Quantocracy’s Daily Wrap for 01/04/2017

December 2016 Trend Following: UP +1.38% / 2016: -18.15% December closed 2016 on a slight positive note, avoiding six straight months of negative returns for our State of Trend Following index. An inflection point was felt in the markets towards the close of the year, but this was obviously not enough to offset what has been a strong under-performance in the second half of the year. The first half

The ninth annual R/Finance conference for applied finance using R will be held on May 19 and 20, 2017 in Chicago, IL, USA at the University of Illinois at Chicago. The conference will cover topics including portfolio management, time series analysis, advanced risk tools, high-performance computing, market microstructure, and econometrics. All will be discussed within the context of using R as a

Happy New Year! To kick off the year, we want to share a white paper we penned mid-December containing our views on building a modern strategic asset allocation. The white paper covers: Why we believe tailwinds from the last 30 years are turning into headwinds for traditionally allocated stock-bond portfolios. Why the normative optimal portfolio may not be the optimal achievable portfolio and the

After reviewing the 2016 performance of trend-following (-18.15%), its unclear why anyone would mention the word trend following in a public forum. But well give it a whirl anyway The comedian Victor Borge once famously observed, Santa Claus has the right idea visit people only once a year. In studying investment markets, many have taken a similar approach, preferring a

Imagine that were trying to predict the cross-section of expected returns, and weve got a sneaking suspicion that x might be a good predictor. So, we regress todays returns on x to see if our hunch is right, \begin{align*} r_{n,t} = \hat{\mu}_{\text{OLS}} + \hat{\beta}_{\text{OLS}} \cdot x_{n,t-1} + \hat{\epsilon}_{n,t}. \end{align*} The logic is straightforward. If x explains enough of

My last post on using PercentRank to measure mean reversion proved very popular. A reader looked at the trades and wondered if it would be best to exit after five days because the average trade with longer holds was a loser. I am surprised I have not covered this topic before. Background Early in while working for Larry Connors, I had done a mean reversion test. I was looking at the trades and

Happy new year to all readers! With best wishes for your trading in the coming twelve months, which Im sure youll agree will prove interesting from several perspectives. We start the year by looking back at the performance of trend following over the year just passed. Unsurprisingly the State of Trend Following posted a loss for 2016. There was a long downtrend in the performance of

The 2017 American Finance Association conference is kicking off later this week in Chicago. If you havent been before check it out. The conference is the biggest meeting of top-tier academic researchers on the planet. You can review all the research being presented at the following link. Some of the more exciting sessions that Im reviewing: Behavioral Finance I Behavioral Finance II

In the last post, 38 DTE Iron Condor Results Summary, I showed the backtest results from 97,416 iron condor (IC) trades. All of those test results were based on weekly expiration data at 38 days to expiration (DTE). In this post, we'll look at a few key metrics and how those metrics differ between weekly data and monthly data. The charts below are organized similar to those in the prior post.