Quantocracy’s Daily Wrap for 07/14/2015

On average, High Frequency Trading is a young profession. At meetups, high frequency traders are likely to refer to the years prior to 2008 as ancient history. As a group, their attention spans might seem short and HFT strategies resemble their creators to a startling degree. However, in general, successful traders remember the worst trades and the events leading up to big losses, reg

In my last post I demonstrated how you can generate synthetic futures prices. In this post I am going to build on this and show how you can apply principal component analysis (PCA) to determine how much of the variability in returns each of the different futures are responsible for. Creating our data set was actually the harder part of the work. There are a number of PCA im

Through the traditional lens of the efficient market hypothesis, market prices stick close to their fundamental values because professional investors with large amounts of capital counteract mispricings created by dumb or retail investors. For example, if Dan the DayTrader enters sell orders on stock ABC at $8, when it is worth $10, Peter the Professional swoops in and purchases all

Mondays market rally was accompanied by a big drop in some implied volatility measures. The VXO, which is the old calculation for the VIX, saw a decline of over 22% on Monday. The study below is one I have shown before. It looks at SPX performance the day following VXO declines of 20% or more. Stats are all updated. Numbers here seem to suggest a downside edge for Tuesday. Traders may want to

Bifurcation Patterns of Market Regime Transition

Enhancing Multi-Asset Portfolio Construction Under Modern Portfolio Theory with Robust Co-Movement Measure