Quantocracy’s Daily Wrap for 08/03/2015

We've tested 23 simple strategies for trading VIX ETPs on this blog (separate and unrelated to our own strategy). And while I can't speak for all traders, based on all of my readings both academic and in the blogosphere, the strategies we've tested are broadly representative of how the vast majority of traders are timing these products. There was a wide disparity in the per

Perhaps the most widely known form of statistical arbitrage is called Pairs Trading. In this general strategy, we start first by picking two stocks which are highly related to one another (either by correlation, cointegration, or both). One method for finding such pairs is to use a network graph like a Minimum Spanning Tree. A filtered correlation network quickly summarizes the set of a

Last week we had a fairly long post on a valuation based asset allocation strategy that might actually work. This post followed a couple of other research projects on the issue, which showed limited evidence for simple valuation-based timing strategies. Now there is a new paper on Warren Buffetts favorite timing mechanism, Market Cap/ GNP (or GDP). Weve discussed this met

In my previous article I went over how to add a position sizing rule and in this one I will complete homework exercise 2: adding a stop loss and trailing stop loss. Adding a stop loss in R is way easier than building it into Excel, I had to think for some time as to how I was going to break it down in the spreadsheet. First calculate daily returns followed by a column to as

This week we received an email from an advisor that echoes some calls weve been receiving lately. We thought it would make a great topic for us to cover in our commentary this week. The email read: Were seeing a lot of negative indicators in the market right now, and seeing commentary from other managers changing from pessimistic to dire warnings of impen

Having just written and, thankfully, passed the CFA Level I exam I wanted to take this opportunity to share my experience writing the CFA Level I exam given that I come from an unconventional academic background and work in the industry as a quantitative analyst. I also want to share some helpful online resources with would-be CFA Level I candidates who might find the quantitative meth

Since Rolf Banz published his groundbreaking paper that identified the so-called small stock effect in 1981, the investment community has acknowledged the existence of a return premium afforded to smaller-capitalization stocks over their larger counterparts. Banzs study demonstrated that between 1926 and 1980, the smallest quintile of the stocks on the New York Stock Exchange outperf

A while ago I wrote a post, "Does the VIX Know More Than the S&P 500?", and concluded "when the VIX and the S&P 500 are both up on the day sell the stocks, either through the futures of an ETF. " An astute reader, Leo Cheng, pointed out that the VIX index has a certain degree of predictability (mean reversion, clustering and calendar effects) and these effects are pri

The success of the carry trade strategy has led to its widespread proliferation, despite the fact that it contradicts economic theory. In short, this strategy involves borrowing (going short) a currency with a relatively low interest rate and using the proceeds to purchase (going long) a currency yielding a higher interest rate, capturing the interest differential. It can be enhanced