Authors: Grobis, Heinonen Title: Is Momentum in Currency Markets Driven by Global Economic Risk? Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2619146 Abstract: This article documents a robust link between the returns of the momentum anomaly implemented in currency markets and global

I have signed up for Attilio Meucci’s ARPM Bootcamp next month (July 13-18) in NYC http://www.symmys.com/arpm-bootcamp, and need to do quite a bit of prep as it’s going to be a deep-dive… The Advanced Risk and Portfolio Management Bootcamp provides in-depth understanding of buy-side modeling

Josh Brown had a fascinating post which postulated that the quants pose a significant systemic risk to market volatility: There’s an interesting idea going around that asset management – specifically the metastasizing quantitative strategies run via black box are where the next big scare is due

When arrested in Asia (many countries, not everywhere) never step into the station. Once you put a foot inside, there's an unstoppable force pulling you deeper into the bowels of the judicial system. Conviction rates in Japan, Korea and China are 99%+. For comparison, conviction rates are in

Over the last few years we've looked at various tools to help us identify exploitable patterns in asset prices. In particular we have considered basic econometrics, statistical machine learning and Bayesian statistics. While these are all great modern tools for data analysis, the vast majority

Investment News outlines an arbitration request by an investor seeking damages for being placed in two funds; one to F-Squared (an outright fraud) and another to Good Harbor's U.S. Tactical Core Fund (GHUIX). The adviser placed approximately $900,000 of the investor's savings, which his

Danny Zucco and Sandy loved the Summer Nights, but how have they played out for the market over the years? Below I examine two time periods. As you’ll see, the edge may be shifting. First, let’s look at numbers from the summers of 2000 – 2012 (from the night of June 21st – the night of

In case you are new to this game or just in case you never noticed, there are a lot of ways to play this game. This article details one. I can’t honestly say that this is a good strategy – the test period is relatively short, it uses leverage so it is risky, and drawdowns may be more than some

An astute reader of the post on Risk pointed out that one of the reasons risk management is hard is because it often involves estimating the chance of something that has never happened before. For example, what is the probability of the US defaulting on its debt or of Apple going bankrupt? Sometimes

Yesterday I published a study that showed the week after June opex has exhibited weakness in recent years. An astute newsletter subscriber suggested to me that this could be partially due to Russell rebalancing, which always happens at the end of June. His comments led me to wonder how the Russell

I am frequently asked about various strategy and portfolio performance metrics and backtests. A reader recently asked if there are any current backtests for the ETFReplay 6/3/3 Portfolio so I decided now is the appropriate time to provide updated results. The strategy background is available here

The idea is to build a quantitative hedge fund strategy based on momentum investing. With the obvious interest that I see on Quantocracy, I felt that this would be a topic that many of us are interested in. I didn’t want to run the risk of previous employers saying I used their IP, so I hired 4

The ideas I sketch out every afternoon are fanciful sweet little things, decorated to perfection. Then someone ventures a bite and sometimes finds that that's all they are. Fanciful. Readers are fantastic guinea pigs! Ilya got in touch about this post about diversification and rightly mentioned

The previous simulation was performed for only a specific process: geometric Brownian motion with a positive drift. It is possible, if a little harder, to do similar analyses for cases where the trade has a more complex, realistic set of outcomes. We can add fat-tails, crashes and skewness. We can

The middle of the year might be a time for funds to dress their windows and investors to review and revise portfolios. The 4th of July celebration might engender optimism among U.S. investors. Are there any reliable patterns to daily U.S. stock market returns around mid-year and the 4th of July? To

Deaccumulation is the new new thing in finance for an obvious reason: the US population is aging, which means that retirement becomes an increasingly pressing issue for financial planning. Perhaps the leading challenge for this critical task (other than accumulating a sufficient pot of money) is

The six FactorWave factors are size, value, quality, momentum, low beta and the market. These have all been studied in many markets and across many time-frames by both academic researchers and practitioners. The amount of evidence for their existence and profitability is overwhelming. However they

The effect of high-frequency trading on market quality has generated strong interest among academics, investors and regulators alike. To further explore the impact high-frequency trading can have on the markets, Jennifer Conrad, Sunil Wahal and Jin Xiang—authors of the study “High Frequency

The week after June opex is one that has struggled quite a bit in recent times. This can be seen in the table below, which shows full-week performance dating back to 1999 when the bearish inclination seemed to kick in. As you can see, it has been quite a streak of bearishness. Thirteen out of

'O' is notation in mathematics which describes getting ever closer to something. For example, in computer science it describes the efficiency that algorithms chomp inputs and produce results. In statistics it's related to how probabilities converge. E.g. the probability of very large

Ernie Chan is an expert in the application of statistical models and software for trading currencies, futures, and stocks. He has built and traded numerous quantitative models for investment banks and hedge funds. He is now the Managing Member of QTS Capital Management, commodity pool operator and

Martin Stisen got in touch after reading about the Mean Reversion + Momentum Strategy last week with an idea. Using the Hurst exponent to predict future returns. Quirky ideas are exciting. The Hurst exponent was originally found by observing how the Nile River waxed and waned over the years and now

In this post I surmised about the effect of stops and got about as far as I could by speculating from my armchair. So I simulated ten thousand investments. Before there is any stop we have a distribution with a mean of 10% and a standard deviation of 20%. This is similar to the performance of the

I received a request from pcavatore several posts ago. pcavatore was interested in "database update automation via R script." He wanted to know "how to run a daily task to update prices in the database." In this article we'll be using R and the RMySQL package to access and

Forecasting Directional Changes in Financial Markets

Developing & Backtesting Systematic Trading Strategies

The Cross-Section of Expected Returns in the Secondary Corporate Loan Market We examine the pricing of characteristics and betas in the cross-section of expected corporate loan returns. Expected loan returns decrease with default beta. Default beta contains information not captured by rating or

How many times have you bought a bottle of milk? And how many times have you bought a house? Which are you more comfortable with? It's no surprise that we make better repeated small decisions than the once in a lifetime big choices. When short horizon strategies make mistakes they dust

Sometimes I get asked how well momentum has done the past year or the past several years. If I am in a snarky mood that day, I'll respond, "What will that tell you?" The truth of the matter is that, in most cases, short-term performance is indistinguishable from noise and cannot tell

Barron's recently ran an article (written by Research Affiliates), which is titled "Get Smart About Picking Dividend-Rich Stocks." The article highlights that high-quality high-dividend-paying stocks outperform low-quality high-dividend-paying stocks. The quality of the firm is

This is a short update to inform current and prospective readers of Successful Algorithmic Trading that the Python code in the book has been updated to be fully compatible with both Python 2.7.x and Python 3.4.x. In addition I've created a requirements.txt file that allows you to easily

#20 - Volatility Risk Premium Effect Authors: Donninger Title: Hedging Adaptive Put Writing with VIX Futures : The Affenpinscher Strategy Link: http://www.godotfinance.com/pdf/AffenPinscherStrategy_Rev1.pdf Abstract: In a previous working paper I analyzed the Austrian and Doberman Pinscher strategy.

Since 1929, the Dow Jones Industrial Average has rarely ever been so close to a 52-week high while the Dow Transports AND Dow Utilities were so close to a 6-month low. A few weeks ago, we ran a series on divergences in an attempt to provide some statistical evidence to the debate on this ambiguous

This post looks at a standard (STD) one-lot iron condor on the Russell 2000 Index (RUT), initiated at 80 days-to-expiration (DTE). The results in this post were derived from approximately 3200 individual trades entered by the backtester. For background on the setup for the backtests, as well as the

As to be expected, there are more than a few reasons behind quantitative hedge funds sustained losses. According to The Economist (2012), two main reasons for poor performances can be in the form of unexpected announcements from politicians and central banks which then cause unexpected market

Conventional wisdom can be defined as ideas so ingrained in our belief system that they are accepted without challenge. Unfortunately, much of the conventional wisdom about investing is incorrect. For example, the conventional wisdom that investors seeking high returns should invest in countries

Our eyes initially evolved underwater while our ancestors were fish and only later adapted to seeing things above. We are now terrible at seeing things when dunked under, however that's not the point. Water blocks out most of the red part of the electromagnetic spectrum, which is why we

In a previous post on this subject, we related the loadings of the principal components (PC’s) from the singular value decomposition (SVD) to regression coefficients of the PC’s onto the X matrix. This is normal given the fact that the factors are supposed to condense the information in X, and

When important people on Wall Street and Capitol Hill are actively criticizing an aspect of corporate America, we’d better take notice. Share buybacks—the open market repurchase of a company’s shares by the company itself—have been under a lot of fire. The amount spent on buybacks is

In this post, I will be documenting a few of my strategies. The Two Divide in Universe Selection From my personal experience of hacking up strategies and browsing the forums for interesting topics/ideas, I found that there are often two divides in setting up the universe of stocks to trade. The

My readers know I am a trendfollower at heart. I originally sent this to The Idea Farm but received so many questions I figured I would post here too. This study was completed by Ned Davis Research, and could not be more simple. (Similar in theory to our old QTAA paper from 2007, as well as systems

1. Motivation New information-based asset-pricing models are often extensions of either Kyle (1985) or Grossman-Stiglitz (1980). At first glance, these two canonical models look quite similar. Both price an asset with an unknown payout, like a stock or bond, and both analyze the strategic behavior

Value has heavily underperformed growth over the last decade. But since 2000 and historically it has handily beaten growth. As well as investing in shininess (like Facebook and Google) what do you get for your money when investing in growth stocks? The main difference between growth and value is

The always interesting quant aggregator Quantocracy linked to the following post by John Orford (follow John on Twitter at @mmport80) outlining a 'Steady Volatility Strategy' that targets a constant volatility target based on the most recent VIX index as follows: Stock weight = Target

This week we wanted to spend some time digging into performance of our Risk Managed U.S. Sectors (“RMUS”) and our Multi-Asset Income (“MAI”) portfolios. At Newfound, we generally break portfolio construction into two pieces: (1) the signals that drive our tactical decisions, and (2) the

This is the third post in a series giving pointers on the nuts and bolts of building systematic trading systems. A common myth is that the most important part of a systematic trading system is the 'algo'. The procedure, or set of rules that essentially says 'given this data, what

This post looks at a standard (STD) one-lot iron condor on the Russell 2000 Index (RUT), initiated at 66 days-to-expiration (DTE). The results in this post were derived from approximately 3200 individual trades entered by the backtester. For background on the setup for the backtests, as well as the

Interesting about the action on Friday was that SPY posted an unfilled gap down, and this occurred immediately following an unfilled gap up the day before. The study below was appeared in the Quantifinder. It examines 2-day moves like SPY has just encountered. Based on the numbers there appeared to

#198 - Exploiting Term Structure of VIX Futures Authors: Donninger Title: Selling Volatility Insurance: The Sidre- and Most-Strategy Link: http://www.godotfinance.com/pdf/VIXFuturesTrading_Rev1.pdf Abstract: This working-paper examines and improves a VIX-Futures calendar-spread strategy proposed in

Ralph Vince is a trading systems expert who has been programming trading systems for fund managers, sovereign wealth funds and staking systems for "professional gamblers," since the early 1980's, working as a personal programmer to legendary traders like Larry Williams. He is a