Quantocracy’s Daily Wrap for 08/10/2015

When doing financial modeling, one of the first things to look at is if your empirical work makes sense. In other words, are there valid economic reasons why a model should work? This can help you avoid drawing erroneous conclusions based on creative data mining.[1] Next, you should look for robustness. This can take several forms. One of the most common robustness tests i

Warren Buffett made news this morning, not just for making the largest acquisition of his career, but for making it at a relatively lofty 22x earnings multiple. Reuters reports: Warren Buffett is paying a hefty price for the biggest acquisition of his career, now that his Berkshire Hathaway Inc has agreed to buy Precision Castparts Corp in a merger valuing

After publishing our Two Centuries of Momentum article last week, we received a number of requests for our thoughts on the recent underperformance of multi-asset, relative strength portfolios. Now, we tend to fall more on the trend following side of momentum. So we wanted to spend some time talking about the difference between relative strength and trend following.

Summer bounce for our Wisdom State of Trend Following report. A strong up month ends the downslide seen in the second quarter and ensures the YTD performance is more comfortably in the black. Below is the full State of Trend Following report as of last month. Performance is hypothetical. Chart for July: Wisdom State of Trend Following – July 2015

In the last article of the series, Improving The Simple Gap Strategy Part 4, I continued my attempt to improve the Simple Gap strategy by testing dynamic stops and targets. As it turned out these did not seem to offer much benefit. In this article Im going to take what we have learned over the past couple of articles to create a modified version of the Simple Gap strategy and test it o

Open source software has many virtues. Being free is not the least of which. However, open source comes with ABSOLUTELY NO WARRANTY and with no power comes no responsibility (I wonder..). Since no one is paying, by definition it is your sole responsibility to make sure the code does what it is supposed to be doing. Thus, looking under the hood of a function written by someone else i

Tradelib is my framework which I have been using for backtesting and signal generation in my futures trading. My feeling is that it might be useful to others, and I have decided to open source it. Unfortunately, I dont have the time at the moment to open source any strategy implemented with it, and I am also too lazy to provide a step-by-step guide for it. If you have an i

This is the first article in a series that will review the performance of selling options strangles on the Russell 2000 Index (RUT). For background on the setup for the backtests, as well as the nomenclature used in the charts and tables below, please see the introductory article for this series: Option Strangle Series – Higher Loss Thresholds This post looks at selling on