29 votes
Accepted

What are the textbooks used to teach Quantitative Trading at universities?

A quick google search retrieves the syllabus for the Stanford STATS 242 class. You can find it here. Just in case it's taken down at some point I'll copy-paste the source material. Keep in mind that I ...
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  • 1,809
19 votes

Do quants need to know Accounting?

Accounting is a vital skill if you end up in a managerial position, and unless your career goal is to always be a cog in someone else's clockwork, then you will eventually find yourself in a ...
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  • 5,062
15 votes

Usage of Random forests in Quantitative analysis of stocks

Recently I attended a presentation by the first author of the following paper who gave us quite a creative and illuminating (kind of meta-)use of random forests in Quant Finance: All that Glitters Is ...
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  • 26.7k
15 votes

Regime-Switching Model for detecting market shifts

Windham Capital Management is using hidden markov models for their Risk Regime Strategies. Mark Kritzman, who is also CEO, has published an article about the general outline of the strategy (with ...
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  • 26.7k
15 votes
Accepted

Why do trading strategies lose effectiveness over time?

There are two key concerns (which in practice, may be difficult to distinguish): Previous research overestimated an effect. The effect shrinks over time. 1. Problems with reproducibility and ...
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  • 6,294
15 votes

Doing opposite of what the model says

If you do this, you would destroy the value of the statistical tests that you performed on the backtest. You had a hypothesis that the strategy would make money, but the hypothesis was rejected. You ...
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  • 9,077
14 votes
Accepted

Why are there so few published research papers that apply Deep Learning to Algorithmic Trading?

I would say that most ML methods risk overfitting and it depends very much on the asset class. The only area where more sophisticated ML methods such as deep learning appear to make a major difference ...
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  • 1,008
13 votes

Quantitative strategies in the Fixed Income space

Here are some general directions: Alternative Risk Premia The ARP, or "smart beta," space has gained a lot of tractions over the past few years. These are rule-based strategies that provide ...
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  • 10.9k
12 votes
Accepted

Orderbook Arbitrage

A public order book gives traders information not only on the current price of a security, but also the volume and structure of the entire supply and demand schedule. Such information can be used for ...
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  • 286
12 votes
Accepted

What are the "sniffing" or "stalking" algorithms?

Sniffing (or stalking) algo indeed detects other algorithms. How does that work in practice? Imagine the order book for a particular equity is: Bid 1 = 99 (size 10,000), Bid 2 = 98 (size 25,000), Bid ...
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  • 4,961
11 votes
Accepted

statistical arbitrage vs factor trading

1) Why would you trade the error on the residual instead of creating a long/short factor model and trade expected returns? I would posit that the biggest reason people do this is for orthogonality of ...
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  • 406
11 votes

How to calculate Sharpe Ratio from $ returns?

Let's say your cumulative return series is $\{R_i \mid i=0,1,...,N-1\}$ of length $N$ days. There's 3 conventional ways to do this at this stage. You may convert the cumulative dollar return curve ...
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  • 5,062
11 votes
Accepted

How long do algorithmic trading strategies typically remain profitable?

Is there a typical "half-life" of a strategy? This is a really subjective question, and I don't think any singular answer will generalize well. That being said, I will give some examples ...
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  • 3,680
10 votes

Orderbook Arbitrage

I am not sure Dark Pools (DP) have been created to avoid "market manipulation". They have been created by firms because they found an advantage to create them (see Market Microstructure in Practice, L ...
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  • 10.5k
9 votes

Do quants need to know Accounting?

It seems logical to me to have a Financial accounting course in a quant program. Quants can have a lot of different occupations, from derivative pricing to quant analyst in a "research" (i.e. analysis)...
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  • 10.5k
9 votes

What is the best alternative of Quantlib library

The Strata project is the new pure Java market risk quant library from OpenGamma. For more information, see the documentation and GitHub. It is Apache v2 licensed. Strata takes the experience of the ...
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9 votes
Accepted

What is an acceptable Sharpe Ratio for a prop desk?

A Sharpe ratio of at least 1 in backtesting is a promising start, but that is just one of many statistics of interest. The Sharpe ratio measures return per unit volatility, i.e., return per unit risk....
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  • 475
9 votes
Accepted

What is the appropriate benchmark for a Long/Short VIX futures strategy?

If your strategy truly has no directional bias, then the benchmark should be cash (ie whatever you would earn using the capital in your trading account and taking no risk).
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  • 5,603
8 votes
Accepted

The Definition(s) of Momentum

Kenetic Component Analysis If I am to summarize the work of the authors from a broader view than that which is taken in the abstract, essentially the price process is decomposed into position, ...
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  • 1,049
8 votes

Why are Quantquote historical trades different vom ActiveTick historical trades

Let me guess, you fell for one of the fake Quantquote reviews and decided to purchase their buggy data? The reason for the missing quotes is Quantquote data is more of a snap-shot of market activity. ...
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8 votes
Accepted

What mathematical models did Harry Markopolos run to prove that Bernie Madoff 1% a month gain was a Ponzi scheme?

You can find everything you want to know about this here (and in a very readable and easily reproducible form): How Students Can Backtest Madoff’s Claims by Michael J. Stutzer (2009) From the ...
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  • 26.7k
8 votes

Is trading mean reversion of small principal components of prices profitable?

Within the fixed income space, there's a lot of literature on PCA trading. The first 2-3 principal component factors (PCs) can typically explain 90-99% of the total variances in yield curve movement....
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  • 10.9k
8 votes
Accepted

Why do anomalies disappear after they get detected?

The best explanation I have seen so far is the so-called Adaptive Market Hypothesis by Andrew Lo: The adaptive market hypothesis, as proposed by Andrew Lo, is an attempt to reconcile economic ...
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  • 26.7k
8 votes
Accepted

What is the reason for using log prices in Pairs Trading (Cointegration)?

I'm assuming that the paper you're referring to uses the Engle-Granger test for cointegration. The standard test procedure checks for unit roots in the residuals of a linear regression. It is a "...
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  • 1,616
7 votes

How useful is the genetic algorithm for financial market forecasting?

I just made a Genetic Algorithms calculator you can try at http://www.gregthatcher.com/Stocks/GeneticAlgorithmCalculator.aspx I'm not a "quant expert" like all of you (I'm just a programmer), but ...
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7 votes

Why are Quantquote historical trades different vom ActiveTick historical trades

This is an old post, but I thought I would offer the following facts: 1) QQ claims to be sited in the Empire State Building, Suite 2100. (https://quantquote.com/contact.php) That is false. They do ...
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7 votes
Accepted

What are some quantitative trading strategies used by high-frequency trading companies to make a killing on a market crash day on 24Aug2015?

On aggregate, large shops like Virtu are involved in market making strategies. There's various classes of market making strategies, and it is unnecessary to distinguish further here for the purpose of ...
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  • 5,062
7 votes

Is it possible to make profit by reversing client trades for a market maker?

If you are market making equities or futures you tend to make your profits over the short term by flipping your inventory. So if I'm showing 3.00 bid at 3.01 ask on a stock I'm going to tend to flip ...
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  • 909
6 votes

What is the best alternative of Quantlib library

I did not tested it by now, but Google released a library similar to quantlib written in TensorFlow (tf-quant-finance). It may be worthwhile to test it (and to post here your views on it), because ...
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  • 10.5k
6 votes

Stochastic Calculus in Quantitative analysis

For a basic introduction, the three chapters in Hull's Options, Futures, and Other Derivatives on Binomial Trees, Wiener Processes and Ito's Lemma, and The Black-Scholes-Merton Model helped me start ...
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