18
votes
4answers
2k views

Any research on how natural language processing can be used to forecast stocks?

Is there any published research of decent quality linking news or unstructured information to asset returns? I know that Thomson Reuters offers its Machine Readable news (MRN), so somebody must use ...
18
votes
8answers
6k views

Any known bugs with Yahoo Finance adjusted close data ?

Yahoo Finance allows you to download tables of their daily historical stock price data. The data includes an adjusted closing price that I thought I might use to calculate daily log returns as a ...
18
votes
3answers
5k views

What is a stationary process?

How do you explain what a stationary process is? In the first place, what is meant by process, and then what does the process have to be like so it can be called stationary?
18
votes
6answers
4k views

Time-series similarity measures

Suppose I have two time series $X$ and $Y$ of stock prices. How do I measure the "similarity" of $X$ and $Y$? (I'm being deliberately vague as I don't have a particular application, and I'm curious ...
18
votes
6answers
2k views

Most successful investors using academic-based framework?

What are the most famous/best performing absolute-return funds employing approaches based on mainstream finance theory (i.e., theory presented in Journal of Finance, AER, Econometrica, using typically ...
18
votes
6answers
1k views

Why do some anomalies persist while others fade away?

In their 1990 book, A Non-Random Walk Down Wall Street, Andrew Lo and Craig MacKinlay document a number of persistent predictable patterns in stock prices. One of these "anomalies" is variously known ...
18
votes
3answers
4k views

What types of neural networks are most appropriate for trading?

What types of neural networks are most appropriate for forecasting returns? Can neural networks be the basis for a high-frequency trading strategy? Types of neural networks include: Support Vector ...
18
votes
3answers
810 views

How can an ETF outperform its benchmark index?

Deutsche Bank’s ETF platform, db X-trackers, provides a rather remarkable ETF tracking Euro Stoxx 50 (which is the most widely used regional blue-chip index in Europe). What makes it remarkable is ...
18
votes
4answers
3k views

The Application of Quantitative Finance in Sports Betting

I notice that on the surface, there are some similarities between quantitative sports betting and quantitative finance. Both has the concept of arbitaging etc. What are the applications of ...
18
votes
3answers
1k views

Tools in R for estimating time-varying copulas?

Are there libraries in R for estimating time-varying joint distributions via copulas? Hedibert Lopes has an excellent paper on the topic here. I know there is an existing packaged called copula but ...
17
votes
7answers
5k views

Why is volatility mean-reverting?

We all know it does mean revert. The question is why. What's making volatility mean-revert? Is it some sort of cyclical behaviour of option traders? The way it's calculated? Why?
17
votes
7answers
6k views

How are cryptography and speech recognition technology applied to forecasting financial markets?

One of the answers to my previous question regarding the strategy of Renaissance Technologies, there was a reference to The Quants: How a New Breed of Math Whizzes Conquered Wall Street and Nearly ...
17
votes
5answers
11k views

What are some useful approximations to the Black-Scholes formula?

Let the Black-Scholes formula be defined as the function $f(S, X, T, r, v)$. I'm curious about functions that are computationally simpler than the Black-Scholes that yields results that approximate ...
17
votes
7answers
17k views

What's the difference between volatility and variance?

How do they differ in what they imply about an underlying's (or any variable's) movement?
17
votes
7answers
5k views

How does the “risk-neutral pricing framework” work?

I've struggled for a long time to understand this - What is this? And how does it affect you? Yes I mean risk neutral pricing - Wilmott Forums was not clear about that.
17
votes
4answers
173 views

What are the effects of turning a backed currency into a fiat currency?

I hear a lot of debate over the removal of the U.S. Dollar's precious metal backing and the subsequent inflation rates, but is there any proven relationship between unbacked currency and extreme ...
17
votes
2answers
1k views

How to quickly estimate a lower bound on correlation for a large number of stocks?

I would like to find stock pairs that exhibit low correlation. If the correlation between A and B is 0.9 and the correlation between A and C is 0.9 is there a minimum possible correlation for B and C? ...
17
votes
2answers
662 views

How are distributions for tail risk measures estimated in practice?

Let's say you want to calculate a VaR for a portfolio of 1000 stocks. You're really only interested in the left tail, so do you use the whole set of returns to estimate mean, variance, skew, and shape ...
17
votes
3answers
3k views

Main backtesting & trading solutions: QuantFactory, Deltix, etc.

What are the most used/mature/promising commercial solutions today which handle backtesting/ automated trading needs? I'm talking about vertical product suites like QuantFactory or Deltix which ...
17
votes
2answers
657 views

How do you correct Max Draw-Down for auto-correlation?

When returns are auto-correlated, calculating a Sharpe ratio := $\frac {mean(x)}{\sqrt{var(x)}}$, (where $x$ are the returns) is complicated, but basically solved (see, e.g. Lo (2005)). Without the ...
16
votes
8answers
3k views

What kind of basic framework or application do you use to run your trading algorithms?

I heard about MetaTrader from http://www.metaquotes.net. Is there any other framework or program available? Do you use different software for backtracking and running your trading algorithms? Thank ...
16
votes
5answers
5k views

How to identify technical analysis chart patterns algorithmically?

I'm working on a small application that will provide some charts and graphs to be used for technical analysis. I'm new to TA but I'm wondering if there is a way to algorithmically identify the ...
16
votes
4answers
1k views

How do I adjust a correlation matrix whose elements are generated from different market regimes?

Say I want to calculate a correlation matrix for 50 stocks using 3-year historical daily data. And there are some stocks that were recently listed for one year. This is not technically challenging ...
16
votes
4answers
2k views

Evaluating automated trading strategies: accepted practice

Both for private projects, and for clients, I've been working on code a lot this year to evaluate automated trading strategies. This often ends up turning into the task of how to fairly compare apples ...
16
votes
6answers
4k views

Training set of tick-by-tick data?

I'm looking to find a free source of tick by tick data (<1sec) for training purposes. It doesn't need to be longer than a day, and I don't care what instrument, or exchange, or time it is. I just ...
16
votes
6answers
4k views

What tools exist for order book analysis and visualization?

What tools exist for order book analysis and visualization? In particular, if one wanted to examine a limit order book and understand how it changes throughout the day where would you turn for ...
16
votes
6answers
7k views

Python library for Portfolio Optimization

Does anyone know of a python library/source that is able to calculate the traditional mean-variance portfolio? To press my luck, any resources where the library/source also contains functions such as ...
16
votes
4answers
2k views

Local Volatility vs. Stochastic Volatility

Are there any empirical observations or practices when to prefer Local Volatility Model for pricing over Stochastic Model or vice versa?
16
votes
2answers
1k views

Statistical properties of stochastic processes for moving average trading to work

Common wisdom holds it that a moving average approach is more successful than buy-and-hold. There is quantitative evidence for that across different asset classes (see e.g. this book, or this paper ...
16
votes
3answers
958 views

When do Finite Element method provide considerable advantage over Finite Differences for option pricing?

I'm looking for concrete examples where a Finite Element method (FEM) provides a considerable advantages (e.g. in convergence rate, accuracy, stability, etc.) over the Finite Difference method (FDM) ...
16
votes
3answers
2k views

How to forecast volatility using high-frequency data?

There is a large literature covering volatility forecasts with high-frequency tick data. Much of this has surrounded the concept of "realized volatility", such as: "Realized Volatility and ...
16
votes
3answers
524 views

Tests that any system must pass to be taken seriously

In an interview from '96 Bill Eckhardt points out that there are tests that any system must pass to be taken seriously. That is: tests for (1) overfitting, (2) post-dictiveness, (3) maldistribution ...
16
votes
2answers
2k views

Do you have historical tick data you want to donate?

Do you have historical market/pricing ticket data that you would like to donate to the Open Source Trader project (OST)?? Please: upload your files! Once we gather some data, we'll do our best to ...
16
votes
2answers
580 views

How do macro funds manage risk and model asset returns? Do they use factor models?

Some of the largest funds in the world are entirely macro-based: Soros, Brevan Howard, Bridgewater. They trade across asset classes, and seemingly with very concentrated allocations. What type of risk ...
16
votes
2answers
768 views

Diversification, Rebalancing and Different Means

I have found many financial authors making generalizations about GM and AM but they are wrong in certain circumstances. Could someone explain their reasoning? My fact why they are wrong is based ...
15
votes
6answers
2k views

How random are financial data series?

Pseudorandom number generators are often tested using e.g. a test suite like Diehard tests or Dieharder. If one would run these tests e.g. on stock market time series or other financial data, would ...
15
votes
5answers
3k views

Is the stock price process a martingale or a Markov process?

Some people claim that the data-generating process for stocks is a "martingale" and that is has the "Markov property". Are they unrelated? Is it that the Markov property implies some sort of ...
15
votes
3answers
1k views

What is the necessary level of Econometrics-Know-How for a quant

It seems quants increasingly use econometric models at work. As someone who has sold his soul to probability theory and stochastical analysis I would like to catch up. What are the econometric tools ...
15
votes
8answers
1k views

Why is there no “meta-model”?

If I design a trading model, I might want to know the model's half life. Unfortunately, it doesn't seem possible to predict alpha longevity without a meta-model of the market. Intuitively, such a ...
15
votes
3answers
2k views

Machine Learning vs Regression and/or Why still use the latter?

I come from a different field (Machine learning/AI/data science), but aim to ask a philosophical question with the utmost respect: Why do quantitative financial analysts (analysts/traders/etc.) prefer ...
15
votes
3answers
2k views

Can the concept of entropy be applied to financial time series?

I am not familiar with the concept of entropy for time series. I am looking for good reference papers and examples of use.
15
votes
6answers
2k views

Can social media be applied to algorithmic trading?

Can social media sites, like Twitter, be used to analyze financial markets for algorithmic trading? How much research has been done on this topic?
15
votes
3answers
2k views

Why hold options when you can dynamically replicate their payoff?

When holding vanilla options, you can cancel out, theoretically, all risk with dynamic (delta) hedging. Then you earn the "risk free rate of return". Why would you make such a portfolio when you can ...
15
votes
3answers
2k views

Is there any theoretical basis for pattern-recognition strategies?

Mean-reversion and trend-following strategies have some kind of a theory behind them that explains why they might work, if implemented well. Pattern-recognition, on the other hand, seems like nothing ...
15
votes
5answers
3k views

Skew arbitrage: How can you realize the skewness of the underlying?

It's not clear to me how to realize skewness. In other words, how do you implement skew arbitrage? There seems to be no well-known recipe like in volatility arbitrage. Volatility arbitrage (or ...
15
votes
7answers
898 views

Are there ways to measure the risk aversion of a representative investor, based on publicly available market data?

Are there ways to measure the risk aversion of a representative investor, based on publicly available market data? Public available data could include asset price, volume, and flow data, and may be ...
15
votes
4answers
1k views

Does mean-variance portfolio optimization provide a real edge to those who use it?

Mean-variance optimization (MVO) is a 50+ year concept, and perhaps the first seminal idea of quantitative finance. Still, as far as I know, less than 25% of AUM in the US is quantitatively managed. ...
15
votes
5answers
3k views

Free paper trading site with an API

I've got a quanitative trading model I want to test out in the real stock market. Right now, I'm writing some code to pull "live" quotes from yahoo, feed them to my model, and keep track of the ...
15
votes
2answers
1k views

How to execute a large futures order?

I am currently trading futures products on some contracts that have low volumes. More accurately, the volumes of working orders in the book are fairly light. I am trying to execute a relatively large ...
15
votes
1answer
959 views

Portfolio optimization with monte carlo sampling from predictive distribution

Let's say we have a predictive distribution of expected returns for N assets. The distribution is not normal. We can interpret the dispersion in the distribution as reflection of our uncertainty (or ...

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