This is a summary of links featured on Quantocracy on Monday, 07/13/2015. To see our most recent links, visit the Quant Mashup. Read on readers!
Optimal Stock Quantity, Selection and Weights for Momentum Investing [Quants Portal]
To try and maximise return the correct recipe of ingredients must be brought together. Not only do we have to look at the quality of stock selection, but the weights and quantity of stocks required for maximising returns and minimising risk. Momentum investing looks to invest in top performing stocks and combining this technique with good diversification skills and portfolio optimisatio
Tail-Risk Analysis In R: Part I [Capital Spectator]
Its hard to overestimate the importance of modeling tail risk when it comes to the care and feeding of investment portfolios. But where to begin? The topic of studying, estimating and otherwise dissecting rare but extreme market events can be a black hole of analytical possibilities and econometric complexity. Its also too important to be left as a plaything for rocket scientists. Wit
Market Timing Models For A Momentum Strategy [Quants Portal]
Everyone has an opinion about what the state of the market will be in the short term or long term, never mind that stock prices follow a random walk or the possible clash between that comes between the invisible hand of the market and the regulatory rules made by policy makers. Returns in the market are limited based on the performance among the wide range of asset classes
Investing with Not-So-Perfect Economic Foresight [EconomPic]
Following up on my previous post Is there a Relationship Between the Economy and Stock Market?, which outlined the relative performance of the U.S. stock market and underlying U.S. economy over time and market performance during economic expansions / contractions, the below provides further detail into performance of the stock market during periods of improving / declining underlying ec
New Nassim Taleb: Error, Dimensionality, and Predictability [Flirting with Models]
Nassim Taleb, author of the Inconcerto series and, most famously, The Black Swan, is out with a new paper called Error, Dimensionality, and Predictability. You can get a copy here. To quote some of the scary bits … From the abstract: We show how adding random variables from any distribution makes the total error (from initial measurement of
Momentum: Absolute or Relative? [Factor Wave]
There are two completely different ways to think about momentum: absolute and relative. At FactorWave we are largely concerned with relative (or cross-sectional) momentum. We know that stocks with positive momentum tend to outperform thse with negative momentum. So if we have a choice of two stocks: one that has no momentum at all and one with a negative return over the last year we wou
Improving The Simple Gap Strategy, Part 3 [System Trader Success]
In the last article in this series, Improving The Simple Gap Strategy Part 2, I tested two filters on the OOS sample data. The first filter was a day-of-week (DOW) filter which did not produce decent results. The second filter, Gap Size, did show promising results. Reviewing my notes from years ago, I also discovered that the size of the gap will play an important factor in the success
Weekly Commentary Lessons from a Crystal Ball [Flirting with Models]
A PDF of this commentary can be downloaded here. Summary Dalbar studies tell us that investors often sell after losses and wait for markets to reclaim high water marks before re-entering behavior that is guaranteed to lead to underperformance Other, more dynamic, approaches may help investors achieve their dual goals of participating with market growth
Daily Academic Alpha: International 5-Factor Evidence from Fama and French [Alpha Architect]
About a month ago we posted on the robustness of the Novy-Marx profitability factor, which is embedded in the Fama-French 5-factor. We also highlighted potential weaknesses in the 5-factor model across international markets. Fama and French have responded with their own analysis on the 5-factor model in international markets: International Tests of a Five-Factor Asset
SPX Performance After 2-Days Bounces From Lows Similar To Thurs-Fri [Quantifiable Edges]
Friday was the 2nd day in a row that SPY put in an unfilled gap up (though Thursday ended with very small gains.) And while the move up on Friday was strong, it still was not strong enough to erase all of Wednesdays losses. Wednesday was a big down day that left SPX at an intermediate-term low. The Quantifinder showed a study that examined other instances where SPX rebounded 2 days off a 20-day
Introducing Sharpe Trajectories [John Orford]
It's my final week in Singapore. Contrary to hearsay the 'Red Dot' is not zero dimensional; it's as multi-layered as the time you take to investigate it. A bunch of 'lasts' in Singapore will soon be followed by many 'firsts-in-a-long-time' back in Germany. Times like these lead to sentimentality. Thinking about past lasts and whether they may come
Day of Week Calendar Effects [Price Action Lab]
A calendar effect is a market anomaly that is related to the calendar. In this blog I review a calendar effect anomaly in GLD related to returns during specific days of the week. Profiting from such anomalies is in general quite difficult but not impossible. Definitions: The return of a specific day of the week is defined as the percent arithmetic return from t
Our Free Tools Are Updated: Do-It-Yourself Investors Unite [Alpha Architect]
Weve updated the technology behind our free tools for financial professionals. Unfortunately, this took a long time, but now that weve developed the framework, well be able to launch new and better tools in the future. tools alpha The current core modules are the following: Allocation Architect: This module allows DIY investors to
Multivariate volatility forecasting [Eran Raviv]
Introduction When hopping from univariate volatility forecasts to multivariate volatility forecast, we need to understand that now we have to forecast not only the univariate volatility element, which we already know how to do, but also the covariance elements, which we do not know how to do, yet. Say you have two series, then this covariance element is the off-diagonal of
SPX Strangle – High Loss Threshold – 45 DTE [DTR Trading]
This is the first article in a series where we will look at the performance of selling options strangles. For background on the setup for the backtests, as well as the nomenclature used in the charts and tables below, please see the introductory article for this series: Option Strangle Series – Higher Loss Thresholds This post looks at a one-lot strangle on the S&P 500 Inde
Beating the Market with Two Simple Cycles (Part 1) [Jay On The Markets]
If I were to say to you the following: The only thing that matters in the stock market is whether the 40-week cycle and/or the 212-week cycle is bullish, chances are you would say either: a) Wow Jay, thats very interesting analysis. Have you considered taking some time off? OR, if you were in less of a convivial mood: b) Thats
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