was curious when I saw my friend John Hussman writing about an obscure technical indicator called the Coppock Curve. I filed it away as “interesting”, sent it to the Idea Farm list, then moved on. But(...) Quantopian Trading Strategy Series: Reversal during Earnings Announcements [Quantpedia]We are really excited that Quantopian & Quantpedia Trading Strategy Series continues with a second article focused on Reversal Effect during Earning Announcements (Strategy #307). Click on a "View Notebook" button to read a complete analysis:(...) David Varadi's Percentile Channels [Allocate Smartly]This is a test of a tactical asset allocation strategy from David Varadi of CSS Analytics. I’ve been a long-time fan of David’s work. David always devises unique approaches to trading, swimming just outside the mainstream. This strategy is a good example of that. The strategy is notable for its(...) Reviewing Bear-Market-Risk Signals Over The Past Year [Capital Spectator]A year ago, bear-market risk looked elevated for the US stock market, based on a Hidden Markov model (HMM). The warning, which was discussed on these pages at the time (see here, for instance), has had a mixed record. Although stocks swooned in late-2015 and early 2016, the growling was relatively(...) The Discipline of Value Investing [Investing Research]Value has a long history as an investing style, backed up by empirical evidence that portfolios of the cheapest stocks outperform the broad market. The strategy behind value investing is simple: buy stocks with a low price relative to their current financial metrics like earnings, EBITDA or cash(...) Tracking the Performance of Tactical Strategies [CSS Analytics]There is a cool new website that tracks the performance of well-known tactical strategies. AllocateSmartly has collected an extensive list of strategies from well-known hedge fund managers like Ray Dalio along with several other portfolio managers and financial bloggers. The backtests for these(...) Have You Stress-Tested Your Portfolio Strategy? [Capital Spectator]The world is awash with backtests that lay claim to new portfolio techniques that provide superior results for managing risk, juicing return, or both. What’s often missing is a robust stress test to confirm that the good news is more than a statistical anomaly. Crunching the numbers on a single(...) Intro to Possible New Book [Factor Wave]Quantitative Trading for Non-Quantitative Traders This title might seem like a contradiction. You might think that non-quantitative traders are incapable of quantitative trading. This isn’t true. They might not be able to discover quantitative insights or read scholarly papers but they can(...) How difficult is it to design a stock fund based on backtests? [Mathematical Investor]Over USD$2 trillion is held in exchange-traded equity funds, just in the U.S., with hundreds of new funds added each year. Strategies vary from simple index-tracking funds to funds that follow sophisticated strategies (e.g., “smart beta”) designed to yield impressive results, based on backtests.(...) Trend Following Works Weakest After Crises [Larry Swedroe]Time-series momentum examines the trend of an asset with respect to its own past performance. This is different than cross-sectional momentum (often referred to as Carhart momentum), which compares the performance of an asset with respect to the performance of another asset. Research into(...) Is momentum investing dead? Or is it just painful? [Alpha Architect]Sometimes even the best evidence-based active investment strategies can create a formidable challenge to investors seeking to exploit them. Case in point — momentum investing. On the one hand, stock-selection momentum strategies (here is a link to more information) can have the potential to(...) Strategy Up/Down Capture [Alvarez Quant Trading]A reader sent this interesting link about Up/Down Capture. The great part about this article it is something I have intuitively known about my trading strategies but never tried to quantify. This was the bump I needed to investigate this concept. When the SPY moves up on average how much does my(...) J.P. Morgan Outlook Implies Satellite Bonds Are King [Flirting with Models]It is common for large asset management firms to publish their capital market assumptions: long-term global asset expected return and covariance assumptions. Yet many firms do not draw the link between what published capital market assumptions say and what they mean when carried through the(...) How a Low VIX Can Remain an Expensive Hedge [EconomPic]One of my favorite Twitter follows @LadyFOHF shared the below scatter chart from Morgan Stanley that attempted to map areas of the global market that were both cheap (valuation ranks at the lower end of its 10-year history) and defensive (a low or negative correlation to global equities). One of the(...) Systematic risk management [Investment Idiocy]As the casual reader of this blog (or my book) will be aware, I like to delegate my trading to systems, since humans aren't very good at it (well, I'm not). This is quite a popular thing to do; many systematic investment funds are out there competing for your money; from simple passive(...) How to Learn Advanced Mathematics Without Heading to University - Part 3 [Quant Start]In the first and second articles in the series we looked at the courses that are taken in the first half of a four-year undergraduate mathematics degree - and how to learn these modules on your own. In the first year we discussed the basics - Linear Algebra, Ordinary Differential Equations, Real(...) Trading on Sentiment with Richard Peterson [Better System Trader]Trading algorithmically based on sentiment data is a relatively new field compared to more established approaches. With the explosion of social media and computing power, the analysis of sentiment data has also increased, with some hedge funds committing considerable resources to researching the(...) Effect of Maturity Structure of Roll Yields in Commodity Futures Strategies [Quantpedia]We investigate the maturity-structure of roll strategy returns in the energy futures markets. Our innovation is to report and analyze the risk/return profile, the Sharpe ratio, and the asset pricing loadings of rollover strategies based on futures contracts of the same underlying commodity but with(...) Backtesting With Zipline Ii [Koppian Adventures]In this post, we play again little bit around with python and the pandas-library. You may want to read the first part of this series. There we have backtested a simple crossing moving average strategy in pandas. We had a long/slow moving average over the last 40 days and a fast/short moving average(...) Possible Addition of NARX Network to Conditional Restricted Boltzmann Machine [Dekalog Blog]It has been over three months since my last post, due to working away from home for some of the summer, a summer holiday and moving home. However, during this time I have continued with my online reading and some new thinking about my conditional restricted boltzmann machine based trading system has(...) AllocateSmartly [TrendXplorer]Launched only recently, AllocateSmartly.com tracks the industry’s best tactical asset allocation strategies with thorough, up-to-date backtests. As of writing 16 (sub) strategies are tracked and benchmarked on near real-time basis. All of the tracked strategies are both quantitative and(...) When Academics Disagree on Momentum Investing [Alpha Architect]The academic standard for intermediate-term momentum measurement is “12_2 momentum:” simply sort all stocks based on a stock’s total return over the past twelve months, ignoring the last month. (a discussion is here and here) However, a few years ago Robert Novy-Marx wrote a paper titled “Is(...) State of Trend Following in August: Sharp Down Move [Au Tra Sy]It is Fall in Summer!… The trend following index had a big move to the downside last month, taking the YTD performance to a negative level as well. The results are similar, over on the Wisdom State of Trend Following, a sort of version 2.0 of this report, which I write for them too. Please check(...) August Fall for Trend Following [Wisdom Trading]August 2016 Trend Following: UP -7.32% / YTD: -7.95% August was mostly one-sided, sliding down to a strong negative performance, and taking with it the Year-To-Date performance to a similar level. Interesting to note the shorter timeframes weighing on the index while the longer timeframes are still(...) Tactical Asset Allocation Performance in August [Allocate Smartly]This is a summary of the recent performance of a number of excellent asset allocation strategies. These strategies are sourced from books, academic papers, and other publications. They range from simple, static portfolio allocations, to complex and dynamic portfolio optimization. Read more about our(...) No Signal [Automated Trader]NO SIGNAL is a regular column where we examine various snafus in the trading, particularly the automated trading, world. We look at errors in application logic, mistakes by overzealous co-workers, failures in technology and temporary losses of power to both infrastructure as well as craniums. These(...) What is Quantler? [Quantler]WHAT IS QUANTLER? Quantler is an open source cloud-based trade automation software designed for individual traders of FX and CFDs. Our goal is to help individual traders optimize their trading performance through innovative but simple-to-use trading technology. Quantler makes it easy to build your(...) Multivariate Volatility Forecast Evaluation [Eran Raviv]The evaluation of volatility models is gracefully complicated by the fact that, unlike other time series, even the realization is not observable. Two researchers would never disagree about what was yesterday’s stock price, but they can easily disagree about what was yesterday’s stock volatility.(...) Time Series Momentum and Volatility Scaling [Alpha Architect]There is a new paper published in the Journal of Financial Markets that digs a bit deeper into the Moskowitz, Ooi, and Pedersen “Time Series Momentum” paper (some background here). ts paper The paper is behind a pay firewall, but luckily there is a 4 part lecture by the authors explaining the(...) Dynamic Hedge Ratio Between ETF Pairs Using the Kalman Filter [Quant Start]A common quant trading technique involves taking two assets that form a cointegrating relationship and utilising a mean-reverting approach to construct a trading strategy. This can be carried out by performing a linear regression between the two assets (such as a pair of ETFs) and using this to(...) Uncertain Alpha [Flirting with Models]SUMMARY We have previously discussed many problems associated with the measurement of alpha. Measurement uncertainty, the choice of model risk factors, and the analysis timeframe can all have significant impacts on the calculation and applicability of alpha, and investors are often hard-pressed to(...) March for the Fallen. Come Join the Alpha Architect Team! [Alpha Architect]Looking for a great challenge on a Saturday morning on September 24th? 2016-08-26 14_58_14-March for the Fallen Come join some members of the Alpha Architect team and our tribe of friends/clients when we take part in the “March for the Fallen” on Saturday, September 24, 2016. We’re aiming to(...) Research Review | 26 August 2016 | The Business Cycle [Capital Spectator]Do Stock Market Trading Activities Forecast Recessions? Ujjal Chatterjee (University of Wisconsin-Milwaukee, American University of Sharjah) August 9, 2016 This paper re-examines the existing recession forecasting models with stock market liquidity as an additional forecasting variable. We(...) Tactical Asset Allocation Software [Meb Faber]I used to update an old post on free data sources and stock screeners for investors. I thought I’d summarize a handful of websites that focus on tactical asset allocation software, tools, and backtesters. For a long time I was going to build this on tacticalassetallocation.com, but there are now(...) Cesar's Ask Me Anything Webinars [Alvarez Quant Trading]To those on my new blog notification list, I sent out the opportunity to join me in a one hour webinar where people could ask me anything about trading. I had a ton of fun answering lots of great questions. See the bottom of the post for links to download the mp3 files of the webinars. Some(...) Managed Futures: Understanding a Misunderstood Diversification Tool [Alpha Architect]In my two previous blog posts (here and here), I analyze the performance of bonds during really bad months for US stocks (“Crisis Alpha” months), and I analyze the performance of US stocks during really bad months for US bonds. A quick summary of the results from those prior studies: Bonds have(...)