This is a summary of links featured on Quantocracy on Wednesday, 12/02/2015. To see our most recent links, visit the Quant Mashup. Read on readers!
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The Case for an Allocation to Dollar Based EM Debt [EconomPic]While the underperformance of high yield bonds since my post The Case Against High Yield has certainly made high yield bonds more attractive (yields went from sub 6% to north of 8%), I still prefer the risk/return profile of a stock/bond allocation (more here). For those that are looking for a higher yielding fixed income alternative with limited currency risk and the potential for U.S. interest
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Exploring mean reversion and cointegration with Zorro and R: part 1 [Robot Wealth]This series of posts is inspired by several chapters from Ernie Chans highly recommended book Algorithmic Trading. The book follows Ernies first contribution, Quantitative Trading, and focuses on testing and implementing a number of strategies that exploit measurable market inefficiencies. Im a big fan of Ernies work and have used his material as inspiration for a great deal of my own
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Putting TWAP to the Test [Flirting with Models]A few weeks ago, we discussed a method that we implemented to construct more realistic indices using an estimate of time weighted average prices (TWAP) for trade execution. Prior to October, whenever our models required a rebalance, we assumed that it occurred at the opening price on the following day in our hypothetical index calculation. Making this assumption is not necessarily bad, especially
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Trend Following Via Slope [Relative Value]Linear regression slope is another tool one can use to sidestep potentially sticky situations. The following algorithms hold a full position in SPY but liquidate whenever the slope of closing prices turn negative. Starting Capital of $100,000 and backtest period from 2/2003 and 11/2015. Strategy End Bal Gain CAGR Sharpe Sortino Drawdown Buy and Hold 316400 216.4% 9.4% -54.9% 1 Month 182561 82.6%
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‘predictions’, ‘forecasts’ or ‘projections’? [Eran Raviv]Perhaps it is the different jargon used in different disciplines, not sure. But for some reason, the terms predictions, forecasts and projections are frequently used interchangeably. There should be at least some distinction, here is what I entertain: The word predictions should be reserved for situations where the future is already here. For example, given the
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Trend Following UP in November and YTD [Wisdom Trading]November 2015 Trend Following: UP +6.06% / YTD: +9.86% The Wisdom trend following index gradually made its way up last month to post a strong result for November, and recover a large part of the losses occurred in October. This helped cement the YTD number further in the black. Now nearly in double-digit territory, there is a strong chance that trend following will end 2015 positive. Stay tuned
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Predictable & Skewed Returns [Larry Swedroe]There has been a lot of research recently that investigates the link between stock returns and higher moments of the return distribution, specifically the skewness of returns. This link, unfortunately, is frequently ignored by more standard measures of market risk and volatility. Skewness, if youll recall, measures the asymmetry of a distribution. In terms of the stock market, the asymmetric
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Student t Distributed Linear Value-at-Risk [Quant at Risk]One of the most underestimated feature of the financial asset distributions is their kurtosis. A rough approximation of the asset return distribution by the Normal distribution becomes often an evident exaggeration or misinterpretations of the facts. And we know that. The problem arises if we investigate a Value-at-Risk (VaR) measure. Within a standard approach, it is computed based on the