Quantocracy’s Daily Wrap for 10/13/2015

Summary Due diligence often focuses on the three Ps: people, philosophy, and process. There is an important 4th P: performance. When a portfolio has a consistent process, performance can ebb and flow as the strategy goes in or out of favor. For example, value stocks have been out of favor for 8 years. If a strategy goes through an extended period of underperformance, we must ask whether the

Here we highlight an interesting working paper titled Absolute Strength: Exploring Momentum in Stock Returns by Gulen and Petkova (2015). The abstract is the following: We document a new pattern in stock returns that we call absolute strength momentum. Stocks that have significantly increased in value in the recent past (absolute strength winners) continue to gain, and stocks that have

Broadly speaking, complex models can achieve great predictive accuracy. Nonetheless, a winner in a kaggle competition is required only to attach a code for the replication of the winning result. She is not required to teach anyone the built-in elements of his model which gives the specific edge over other competitors. In a corporation settings your manager and his manager and so forth MUST feel

Over the last few weeks I have been looking at using Runge-Kutta methods for the creation of features, but I have decided to give up on this for now simply because I think I have found a better way to accomplish what I want. I was alerted to this possible approach by this post over at http://dsp.stackexchange.com/ and following up on this I remembered that a few years ago I coded up John

A few months ago we highlighted a surprising result: cheap high-quality stocks were getting crushed by expensive junk stocks. The spread at the end of June was around 18%. Here is the chart from the old post (details on construction are in the original post): cheap hiqh quality versus expensive low quality stocks The results are hypothetical results and are NOT an indicator of future results and