This is a summary of links featured on Quantocracy on Friday, 08/28/2015. To see our most recent links, visit the Quant Mashup. Read on readers!
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Avoiding Stock Market Crashes with the Hi-Lo Index of the S&P500 [iMarketSignals]This daily indicator is calculated as the ratio of the number of S&P500 stocks that have reached new 3-month-highs minus those that have reached new 3-month-lows, divided 500. Exiting and entering the stock market according the indicators signals would have avoided major drawdowns of the market during the backtest period from Jan-2000 to Aug-2015. Switching acco
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Are Spikes Predictive? [Factor Wave]Yesterday I looked at stock market returns in the week and month after a large daily decline and found that it is usually a good time to buy more equities. Especially because, as long-term investors, our strongly held prior is that equity markets appreciate over time. But what about spikes? Do large one day rallies tell us anything in particular about subsequent returns?
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Missing the Best and the Worst [Flirting with Models]Numerous marketing pieces circulating around the web show the detriment that trying to time the market can have on a portfolio. These pieces often look similar to this chart, which shows the cumulative growth of $1 invested in the S&P 500 ETF (SPY) assuming that a given number of best days are missed over the period from 1995-2014. Missing 0 days is equivalent to simply buying and holdi
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Visualizing Stock Market Risk: 7/1926 to 6/2015 [Alpha Architect]How crazy is current market action? Not that crazy. and if you lived through 2008, definitely not that crazy. Seeing a -3%+ or a +3% observation is roughly a 1/100 event, or ~ 2.5 times a year. Obviously, return events are not independent and volatility tends to cluster, but the numbers above establish a basic starting point for discussions about
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5 Ways to Plot Returns [John Orford]There's an infinite number of ways to plot financial time series, let's look at the main ones. The most basic way is just plonking returns on a plot. This has one very nice feature. The returns are comparable across time, which makes a lot of sense, right? A return at the beginning of our backtest should probably be as important as one at the end.
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Why Thursday s Volume Was Disappointing For Bulls [Quantifiable Edges]Thursdays rally was accompanied by the lightest volume in 5 days. The relatively low volume could be worrisome for bulls. The importance of volume can be seen in the studies below. The first one looks at 2%+ SPX gains when volume comes in relatively high. 2015-08-28 image1 A week later of the instances closed higher and the average instance saw the SPX up ab