Many consider smart beta to be a revolution in the asset management industry. For example, Bloomberg ran an article, “Funds Run by Robots Now Accounts for $400 Billion,” which caught our attention. According to this article, “Smart beta,” is one of the fastest growing segments of ETFs,

First: the takeaways Expected return for an asset class is a combination of carry and price appreciation If carry is high enough, it can potentially dwarf price depreciation due to rising rates Higher carry assets (e.g. high yield bonds, MLPs, REITs, bank loans, EM debt, et cetera) have historically

When developing trading strategies, most systematic traders understand that if you search long enough, you're bound to find something that looks great in back-testing. The question is whether those great results are from a great trading strategy or because the best looking strategy was the one

A while ago I ran a series of posts on how you would write some python code to systematically trade using the interactive brokers C++ API. Whilst I hope this was helpful it was just a starting point. There are at least two major projects to undertake before one could actually trade. The first is the

In this post we will look at the backtest results for dynamic exits of the 66 days-to-expiration (DTE) Iron Condor (IC) options strategy, with 16 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

Newfound will be hosting its next monthly strategy review session on Thursday, May 14th from 2:00- 2:30PM EST. We’re fortunate enough to have a guest panelist joining us: Brett Hammond from MSCI. He will be discussing factor-based investing and MSCI’s portfolio construction methodologies that

Reader Eli asked in the comments "I used to program in Matlab a lot in the past. Now I feel that Python is a better way to go. Any thoughts? Yes, quite a few - however I also hope to hear some ideas from other readers. Matlab is an excellent tool for analytics, and I have been using it for over

“I’ve never seen a bad backtest” — Dimitris Melas, head of research at MSCI. About backtests A backtest is a simulation of a trading strategy used to evaluate how effective the strategy might have been if it were traded historically. Backtestesting is used by hedge funds and other

A rich body of literature has shown that value investing, or buying stocks that are “cheap” based on a variety of valuation metrics, is robust across different markets. For example, Fama and French (1998) highlighted the value premium across world equity markets. The authors find that value

#21 - Momentum Effect in Commodities #22 - Term Structure Effect in Commodities Authors: Bakshi, Bakshi, Rossi Title: Understanding the Sources of Risk Underlying the Cross-Section of Commodity Returns Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2589057 Abstract: We show that a model

New 3-part course Fall 2015 I will be offering a 3 part course, CS 7646: Machine Learning for Trading, online. It is equivalent to the on campus graduate course that I teach at Georgia Tech. The three parts are: • Part 1: Manipulating Financial Data in Python (about 4 weeks) • Part 2:

No, we’re not talking resale value here (in which case losing 95% of your original investment is a distinct possibility). We are talking about stock ownership. In a nutshell, the answer is fairly simple: *It is OK to drive a Ford in late summer into fall. But it is NOT OK (apparently) to own Ford

One interesting aspect of Friday’s action was the discrepancy between the NDX and the SOX. While the NDX rose 1.3%, the SOX declined 1.7% – which is very unusual action. Below is an updated study that looks at times the NDX rose by a least 1% while the SOX declined. Six days later 76% of the

In Episode 4 of the Better System Trader podcast, Nick Radge discusses some trading ideas he’s used to create profitable systems. He mentions a Bollinger Band idea which is also published in his book Unholy Grails. Nick says: the strategy that we did test and showed very promising results was an

Note: James Picerno of The Capital Spectator recently did an interesting piece evaluating the Self-Similarity Metric and provides some R code which is valuable for many of our readers. The principle of parsimony relates to being frugal with resources such as money or the use of computing time. It is

On April 21, 2015, the U.S. Department of Justice announced that it would press criminal charges against Mr. Navinder Singh Sarao, a 36-year-old small-time British day-trader. He is being blamed for nothing less than causing the “Flash Crash” of May 6, 2010, the second largest point swing

Asset Allocation: Is it better to allocate portfolios to factors rather than to assets? (Cocoma, Czasonis, and etal) Tactical Asset Allocation with Market Valuations: Can’t even beat the simple 60/40 rule?? (Estrada) More on ‘Smart Beta” ETFs: How Smart are ‘Smart Beta’ ETFs? Analysis of

This post will be a quick diversion from the iron condor posts. You may have noticed on my Twitter feed that I have been running backtests on iron butterflies, straddles, and strangles, using a range of entry and exit criteria. Today we will take a look at some statistics of a medium term, 43 days

We’ve updated “What Works Best?” to incorporate some recent research summaries and adjust interpretation of the body of research.

Everyone says they’d like to buy blue chips on a pull back. The problem is that it take a lot to disrupt the returns of these glacial behemoths. So when they do pull back, they don’t look so nice from a fundamental or chart perspective. $WMT has some stink on it right now. It’s useless to get

Well... maybe not the "case for". Rather, a "potential" use. If you are contemplating an allocation to the fund in a buy and hold manner (you're not... just saying)... I wouldn't. While John Hussman is without question a remarkable writer (and in my view a remarkable

Unlike most links we share, this one is dated, but it was something new and interesting and I think worthy of a share. Hat-tip http://www.reddit.com/r/algotrading/

Pumping Iron. 20% bull market rallies in iron ore $SLX

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of the 66 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

Sarcasm Do you make bad decisions when your portfolio goes down? What if there was a way to automate the decision so that your emotions wouldn’t get in the way. Good news, I found a way! Here is the strategy, every time stocks drop five percent, you sell and wait for “clarity.” Why would you

Quandl.com offers an easy solution to that task. Their WIKI database contains 3339 major stock tickers and corresponding company names. They can be fetched via secwiki_tickers.csv file. For a plain file of portfolio.lst storing the list of your tickers, for example: AAPL IBM JNJ MSFT TXN you can

Two of the most well-known phenomena in investing are the carry effect and the trend effect. Trend is related to momentum. While carry is typically used in the context of currency markets (currencies with higher yields tend to produce higher returns than currencies with lower yields), it can also be

Discretionary Spent ? $XLY

We are huge believers in value investing. I personally started off as a fundamental value guy, spending twenty-plus years trying to pick stocks. I eventually ran into Wes, who convinced me that a systematic approach to value investing was the way to go. Wes, as many of you are probably aware,

I have written a couple of articles recently about “Good Days in Bonds.” One period of note is the last 5 tradng days of the month. In the articles I brushed with a broad stroke – to avoid exceeding a certain level of curve-fitting – including all 12 months. For the record though, FYI, not

In this post we will look at the backtest results for dynamic exits of the 66 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

Following on from the successful C++ .oct coding of the Gaussian and Binary units, I thought I would conduct a simple visual test of the conditional restricted boltzmann machine, both as a test of the algorithm itself and of my coding of the .oct functions. For this I selected a

Frequent readers of this blog know that I am somewhat obsessed with the concept of timing luck and portfolio tranching, with the ultimate goal of reducing the variance of active returns. For those less familiar with the topic, you can read our introductory white paper here. I recently wrote a more

We have mentioned the put/call ratio of open interest on S&P 100 (OEX) options a handful of times over the past 6 months or so. The reason is that this historically “smart money” indicator has been flashing warning signs off and on during that period. On March 3, we posted our most recent

On an open to close basis, Thursdays have been on real hot streak over the last 6 months. This can be seen in the stats table below. The numbers here are all impressive. Traders could be looking at some intraday strength on Thursday based on this. Of course we are looking at a pretty narrow period

Quick Summary For a bond momentum strategy, it makes sense to select the top 3 or top 6 funds. The starting universe matters. One must consider the taxes and transaction costs associated with the strategy, which can be significant. Background Proponents of the momentum investing philosophy suggest

Financials relative strength at multi-year lows... $XLF $SPY

This post is a continuation of the prior post. In this post we will look at the backtest results for dynamic exits of the 66 days-to-expiration (DTE) Iron Condor (IC), with 8 delta short strikes, with different profit and loss exits as a percentage of the initial credit. Recall that these RUT ICs

Gary Antonacci, author of the award-winning book Dual Momentum Investing, explains the merits of a momentum-based approach to investing and also discusses the importance of indexing and investment costs.

Yesterday I published some important changes to the QSForex software. These changes have increased the usefulness of the system significantly to the point where it is nearly ready for multi-day tick-data backtesting over a range of currency pairs. The following changes have been posted to Github:

In the ETF world, average bid/ask spread is one of the most widely quoted metrics for liquidity. And average bid/ask spread is indeed important when evaluating ETFs. The chart below shows the average bid/ask spread (in bps of closing price) for each of the sixteen ETFs that we use in our Multi-Asset

Here's an overview of my new Lazy Backtesting tool. Yes I have the flu, but no, that's not too far away from how I usually talk. Still a few missing features, but it's not a bad return for a few hours work. Let me know what you think, john.orford@gmail.com.

A couple of late reporting funds this month, but here is the update for March’s Wizards performance. A fairly positive month to increase the yearly gains. Organisation / Fund Return YTD * AUM ** Abraham Trading1 1.26% 5.00% $275M Altis Partners2 5.95% 10.42% $325M Aspect Capital3 3.70% 7.99%

We have spent quite a bit of ink in this blog recently covering various aspects, and potential implications of the ongoing range in the U.S. stock market. As students of the market, we attempt to observe, identify and (hopefully) accurately interpret what is happening in the markets. And currently

My initial goal of this post was to share why risk parity was less likely to be a free lunch on a forward basis using data going back to the 1950's (the last time we saw rates at current levels), but it became more of a risk parity 101 piece. I'll save much of those comments for another

In this post we will look at the backtest results for dynamic exits of the 66 days-to-expiration (DTE) Iron Condor (IC) options strategy, with 8 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

Cesar Alvarez spent nine years as a professional market researcher for Connors Research and TradingMarkets.com. He has been at the forefront of stock market research, having developed a number of successful trading systems now used by numerous investors and fund managers in the United States and

At this stage in our lives we’ve essentially memorized the CRSP/Compustat database. Name an anomaly and we can probably tell you the stats on it fairly quickly. Legitimate anomalies can usually be described via a behavioral finance lens: Can we identify poor psychology in the market? (Why do

The objective of this thesis is to develop and back-test an investment strategy created by professors Wesley R. Gray and Tobias E. Carlisle in their book Quantitative Value, published in 2013. Gray and Carlisle construct a quantitative strategy based on Warren Buffet’s investment philosophy and

Back in March I wrote an article called “Good Days for T-Bonds” that basically highlighted the fact that the last five trading days of the month have historically been the best time to be long t-bonds. And so of course, Murphy immediately invoked his pesky rule and the last five days of March