The Five-Factor Fama-French Model: International Evidence (Nusret Cakici) Doubt on Five-Factor Fama-French Model: Is it Just in Essence a Noise? (Hou, Xue and Zhang) Stocks with Negative Analyst Forecast Skewness tend to be undervalued? (Cai Zhu) Covering-Up When the Tide Goes Out? Momentum

In the last post I introduced the concept of “real momentum” which is a trend following signal based on real returns. In the post I used both expected inflation and risk-free returns to net out from the S&P500 to create a real excess return. This was done to make the hurdle for buy positions

The art and skulduggery of finance is infused with uncertainty. So, how about we try to smooth volatility a little and see the consequences? The VIX predicts the volatility of the S&P 500 for the next thirty days. Our Steady Vol strategy takes the inverse of the current VIX and weighs our

One of the Wall Street platitudes often repeated is that the bond space is the “smart” market, particularly when in conflict with equities. That is, when bonds and stocks seem to be telling opposite stories, it is the bond market that typically ends up being correct. At least that is what the

Given the rapidity of today’s gap higher in the S&P 500, it would seem to be an appropriate time to repost some research related to the boom and bust cycle. Certainly it would seem we are near a phase transition of sorts in the stock market. For most of 2015 the market has been range-bound,

Seeking Alpha? It’s a Bad Guideline for Portfolio Optimization Alpha is the most popular measure for evaluating the performance of both individual assets and funds. The alpha of an asset with respect to a given benchmark portfolio measures the change in the portfolio’s Sharpe ratio driven by a

Every time someone comes up with a “new and improved” way to invest or predict which active managers will shine, it seems that subsequent research finds that it’s really just about focusing on different betas. The latest example is a new study (“Deactivating Active Share”) from AQR, a

Let’s begin with a simple question, Can we use the movement of the main stocks in the S&P500 to predict the index movement?. But… Who are the main stocks ? That’s a good question, maybe the bigger ones, maybe the more bullish of them… so how should we decide who are the most

We're just a few short posts from completing the dynamic exit series. Thanks for hanging in there through this four month process chronicled here: Dynamic Exit Iron Condor Articles! In this post we will look at the backtest results for dynamic exits of the 80 days-to-expiration (DTE) Iron

One factor that will likely have a substantial impact on market movement on Friday is the reaction to the Employment Report. Employment days have done fairly well over the last few years but most of the gains are thanks to the overnight session. This can be seen in the 2 profit curves below. As you

I once dated a poet. A published poet. She knew the nuances of language like few others. Then and since I wondered whether I could experience things, that I could never verbalise, as well as her. If you can dictate your inner life onto a page; into black and white; does it become a little clearer?

From 1926 through 2014, the default premium (the annual return on long-term, investment-grade corporate bonds minus the annual return on long-term Treasurys) has been just 0.22 percent. Such a small premium has led many observers, including me, to conclude that investors willing to accept higher

@SusanCTShore’s 3 Days before employment report with 2 down days and above 200 days triggered 5/5/2015

Watering the flowers and pulling the weeds. Letting your winners run and cutting your losers short. There are different expressions for sector rotation, but it is among the most profitable investment strategies we have found, when done in a disciplined way. Sector rotation is based on the idea that

As a follow-up to A Guide to Creating Your Own Smart Beta Fund, let's dive into the high flying paying world of hedge fund management.. Per Investopedia: Hedge funds are alternative investments using pooled funds that may use a number of different strategies in order to earn active return, or

A few weeks ago I wrote an article talking about ways to combine value investing and momentum investing. The high level takeaway from that article was to keep value and momentum as separate exposures. This conclusion was based on ranking firms on their combined value and momentum rankings, which can

Should Europe decline extend to 10%...

Summary Leveraged ETFs suffer from decay, or “beta slippage.” Researchers have attempted to exploit this effect by shorting pairs of long and inverse leveraged ETFs. The results of these strategies look good if you assume continuous compounding, but are often poor when less frequent compounding

“Time-Series Momentum” was introduced by Moskowitz and Pedersen of AQR circa 2011 and was popularized by Antonacci in 2013 as “Absolute Momentum.” Both measure the return of an asset in excess of the risk-free rate over some lookback window in order to determine whether to hold a long

It has been over a year since I posted Hacking Google Finance in Real-Time for Algorithmic Traders article. Surprisingly, it became the number one URL of QaR that Google has been displaying as a result to various queries and the number two most frequently read post. Thank You! It’s my pleasure to

On April 24, we posted what we thought (and hoped) would be our final post concerning the stock market’s lengthy trading range. In the post we noted that for only the 8th time in 100 years, the Dow Jones Industrial Average (DJIA) had made it to 30 days without hitting either a 1-month high or low.

The High Yield Dividend Champion Portfolio is a publicly tracked stock portfolio on Scott’s Investments. Its goal is to capture quality high yield stocks with a history of raising dividends. The screening process for this portfolio starts with the “Dividend Champions” as compiled by DRIP

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of the 80 days-to-expiration (DTE) Iron Condor (IC), with 12 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs

My favourite restaurant in Singapore is near City Hall. Nalan's serves up the tastiest vegetarian food going. Every couple of weeks I go back and find a new and interesting dish. At lunch today my girlfriend ordered Manchurian cauliflower. Deep fried cauliflower in a Hokkien Chinese sauce which

New commodity bull market?

How good is Smart Beta? A popular topic lately has been “Smart beta” ETFs. What is smart beta? It is using different ways to weight an index and the ETF that tracks it. For example, the S&P500 index is a capitalization weighted index. Bigger companies have a larger portion of the index. If

As we announced a few weeks back, our own Nathan Faber won 2nd place in the 2015 NAAIM Wagner Award paper competition for his research paper The Search for Crisis Alpha: Weathering the Storm Using Relative Momentum. Here's the abstract: Tactical strategies are becoming more prevalent in the

As we announced a few weeks ago, our very own Andrew Gogerty won 3rd place in the 2015 NAAIM Wagner Award paper competition for his research paper Momentum AND Diversification: A powerful risk-adjusted combination. Here's the abstract: Diversification is discussed in nearly every portfolio

A negative month in April for the State of Trend Following report, taking the performance below the break-even line for 2015. Please check below for more details. Detailed Results The figures for the month are: April return: -5.71% YTD return: -0.88% The figures above, compared with those in the

In this post we will look at the backtest results for dynamic exits of the 80 days-to-expiration (DTE) Iron Condor (IC) options strategy, with 12 delta short strikes, with different profit and loss exits. This is a non-directional options trading strategy that seeks to profit from a market that

Earlier this week, we began discussing some of the more pervasive and enduring facts and fictions surrounding the value premium. But it's important to understand that the value premium-a phenomenon in which securities that sell at low prices relative to fundamental metrics outperform on average

Peter Urbani sent me a timing strategy based on the Cornish Fisher expansion. The world of cumulants is new and fascinating. I took the liberty to code up the strategy using the Backtesting IDE. The contrast between using spreadsheets and code for this type of strategy is stark. Download the code

In 2008 when the market crashed I was 16-years old and visiting London for the very first time. At that age I was already obsessed with the markets. Feeling confident that I could understand the crash after having read books like Security Analysis, The Intelligent Investor, and Common Stocks and

This paper tests the Pairs Trading strategy as proposed by Gatev, Goetzmann and Rouwenhorts (2006). It investigates if the profitability of pairs opening after an above average volume day in one of the assets are distinct in returns characteristics and if the introduction of a limit on the days the

Data science is becoming more and more accessible to more and more people. Amazon launched Amazon Machine Learning last month, Microsoft Azure has been available for some time now and IBM is pushing to commercialize Watson more than ever before. While there is a lot of hype surrounding some of the

The Value Proposition. Downtrend signal in growth/value. $IWD

In this article, we identify how we can improve the performance of the F-Score and enhance a generic value investing approach. In a 2000 study, "Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers" (Journal of Accounting Research, 2000),

April 2015: Trend Following DOWN -2.58% — YTD: +7.77% Consolidation for the State of Trend Following index in April. Most systems in the index closed underwater, with most of the downwards action happening in the last two days of the month, before which the index was still above the “break-even

The Term Structure of Credit Spreads and the Cross-Section of Stock Returns We explore the link between credit and equity markets by considering the informational content of the term structure of credit spreads. A shallower credit term structure predicts decreases in default risk, increases in

Rising Yield Trend $TLT

The following chart has been floating around for more than a year, supposedly showing investors have not only performed poorly, but even worse than almost any asset class. As Richard Bernstein stated: The average investor underperformed nearly every asset class. They could have improved performance

For the second Friday in a row, the Nasdaq put in a rally that, under the surface, was not as impressive as its headline gain would suggest. A week ago, we noted that the April 24 rally of more than 1.5% in the Nasdaq 100 (NDX) to a 52-week high was accompanied by A) both negative breadth and volume

We analyze the information content of corporate insiders’ trades after accounting for certain trading patterns. Insiders spread their trades over longer periods of time when they have a longer-lived informational advantage and when outside investors are less attentive. In contrast, they make

I’ve just finished the rough draft of a new book about concentrated value investing and the investors who practice it. One of the side-effects of extreme concentration is idiosyncratic portfolio performance–concentrated portfolios behave differently from the market. This makes sense. To beat the

Yes it’s May and that is an exciting time for us financial writer types as we stumble over one another in our haste to post our obligatory “Sell in May and Go Away” related articles. As you can see, at #2,106 (for the record just sort of a ballpark guess – but probably pretty close to

Are prominent stock market bloggers in aggregate able to predict the market’s direction? The Ticker Sense Blogger Sentiment Poll “is a survey of the web’s most prominent investment bloggers, asking ‘What is your outlook on the U.S. stock market for the next 30 days?'” (bullish,

May has seen a rise on the 1st trading day of the month a high percentage of the time. But that start of May strength has not typically seen follow-through in the next few days. This can be seen in the results table below. Of the 18 instances that rose on the first day in May since 1987, 14 of them

Kevin Davey has been developing, analyzing, testing and creating trading strategies for over 25 years, in every futures market from the e-mini S&P to crude oil to corn to cocoa. He placed in the Top 2 of the World Cup Trading Championships from 2005 – 2007 with the results: 2005 – 2nd place

Deactivating Active Shares (Frazzini, Friedman and Pomorski) Is Being Different Better? Dispersion and Active Management (The Investor’s Field Guide) 9 Mistakes Quants Make that Cause Backtests to Lie (The Augmented Trader) Sell in May and Go Away: Still Good Advice for Investor? (Dichtl and

With market making we can try to be neutral by skewing prices in such a way as to maintain a neutral position. To the extent that the market can become 1-sided (in momentum) or may have large sized requests (if offering at different sizes), one’s portfolio may require explicit hedging. In a live