This is a summary of links featured on Quantocracy on Monday, 07/24/2017. To see our most recent links, visit the Quant Mashup. Read on readers!
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Information Content in the Limit Order Book for Crude Oil Futures (WTI) [Golden Compass]Order book imbalance strategies have been a big alpha source in automated market making. Tick by tick observations provide important information about general market sentiment and direction, and high frequency trading firms (HFTs) have been very efficient at trading on this information at very low latency intervals. In their recent paper on HFT strategies, Goldstein, Kwan and Philip analyzed six
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Separating Positions from Allocations [Following the Trend]Most trading models I see are missing an important concept. Its not a terribly difficult concept, but it is an important one. Its not at all strange that most traders, in particular on the retail side, are missing this point. Most trading books skip over it. Most books gloss over it, or just dont mention it at all. My books included. The Traditional Way Heres how a regular type of
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Trick Question: How is the Momentum Factor Performing YTD? [Alpha Architect]If you ask your typical long-only investor (or financial advisor) how momentum is doing this year theyll likely say, Amazing! This statement will almost surely be based on the fact they own (or know about) the iShares Momentum Factor Fund (Ticker: MTUM). MTUM is on fire year to date (through 5/31/2017):(1) 17.42% based on market prices versus 8.66% for the S&P 500 Total Return
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The Case for the Harmonic Mean P/E Calculation [EconomPic]The most recent "analysis" seemingly spreading like wildfire across the perma-bear community was performed by Horizon Kinetics in their most recent quarterly commentary. Their claim is that the price-to-earnings of the Nasdaq (or any index really) is much higher than reported because we are being fed a manipulated harmonic mean rather than arithmetic mean calculation for the price to
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Managing Capital Market Assumption Risk [Flirting with Models]Calculating an optimal portfolio from a set of capital market assumptions (CMAs) is a straightforward quantitative exercise, but the results are highly dependent on the assumptions holding in the future. Any portfolio that is initially assumed to be optimal will be sub-optimal if any single assumed parameter turns out to be different. By utilizing multiple sets of capital market assumptions, we
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Academic Research Insight: When Does International Investing Make Sense? [Alpha Architect]What are the research questions? Market globalization is said to be the culprit of decreased benefits of international diversification. In 1995, a US investor investing in Vodafone had exposure to 99% of UK based sales. The same investor in 2012 is exposed to UK sales only for 8% while at the same time he is exposed to 30% of US sales, his home country. Vodafone is an example of a multinational