This is a summary of links featured on Quantocracy on Friday, 10/07/2016. To see our most recent links, visit the Quant Mashup. Read on readers!
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Want to Learn Way Too Much About Stock Market Factors? Read This Paper [Alpha Architect]During the past few decades, newly discovered stock anomalies have been embarrassing existing factor models, such as the Fama-French 3-factor. As many readers know, each long or short leg of these popular long/short factor portfolios is generally constructed by ranking stocks on one specific characteristic (value, momentum, or volatility). For example, take the Fama French 3-factor model.
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Cointegration and Pairs Trading in Stocks [Quantpedia]We examine a new method for identifying close economic substitutes in the context of relative value arbitrage. We show that close economic substitutes correspond to a special case of cointegration whereby individual prices have approximately the same exposure to a common nonstationary factor. A metric of closeness constructed from the cointegrating relation strongly predicts both convergence
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Implementing Predictive Modeling in R for Algorithmic Trading [Quant Insti]Predictive modeling is a process used in predictive analytics to create a statistical model of future behavior. Predictive analytics is the area of data mining concerned with forecasting probabilities and trends [1] The predictive modeling in trading is a modeling process wherein we predict the probability of an outcome using a set of predictor variables. Who should use it? Predictive models can