Oil price volatility and oil-related events: An Internet concern study perspective [ResearchGate] This paper investigates the effects of four types of oil-related events on world oil prices, using an event study methodology and an AR-GARCH model. The Internet information concerning these events,

As I outlined in my previous post The Relationship Between Stocks and Bonds, the S&P 500 yields 3.7% at the current 27 CAPE (cyclically adjusted P/E), attractive from a relative basis to the sub 2% yield of the ten-year treasury. That said, a 3.7% yield is quite low by historical standards.

When VIX traders bet on a rise in volatility $SPY $VXX

While most people are not fond of tax day in the US, it has historically seen strong inflows into IRA’s and hence the stock market. This has set up the day after tax day as a strong day for the market. Below is a look at how SPX has done since 1981 on tax day. The numbers are all impressive. They

Knowing how different market conditions affect the performance of your strategy can have a huge impact on your returns. Certain strategies will perform well in highly volatile, choppy markets while others need a strong, smooth trend or they risk long periods of drawdown. Figuring out when you should

David Weilmuenster is today’s guest author. David and I worked together at Connors Research for eight years and is one great researcher and AmiBroker programmer. Brochures for professionally managed investments and academic white papers on long term investing almost always praise the benefits of

Before we discuss methods to exploit the tendency for the stock market to rise during month end, I wanted to share the performance of simply implementing the strategy in its raw form against its inverse. The results are rather impressive. EOM Strategy vs EOM Inverse Strategy Performance For the test

We came across an interesting article in the Wharton Magazine blog titled “The Dangerous Data Fetishes of Sports Analytics” by Ian Cooper. The main point of the article is that some sports statistics do not add value. The main example Ian cites is the “PDO” variable which is used in hockey.

EM Surge leading oil? $USO

Oil recovery reaches critical threshold $USO

Over the last eight posts we reviewed the backtest results for Iron Condors initiated at 52 days to expiration (DTE) on the Russell 2000 Index (RUT). To be consistent with all of the earlier backtests posted on this blog, we looked at 52 DTE Iron Condors initiated with short strikes at four

Although it has been very difficult to overcome our initial skepticism, we've finally accepted the notion that simple technical analysis may serve as an effective way to manage risk and to time markets. As John Adams said many years ago, "Facts are stubborn things." However, our

MATLAB Computational Finance Conference was a great event that I attended last year. There is a lot to learn for average Matlab user, and anyone working in finance. The agenda looks especially exciting this year. Ping me if you want to meet during the event.

Traders who understand the statistics and probabilities behind the movements of financial markets have to tools to find an enduring trading edge. This book is written to be accessible to the trader without a heavy mathematical background, and works toward a deep, intuitive understanding of

In the preface to the 2015 Third Edition of Irrational Exuberance, author Robert Shiller states: “…evidence of bubbles has accelerated since the [2007-2009 world financial] crisis. Valuations in the stock and bond markets have reached high levels in the United States and some other countries,

Developer: Joe Krutsinger: “One Night Stand” Trading System. Concept: Short-term trading strategy based on a weekday filter and price momentum. Source: Freeburg, N. F. (Sep. 1994). Formula Research, Quantitative Treatment of the Financial Markets. Memphis, TN: Formula Research, Inc. Research

A Wealth of Common Sense has a recent post 'Stock Market Losses with Low Interest Rates' that outlines: Just because interest rates are low doesn’t mean stocks can’t or won’t fall. Interest rates are a very important factor in the markets but they’re not everything. Stocks are

The aim of this paper is to investigate the impact of the financialization of commodity markets on the profitability of strategies based on momentum and term structure. The performance of an array of portfolios from double-sorts on non-commercial traders’ participation, historical returns and term

Investing in strategies that exploit the low volatility anomaly have grown in popularity in recent years. While low volatility based strategies may or may not beat the return of a market cap weighted index, by construction, they will likely deliver significantly reduced volatility. This reduction in

Global participation broadening

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 20 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs were

Years ago when I first started studying momentum, two things stood out in my mind. The first was most momentum research focused on cross-sectional stock studies looking at the future performance of stocks that had been strong versus stocks that had been weak. This was what interested academics most,

Most of the glowing analysis of so-called smart beta ETFs focuses on individual funds and how they offer advantages over their conventionally designed counterparts that weight securities by market capitalization—classic beta, as we’ll call them here. But what happens when we design portfolios

(This post is based on the talk of the same title I gave at Quantopian's NYC conference which commenced at 3.14.15 9:26:54. Do these numbers remind you of something?)A correct backtest of a trading strategy requires accurate historical data. This isn't controversial. Historical data that

Those who expect U.S. equities to deliver poor returns going forward can cite two compelling reasons in defense of their expectation: (1) Equity prices are significantly elevated relative to underlying earnings fundamentals. The S&P 500′s trailing price-to-earnings ratio, for example, is 20.5

For decades, analysts and investor have bought into the idea of a small cap premium, i.e., that stocks with low market capitalizations can be expected to earn higher returns than stocks with higher market capitalizations. For investors, this has led to the pursuit of small cap stocks and funds for

Scott’s Investments provides a free “Dual ETF Momentum” spreadsheet which was originally created in February 2013. The strategy was inspired by a paper written by Gary Antonacci and available on Optimal Momentum. Antonacci has a new book out, Dual Momentum Investing: An Innovative Strategy for

In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 20 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 stays within a range

This paper develops a theory that explains why financial crises follow profitable lending booms. When agents exhibit the "availability heuristic" and there is a long period of banking profitability, all agents — banks, their investors and regulators — end up in an “availability

US shift into High Beta ?

Global momentum continues... MSCI All World Index

You have the coding chops to automate your job; savvy to communicate a new easier solution to your client; or come up with that smart equation which neatly cuts through the bullshit. You're smart enough not to have to work needlessly hard. There's an idea in computer science call

Exploiting Earnings Volatility introduces an innovative new framework for evaluating, optimizing, and trading option strategies to profit from earnings-related pricing anomalies. Leveraging his extensive background in option-pricing and decades of experience in investment management and trading,

FT tries to define smart beta: Smart beta is a rather elusive term in modern finance. It lacks a strict definition and is also sometimes known as advanced beta, alternative beta or strategy indices. It can be understood as an umbrella term for rules based investment strategies that do not use the

I felt myself a bit unsatisfied after my last post on Walsh–Hadamard Transform and Tests for Randomness of Financial Return-Series leaving you all with a slow version of Walsh–Hadamard Transform (WHT). Someone wise once said: in order to become a champion, you need to flight one round longer. So

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of 52 days-to-expiration (DTE) Iron Condors (IC), with 16 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs were

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

In our last article, we investigated the MACD Line feature of the MACD and the historical patterns over the past few years using three common indicator settings. In this article, we are going to continue that analysis by studying the MACD Histogram, a feature that was added to the MACD indicator in

The Alcoa Barometer $SPY

Most people think about where to get into and out of positions. Most traders know how important it is to follow their rules, and most traders are always working toward being more disciplined. These are important pieces of a successful investment strategy, and most traders work on these things. But

Hong Kong Surge $SPY

This paper documents that the path of credit spreads since a firm's last loan influences the level at which it can currently borrow. If spreads have moved in the firm's favor (i.e., declined), it is charged a higher interest rate than justified by current fundamentals, and if spreads have

Pairs trading is a well-acknowledged speculative investment strategy that is widely used in the financial markets, and distance method is the most commonly implemented pairs trading strategy by traders and hedge funds. However, this approach, which can be seen as a standard linear correlation

One of the challenges faced by investment strategists is to assess whether a strategy is continuing to perform as it should. This applies whether it is a new strategy that has been backtested and is now being traded in production, or a strategy that has been live for a while. Fig 6All strategies

Artificial intelligence, machine learning, data mining and big data seem to get thrown around in everything from business intelligence to financial services. Artificial intelligence is used where machine learning should be and machine learning is often confused with data mining. In this post Justin

Welcome back to Interviewing the Quants. This is the third interview in the series. Many of you might know our guest from his blog on simple objective options trading. It is called Theta Trend. His name is Dan. He's provided some information to give us some insight into who he is, what he does,

I am still working on the final part of my real GDP growth series. In the meantime, I have written this article about some of the popular stochastic processes used by quants. This article was written with the help of a fellow quant and friend, Wilson Mongwe. I recommend reading his more detailed

Following up on the 'Nuke Geometric Returns' post I tried sketch out possible equations for the variance of geometric returns. I got good looking numerical answers, but the formula looked very odd. Then spent a few hours searching for the answer with Google. Thankfully Gordon at Quant

This post will display my implementation of the Logical Invest Enhanced Bond Rotation strategy. This is a strategy that indeed does work, but is dependent on reinvesting dividends, as bonds pay coupons, which means bond ETFs do likewise. The strategy is fairly simple — using four separate fixed

Josh Payne and the folks at Quantopian ran some tests on the performance of the acquirer’s multiple and Joel Greenblatt’s Magic Formula. I have argued in Deep Value and Quantitative Value that the acquirer’s multiple (enterprise value / operating earnings) tends to outperform the better known