What does “optimal” mean, anyway? In the first part of this series, we discovered that the staked fraction of capital that yields the greatest compounded returns also yields a less-than-optimal level of drawdown. To realize the greatest return on capital, an investor in SPY since its inception

FX carry trading strategies only use short-term interest rates (and forward basis) as signal. Yet both theoretical and empirical research suggests that the whole relative yield curve contains important information on monetary policy and risk premia. In particular, the curvature of a yield curve

When dealing with data we (almost) always would like to have better and bigger sets. But if there’s not enough historical data available to test a given algorithm or methodology, what can we do? Our answer has been: creating it. How? By developing our own Synthetic Financial Time Series Generator.

I have shown Fed-based studies here at Quantifiable Edges since inception in 2008. And since 2010 I have closely tracked SOMA movement and its influence on the market in the Quantifiable Edges subscriber letter. This has proven extremely valuable in my research and trading. Now, after years of

We revisit a series of popular anomalies: seasonal, announcement and momentum. We comment on statistical significance and persistence of these effects and propose useful investment strategies to incorporate this information. We investigate the creation of a seasonal anomaly and trend model composed

We typically discuss trend following in the context of risk management for investors looking to diversify their diversifiers. While we believe that trend following is most appropriate for investors concerned about sequence risk, levered trend following may have use for investors pursuing growth. In

This research note was originally published at Alpha Architect. INTRODUCTION Mirror, mirror, on the wall – which is the fairest of them all? Recent commentary (to include a recent Barron’s article) seems to suggest that value is dead and may never come back. Of course, most of these comments

Albert Einstein once proclaimed that “compound interest is the eighth wonder of the world” (allegedly, at least; people attribute all kinds of sayings to that guy). Let’s just assume that he did. This is the single most important reason why people participate in the markets. The magic of

This post will discuss the idea of the geometric Calmar ratio — a way to modify the Calmar ratio to account for compounding returns. So, one thing that recently had me sort of annoyed in terms of my interpretation of the Calmar ratio is this: essentially, the way I interpret it is that it’s a

Mirror, mirror, on the wall – which is the fairest of them all? Recent commentary (to include a recent Barron’s article) seems to suggest that value is dead and may never come back. Of course, most of these comments revolve around the price-to-book valuation metric, which, as the Barron’s

Friday the employment report will be released about an hour before the NYSE open. Employment days have an interesting history and they have contributed to some worthwhile studies over the years. Below is a chart of SPX performance on Employment Days going back to 1993. 2018-05-04 What I find

The Equity Risk Premium in 2018 John R. Graham and Campbell R. Harvey (Duke University) March 27, 2018 We analyze the history of the equity risk premium from surveys of U.S. Chief Financial Officers (CFOs) conducted every quarter from June 2000 to December 2017. The risk premium is the expected

The results of data analysis are only as good as the data you use. There are a variety of hedge fund data vendors out there. You may have access via your Bloomberg terminal, or perhaps you have purchased access to data from a well-known hedge fund data vendor. Regardless of your data source there

Please find below this month’s Wisdom State of Trend Following report. Performance is hypothetical – Chart for April: And the 12-month chart: Below are the summary stats: Horizon Return Ann. Vol. Last month 1.28% 9.77% Year To Date -5.03% 16.19% Last 12 months -9.94% 13.31% Last calendar year

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

Diversification is a key ingredient to a successful trend following program. While most popular trend following programs take a multi-asset approach (e.g. managed futures programs), we believe that single-asset strategies can play a meaningful role in investor portfolios. We believe that long-term

We recently published a research note on the relationship between factor returns and real GDP growth (Equity Factors & GDP Growth), which highlighted that some factors exhibit pro-cyclical while others have anti-cyclical characteristics. The Value and Size factors showed strong returns when

As we head towards the summer, the stock market has two long-term cycles converging that suggest it could be a rough ride. The 2 cycles are the “Best 6 Months” and the “Presidential Cycle”. I cover both of these cycles in detail in the Quantifiable Edges Market Timing Course. Here I will

Cryptocurrencies such as Bitcoin are establishing themselves as an investment asset and are often named the New Gold. This study, however, shows that the two assets could barely be more different. Firstly, we analyze and compare conditional variance properties of Bitcoin and Gold as well as other

Bloomberg columnist Mohamed El-Erian recently lamented that the discipline of economics “is divorced from real-world relevance and has lost credibility.” Among the problems he mentions currently afflicting the field are the following: The proliferation of simplifying assumptions that lead to an

In a previous post, we showed that the spot volatility index, VIX, has a strong mean reverting tendency. In this follow-up installment we’re going to further investigate the mean reverting properties of the VIX. Our primary goal is to use this study in order to aid options traders in positioning

Empirical evidence for 27 markets suggests that carry on interest rate swaps has been positively correlated with subsequent returns for the past two decades. Indeed, a naïve strategy following carry as signal has produced respectable risk-adjusted returns. However, this positive past performance

The authors discuss a variety of past research papers on time-series momentum but pay particular attention to the Moskowitz, Ooi, and Pedersen (“MOP”) 2012 JFE paper, “Time Series Momentum.” This paper is arguably the first paper in recent memory to crack the top-tier academic journals with

In his 1998 second edition of “Stocks for the Long Run1”, Jeremy Siegel added a chapter called “Technical Analysis and Investing with the Trend”, where he explored simple trend rules to time the U.S. stock market. In the chapter, Dr. Siegel revealed that the simple trend following strategy

There are now hundreds of factors in what John Cochrane famously called the “zoo of factors.” However, there are only a small number that meet the requirements for investment that my co-author, Andrew Berkin, and I establish in our book, “Your Complete Guide to Factor-Based Investing”:

Investing strategies run the gamut, but every portfolio shares a common goal: delivering optimal results. The catch is that there’s a wide range of possibilities for defining optimal and so your mileage may vary, depending on preferences, assets, and other factors. Eran Raviv offers a useful

This post explores a concept at the heart of quantitative financial research. Most qfin researchers utilize statistical techniques that require varying degrees of stationarity. As many of you are aware financial time series violate pretty much all the rules of stationarity and yet many researchers,

One of the first tests I did when I got AmiBroker twenty years ago was a mean reversion test. It was a classic set up, a stock in an uptrend, followed by a pullback. But the entry differed from what I do now. The entry waited for a confirmation of the trend back up. The trade would enter when the

What is the body of academic research on crypto-assets? In their March 2018 paper entitled “Cryptocurrencies as a Financial Asset: A Systematic Analysis”, Shaen Corbet, Brian Lucey, Andrew Urquhart and Larisa Yarovaya review available research on cryptocurrencies as financial assets. They define

We wanted to take a moment to highlight a post from the always smart JW Keuning describing a novel approach for measuring how well a strategy has performed relative to drawdowns (losses): Presenting the Keller Ratio. Our preferred method for assessing a strategy’s return relative to drawdown has

As evidenced by the image below, interest in momentum research has taken off since the original 1993 Jegadeesh and Titman paper: Source: “Two Centuries of Multi-Asset Momentum (Equities, Bonds, Currencies, Commodities, Sectors and Stocks)”

SPY’s move lower over the last 3 days has set up a potential “Turnaround Tuesday” scenario. The fact that it made a lower high, lower low, and lower close for at least the 3rd day in a row triggered the following study. 2018-04-241 The numbers are impressive and the bounces couldn’t get much

We document that several well known asset-pricing implications of accruals differ for investment and non-investment-related components. Exposure to an investment-accruals factor explains the cross-section of returns better than the accruals themselves, and this factor’s returns are negatively

While investors are often concerned about catastrophic risks, failing to allocate enough to risky assets can lead investors to “fail slowly” by not maintaining pace with inflation or supporting withdrawal rates. Historically, bonds have acted as the primary means of managing risk.However,

The tax efficiency of the Value factor can be improved by reducing exposure to dividend-yielding stocks Improving the tax efficiency reduces the performance in Europe and Japan, but not in the US Reducing turnover can be considered for minimising capital gains and stamp duty taxes INTRODUCTION Tax

Many traditional return to risk measures are not apt for intuitive interpretation The Keller ratio is expressed as an adjusted return and therefore easy to interpret The Keller ratio allows for strategy selection optimally aligned with an investor’s risk appetite In our VAA-paper we introduced a

Developer: Richard Wyckoff; Toby Crabel. Source: Crabel, T. (1990). Day Trading with Short Term Price Patterns and Opening Range Breakout. Greenville: Traders Press, Inc. Concept: Trading strategy based on reversal patterns. Research Goal: Performance verification of reversal patterns.

Friday’s action caused SPY to close in an interesting position. Traders could look at the chart and say it is “short-term oversold” due to the fact that it closed at a 5-day low for the 1st time in a while. They might also say it is “short-term overbought” since it closed above its 10-day

This year marks the 10th anniversary of the R/Finance Conference! As in prior years, we expect more than 250 attendees from around the world. R users from industry, academia, and government will joining 50+ presenters covering all areas of finance with R. The conference will take place on June 1st

If you’ve been following me on Twitter you know that I’ve finally had it with Amazon. There is a silver lining of course, and the good news for my readers is that all of my books are now free to download.(Sadly I cannot control the two I didn’t self publish…) If you care to understand why

Yield. Within almost any asset class, investors want to know, what is the “yield” on the investment? For some investors, this is the most important and only screen used when sorting funds. Mutual fund companies have found ways to feed the beast by “juicing” the dividend yield on equity

There are not too many creative opportunities to leave a person applying for a quant role dumbfounded with the interview question directly related to his CV. First of all, we want to test his quant skillset, check his ability to read a code, analyse the model, listen to his judgement on the

Pim van Vliet posted a link to my 1994 dissertation, noting it was an early documentation of the low-vol effect. One may wonder, why did this early evidence fall flat? Clearly, lots of things, but I'll try to highlight the keys. Here's my lead paragraph, which makes clear I saw the low vol

Benchmarks can be a very difficult subject to pin down. Choosing different ones can create drastically different backdrops to frame both short and long-term results. This was even true in our 2018 March Madness Bracket Challenge, with the value-weighted benchmark taking the top place. As investors,

A growing number of investors are seeking to construct portfolios that simultaneously capture the 1) long-term factor premia ( value, momentum, size etc.) and 2) have attractive ESG profiles. The main research questions of the paper are as follows: Is the relationship between ESG and factor stable

The interest rate-sensitivity of the Low Volatility factor has increased in recent years Mainly due to the sectoral biases from the long portfolio Sector-neutrality reduces the interest rate-sensitivity, albeit at the cost of performance INTRODUCTION Low Volatility strategies have become popular

Time flies, and it's time for another annual update on the performance of my own investment and trading. Previous updates can be found here, here and here. These updates follow the UK tax year; from 6th April to 5th April, as I have to do my taxes anyway it makes sense to analyse everything at

This paper examines the day of the week effect in the crypto currency market using a variety of statistical techniques (average analysis, Student's t-test, ANOVA, the Kruskal-Wallis test, and regression analysis with dummy variables) as well as a trading simulation approach. Most crypto

Last month I shared a table that showed performance of opex weeks by month. April was one of the most bullish. The study below looks specifically at April opex week. I last showed it on the blog in 2016. Results are all updated. 2018-04-15 The numbers are impressive, and suggest a bullish edge.

First, the bad news: Google Finance no longer provides data for historical prices or financial statements, so we say goodbye to getSymbols.google() and getFinancials.google(). (#221) They are now defunct as of quantmod 0.4-13. Now, the good news: Thanks to Steve Bronder, getSymbols() can now import