Quantocracy’s Daily Wrap for 08/21/2015

Two of the most-well-known factors that help explain stock returns are the value effect (where equities with lower prices relative to metricssuch as book value, earnings, cash flow, sales and dividendstend to outperform the equities with higher prices relative to those metrics), and the momentum effect (where assets that have outperformed in the recent past tend to continue to outperf

One of the major themes of War and Peace will resonate with all practitioners of stochastic finance. Essentially, Napoleon's nemesis, the Russian general Kutuzov, keeps dropping back before the invading French until at last he spots a weakness in the French and pounces. Tolstoy tells us that indecision and chaos is the natural state of things, and the logical c

Building on research in psychology, we predict that unpleasant weather negatively affects capital market participants moods and activity levels, causing a muted response to information events The table below highlights that unpleasant weather seems to be correlated with slower market reactions. For example, in columns 5-8, the authors look at PEAD, or post earnings an

At the start of the week I wrote a post about the effect of weather and the markets. Leo Cheng thought (quite reasonably) that this might just be data mining. If you look at enough things, some will appear to have an influence on the market just by chance. I've done a little more reading and I think that is not the case. I think the effect is real but it is weak.

This post reviews the backtest results of selling one-lot options strangles on the Russell 2000 Index (RUT), initiated at 66 days-to-expiration (DTE). The results in this post were derived from 2336 individual trades entered by the backtester. The results are grouped by the delta of the short strikes. For example, a 4 delta strangle is constructed by selling a -4 delta put, and selli