Quantocracy’s Daily Wrap for 05/20/2015

I. Trading Strategy Developer: Nelson F. Freeburg. Concept: The currency trading strategy based on the intermarket analysis. Source: Freeburg, N. F. (Dec. 1993). Formula Research, Quantitative Treatment of the Financial Markets. Memphis, TN: Formula Research, Inc. Research Goal: Performance verification. General Description: The Pathfinder currency trading system uses the

very model's assumptions get thrown out the window as soon as things get really rocky. Every model is short vol. Even those for which getting volatility right is crucial! Take the binomial tree approach to pricing options for example. See my previous post here. From 'Paul Wilmott Introduces Finance' Unfortunately as volati

The Europe Catch-Up Trade… $FEZ

Mean-Variance Optimization (MVO) as introduced by Markowitz (1952) is often presented as an elegant but impractical theory. MVO is "an unstable and error-maximizing" procedure (Michaud 1989), and "is nearly always beaten by simple 1/N portfolios" (DeMiguel, 2007). And to quote Ang (2014): "Mean-variance weights perform horribly The optimal mean-variance portfolio is a

In the introduction to their 2015 book entitled Invest with the Fed: Maximizing Portfolio Performance by Following Federal Reserve Policy, authors Robert Johnson, Gerald Jensen and Luis Garcia-Feijoo state: Our purpose in writing this book is to provide a general overview of the Feds role in the financial markets, but, more important, to offer investors a road

After a few days of living with our (pretty awesome) new voting feature at Quantocracy, weve opted to do away with down voting. Readers can now choose to either vote up or not vote at all on each link. We try to keep things friendly around these parts, and the down voting just began to feel a little dirty. With up voting only, good content will still get more eyeballs, blo

I was recently asked to comment on an article that appears in the April 2015 issue of the American Association of Individual Investors Journal. The article is based on the paper Mutual Funds R2 as Predictor of Performance, which was published in the March 2013 issue of The Review of Financial Studies. As you may have already guessed, the study, which cover

This is part 2 of our series (or mini-seriesTBD) on divergences. As we stated yesterday, divergences (in which one index achieves a new high whereas another does not) are generally over-cited as red flags. The problem is that the timing of their repercussions on the market – if any actually materialize – is extremely difficult to get right. Divergences can persist for a long time witho

See Jays recent post: One More Plunge for Crude Oil? If you are an ardent believer in the phrase if something looks too good to be true it probably is, then youd better brace yourself. Because a sure-fire, cant miss, you cant lose thing is on the horizon in natural gas. Well OK, at least thats the theory. A Bearish Seasonal Trend in Natural Gas

Modelling Systemic Price Cojumps with Hawkes Factor Models

Does the Memorial Day holiday signal any unusual return effects? By its definition, this holiday brings with it any effects from three-day weekends and sometimes the turn of the month. Prior to 1971, the U.S. celebrated Memorial Day on May 30. Effective in 1971, Memorial Day became the last Monday in May. To investigate the