Quant Mashup

Can We Finally Use ChatGPT as a Quantitative Analyst? [Quantpedia]

In two of our previous articles, we explored the idea of using artificial intelligence to backtest trading strategies. Since then, AI has continued to develop, with tools like ChatGPT evolving from simple Q&A assistants into more complex tools that may aid in developing and testing investment(...)

Weekly Research Recap [Quant Seeker]

Time for another batch of top-tier investing research. Below is a carefully curated list of great papers from last week, each linked to the original source for easy access. If you��re enjoying these posts, a like or subscribe is always appreciated, thank you for your support! Bonds Book-to-Market,(...)

Probabilistic Inferencing for Trading Strategies [Hanguk Quant]

Previously, we have discussed classical non-parametric approaches to making probabilistic inferences on attributes of trading strategies based on typical artefacts available. In this post, we discuss and implement in Python a finite-sample probabilistic bounding method, a unique approach coined(...)

I Asked 6 LLMs for Better Exit Strategies [Rogue Quant]

You start writing a trading strategy. The entry? Solid. Sharp. Thought-out. The exit? Let me guess�� Fixed dollar profit target? A stop based on some ATR multiple? Maybe a hard-coded dollar loss? Or the classic: "Just close it after 7 bars�� I guess?" Same old, same old. What if that��s(...)

Unlocking Cross-Asset Potential: A New Approach to Portfolio Construction [Alpha Architect]

Christian Goulding and Campbell Harvey, authors of the study ��Investment Base Pairs,�� proposed a groundbreaking framework for portfolio construction that challenges traditional approaches in modern finance. Their research focused on leveraging cross-asset information to optimize investment(...)

What are your bars hiding from you? [Trading the Breaking]

The electronic marketplace generates vast amount of data��billions of timestamped trades, quotes, and cancellations��that demand processing to extract actionable insights. For quantitative traders, the central challenge lies not in designing strategies but in constructing a robust framework to(...)

Market Timing with Macro Surveys [Quant Seeker]

Hi there. In recent months, there has been increased chatter about the possibility of a recession triggered by President Trump��s tariff war. The recent pause in tariffs appears to have eased some of those concerns. For example, JP Morgan now sees the likelihood of a U.S. recession to be below 50%,(...)

Simplicity or Complexity? Rethinking Trading Models in the Age of AI and ML [Relative Value Arbitrage]

When it comes to trading system design, there are two schools of thought: one advocates for simpler rules, while the other favors more complex ones. Which approach is better? This newsletter explores both perspectives through the lens of machine learning. Use of Machine Learning in Pairs Trading(...)

Taming OLMAR��s 1222% Backtest into a Sustainable 106% CAGR [Paper to Profit]

Often as traders, we equate complexity with profitability. A model��s edge comes from it doing something that no other person on Earth has tried yet. But the data shows that simple rules based on real market factors still outperform most models. Those that continue seeking complexity are headed(...)

The 1 AI Prompt I Use to Generate 20 Trading Ideas in Seconds [Rogue Quant]

My kids love bedtime stories. Like most kids. But they��re not into fairy tales or superheroes. They��re obsessed with one thing: ��Dad, can you tell a witch story? A mean witch, okay?�� Every night. Same request. So I lie next to their bed and say, ��Alright, buddies. A mean witch story it(...)

No Magic Formulas: How I Actually Decide What to Trade [Robot Wealth]

Someone recently asked me if I have a checklist for adopting new trading strategies. You know, a neat little formula like ��if backtested Sharpe > 1.8, trade it�� or ��if drawdown < 15%, green light.�� I get the appeal. We all want clear, objective criteria to make these decisions easier.(...)

Applying Transformers to Financial Time Series [Gatambook]

In the previous blog post, we gave a very simple example of how traders can use self-attention transformers as a feature selection method: in this case, to select which previous returns of a stock to use for predictions or optimizations. To be precise, the transformer assigns weights on the(...)

I Used AI for 30 Minutes and Discovered 8 New Market-Beating Systems [Paper to Profit]

Everyone either naively thinks that an LLM will find alpha for them, or equally naively thinks LLMs cannot develop their own systems with any sort of edge. The reality is quite the opposite. When used properly, LLMs can supercharge your strategy research process by at least 10x. Those who aren��t(...)

Macro-aware risk parity [Macrosynergy]

Risk parity is an investment strategy that allocates risk exposure equally across asset types through volatility-based calibration and leverage. A most profitable risk parity strategy in the past decades has been the equity-duration ��long-long��, which harvests combined equity and long(...)

Cliff Smith's BKLN Strategy [Allocate Smartly]

Questions about this long-ago strategy from Cliff Smith land in our inbox periodically (here��s another recent take). Smith��s simple strategy trades senior loan (aka leveraged loan) ETFs like BKLN, and has continued to be effective at timing these ETFs in the 10+ years since it was published.(...)

Comparing Affordable Intraday Data Sources: TradeStation vs. Polygon vs. Alpaca [Cracking Markets]

When building an intraday systematic strategy, the quality and consistency of historical data can make or break your trading results. Cost, however, is also a critical factor for many traders. We conducted a comprehensive analysis comparing three popular data providers offering REST APIs for(...)

Could data drift be silently sabotaging your PnL? [Trading the Breaking]

In the day-to-day grind of systematic trading, volatility isn��t just a market feature��it��s the atmosphere we operate in. It drives the edge, defines the risk, and sets the tempo. But while volatility creates the conditions for profit, it also contains the seeds of our destruction. That(...)

Is Machine Learning Better in Prediction of Direction or Value? [Quantpedia]

Building machine learning models for trading is full of nuances, and one important but often overlooked question is: what exactly should we try to predict��the direction of the next market move or the actual value of the asset��s return? A recent paper by Cheng, Shang, and Zhao, titled(...)

Is your strategy built on distributional lies? [Trading the Breaking]

During the previous optimization cycle, I was tasked with enhancing inventory management protocols for a legacy trading system operating under low-latency constraints��order cycle times �� 500ms. While the academic corpus fixates on high-frequency trading paradigms��microsecond latency(...)

Weekly Research Recap [Quant Seeker]

Asset Allocation How Much Should You Pay for Alpha? Measuring the Value of Active Management with Utility Calculations (Ang and Basu) Many investors chase high-performing funds expecting them to beat the market, but rarely ask how much that outperformance is actually worth to them. Even when a fund(...)

The Cybernetic Oscillator [Financial Hacker]

Oscillator-type indicators swing around the zero line. They are often used for opening positions when oscillator exceeds a positive or negative threshold. In his article series about no-lag indicators, John Ehlers presents in the TASC June issue the Cybernetic Oscillator. It is built by applying a(...)

Low-Volatility Stocks: Reducing Risk Without Sacrificing Returns [Relative Value Arbitrage]

The recent market turbulence highlights the need for improved risk management and strategies to reduce portfolio volatility. In this post, I��ll explore how to enhance portfolio diversification using low-volatility stocks. Gold and Low-Volatility Stocks as Diversifiers Gold has long been regarded(...)

A Poor Person's Transformer: Transformer as a sample-specific feature selection method [EP Chan]

For those of us who grew up before GenAI became a thing (e.g. Ernie), we often use tree-based algorithms for supervised learning. Trees work very well with heterogeneous and tabular feature sets, and by limiting the number of nodes or the depth of a branch, there is feature selection by default.(...)

I Found a One-Hour Edge in the S&P, Then Three LLMs Made It Better [Rogue Quant]

A friend of mine owns a Neapolitan-style pizzeria�� this is the real pizzeria�� When he first opened, he had one recurring headache: He could never guess how many pizzas he��d sell each night. Some days he ran out of dough by 9pm. Other days he overprepared and ended up tossing dozens of unused(...)

Research Review | 16 May 2025 | Asset Allocation [Capital Spectator]

Rethinking the Stock-Bond Correlation Thierry Roncalli (Amundi Asset Management & University of Evry) February 2025 The stock-bond correlation is a basics of finance and is related to some of the fundamentals of asset management. However, understanding the stock-bond correlation is not easy. In(...)

What Can We Expect from Long-Run Asset Returns? [Quantpedia]

What can we realistically expect from investing across different asset classes over the long run? That��s the kind of big-picture question the ��Long-Run Asset Returns�� paper tackles��offering a sweeping look at how stocks, bonds, real estate, and commodities have performed over the past 200(...)

Profitability Retrospective: Key Takeaways for Investors [Alpha Architect]

In his 2013 paper ��The Other Side of Value: The Gross Profitability Premium,�� Robert Novy-Marx documented that profitability, broadly measured, has as much power as relative price in predicting cross-sectional differences in expected returns. With the publication of that paper, profitability(...)

Are you blind to the tail risks lurking in calm markets? [Trading the Breaking]

Algorithmic trading systems can give you this sleek, high-tech confidence��like the robots have everything under control. They��re fast, precise, and backtested to death, right? But that��s where the trap snaps shut. When your risk metrics are built on things like standard deviation or recent(...)

Are Sector-Specific Machine Learning Models Better Than Generalists? [Quantpedia]

Can machine learning models better predict stock returns if they are tailored to specific industries, or is a one-size-fits-all (generalist) approach sufficient? This question lies at the heart of a recent research paper by Matthias Hanauer, Amar Soebhag, Marc Stam, and Tobias Hoogteijling. Their(...)

The Virtue of Complexity in Return Prediction [Alpha Architect]

In the realm of investment strategies, simplicity has long been favored. Traditional models with a limited number of parameters are prized for their interpretability and ease of use. However, recent research challenges this convention, suggesting that embracing complexity can lead to more accurate(...)

How I Fused Momentum and Mean-Reversion to Achieve 20% CAGR on ETFs Since 2000 [Paper to Profit]

We think of momentum and mean reversion as opposing forces��pick one or the other. Yet, data from 2000 shows that blending both via a local adaptive learning filter produces 20% CAGR on liquid equities versus 8% buy-and-hold. Traders ignoring this hybrid edge are leaving significant extra returns(...)

Bias-Variance Decomposition for Trading: ML Pipeline with PCA, VIF & Evaluation [Quant Insti]

Welcome to the second part of this two-part blog series on the bias-variance tradeoff and its application to trading in financial markets. In the first part, we attempted to develop an intuition for bias-variance decomposition. In this part, we��ll extend what we learned and develop a trading(...)

Weekly Research Recap [Quant Seeker]

Time for another round of the latest investing research. Below is a curated list of last week��s highlights, each linked to the original source for easy access. Appreciate your continued support! If you��re finding value in these posts, feel free to like and subscribe if you haven��t already.(...)

Beta hedging [Quantitativo]

"If you're not thinking about risk, then you're not thinking." William Sharpe. William Sharpe is a Nobel Prize-winning economist renowned for his work on the Capital Asset Pricing Model (CAPM) and the Sharpe Ratio, both of which highlight the central role of risk in pricing and(...)

Equity trend-following with market and macro data [Macrosynergy]

The popularity of trend-following bears the risk of market excesses. Medium-term market price trends often fuel economic trends that eventually oppose them (��macro headwinds��). Fortunately, relevant point-in-time economic indicators can provide critical information on the sustainability of(...)

The Calendar Effects in Volatility Risk Premium [Relative Value Arbitrage]

I recently covered calendar anomalies in the stock markets. Interestingly, patterns over time also appear in the volatility space. In this post, I��ll discuss the seasonality of volatility risk premium (VRP) in more detail. Breaking Down the Volatility Risk Premium: Overnight vs. Intraday Returns(...)

Weekly Research Recap [Quant Seeker]

Bitcoin Arbitrage: The Role of a Single Exchange (Flowerday, Gandal, Halaburda, Olson, and Ardel) Cross-exchange arbitrage has historically been common in crypto markets. This paper analyzes Bitcoin price differences across major exchanges from 2017 to 2020 and finds that Bitfinex was responsible(...)

Andrea Unger - 672% Returns? Sure! Would You Like Some Risk with That? [Algorithmic Advantage]

Finishing our little mini-series on shorter-term futures trading we talk to Andrea Unger and happily inject some click-bait in the form of gloating about his 672% return in a single year when he won the World Trading Competition. Naturally, we know that this kind of return is generated by(...)

Can I build a scalping bot? A blogpost with numerous double digit SR [Investment Idiocy]

Two minute to 30 minute horizon: Mean reversion works, and is most effective at the 4-8 minute horizon from a predictive perspective; although from a Sharpe Ratio angle it's likely the benefits of speeding up to a two minute trade window would overcome the slight loss in predictability. There(...)

The Aggregated Equity Risk Premium [Alpha Architect]

This article explores how researchers forecast market returns by aggregating expected returns from individual stocks. Using machine learning, they improve accuracy over traditional methods. The approach helps identify when to increase or reduce market exposure. This can lead to better-informed(...)

Stock-Bond Correlation: What Drives It and How to Predict It [Relative Value Arbitrage]

The correlation between stocks and bonds plays a crucial role in portfolio allocation and diversification strategies. In this issue, I discuss stock-bond relationships, the factors that influence their correlation, and techniques for forecasting it. What Influences Stock-Bond Correlation?(...)

Correlation-Based Clustering: Spectral Clustering Methods [Portfolio Optimizer]

Clustering consists in trying to identify groups of ��similar behavior��1 - called clusters - from a dataset, according to some chosen characteristics. An example of such a characteristic in finance is the correlation coefficient between two time series of asset returns, whose usage to partition a(...)

A New Approach to Regime Detection and Factor Timing [Alpha Architect]

The financial research literature has found that the performance of assets (and factors) can vary substantially across regimes (for example, see here and here)��factor premiums can be regime dependent. Unfortunately, the real-time identification of the current economic regime is one of the biggest(...)

Why data mining risks your trading career [Robot Wealth]

I was recently talking to someone about data mining as an approach to finding edges to trade. I get the appeal. Feed enough data into a computer, run enough tests, and surely something profitable will emerge, right? Maybe. But almost certainly not. But the worst thing about this approach is that it(...)

Revisiting Pragmatic Asset Allocation: Simple Rules for Complex Times [Quantpedia]

Pragmatic Asset Allocation (PAA) represents a portfolio construction approach that seeks to balance the benefits of systematic trend-following with the realities faced by semi-active investors (mainly taxes and lack of time to manage positions). Building upon the insights presented in Quantpedia��s(...)

Weekly Research Recap [Quant Seeker]

Front-Running Seasonality in Country ETFs: An Extended Test [Allocate Smartly]

This is a test of a dynamic seasonality strategy from Quantpedia that selects from 23 individual country ETFs. We��ve extended the author��s test by 30+ years using MSCI index data. Backtested results from 1971 follow versus an equal-weight benchmark of those 23 country ETFs (1). Learn more about(...)

Quantpedia Awards 2025 �C Countdown [Quantpedia]

Hello all, Just little over 24 hours remain until the end of the deadline for QUANTPEDIA AWARDS 2025 �C April 30th, 2025, at 23:59 UTC. Join the competition now, and don��t miss out on this chance to showcase your skills! Alternatively, if you can��t (or don��t want) to join, then please help us(...)

Finding an Edge in IPOs: Research and a Backtested Mechanical Trading System [Cracking Markets]

Ever heard the term "IPO" thrown around in financial news? Let's break down what it means and why it might be interesting for systematic traders. What Exactly is an IPO? "IPO" stands for "Initial Public Offering." It's the very first time a private company(...)

How Speculative Money Flows into Crypto [Unexpected Correlations]

Compared to traditional futures or equities, crypto markets offer greater transparency��thanks primarily to the public blockchain and also to the unique culture that shaped the industry. This opens up new opportunities for investors and traders to monitor and measure liquidity dynamics that are(...)

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