Posts filed under “Quantitative”

Re-Entry Signals Following 10 Month Moving Average Exit

Back in the beginning of the year, I mentioned that Mebane Faber and I were exploring updating his Spring 2007 Journal of Wealth Management paper titled “A Quantitative Approach to Tactical Asset Allocation.” (He is the Chief Investment Officer of Cambria Investment Management).

As we discussed back earlier, Meb reviewed a simple timing model — the 10-month moving average — as a signal to enter and exit various asset classes. He demonstrated a notable performance improvement across all asset classes versus traditional “Buy & Hold” investing.

Given the asymmetrical nature of market tops and bottoms, I thought that we could improve the returns of the 10 month MA sell/buy model by tweaking the re-entry signal. The description of markets as asymmetrical is based on both data and personal experience — tops take longer, seem to be more of a process, and develop over a longer time line, while bottoms tend to be more of a shorter, sharper event.

Asked in a different manner:

Assume an investor exits equity markets at the downward break of the 10 month MA; How do the following re-entry signals compare to using the 10 month MA alone? Are there any other signals worth reviewing to as a re-entry?

This is what we will be testing over the next few weeks:

 

1. TREND

  1. BUY:  Price > 5 Month MA (test 6-7-8)
  2. BUY:  Price > 40 week ma (20/25/30, etc.)

2. REVERSION

  1. BUY: Drawdown > 50%
  2. BUY: Price > 20% from 200 day SMA  (25%?)
  3. BUY: % of NYSE stocks above 200 day MA < 15% (12.5%, 20% ?)

3. VOLATILITY

  1. BUY:  VIX > 50
  2. BUY: When more than 50 of the trailing 90 trading days > 1% moves

4. SENTIMENT

  1. AAII Stock Asset Allocation 25 year mean of a 60% — BUY: Allocation > 15% below mean
  2. AAII Bull/Bear Sentiment Ratio –BUY: < 30%

5. MARKET Returns

  1. BUY: Trailing 3 year returns < 5%
  2. BUY: Monthly Return < -7%
  3. BUY: Annual Return < -10%

6. VALUATION

  1. BUY:  Mkt Cap/GDP ratio falls > 40%
  2. BUY: US Dividend Yield > 3%
  3. BUY Tobins Q: Equity Value/Book Value < 0.6
  4. BUY:  Shiller CAPE < 10

7. ECONOMIC (Data to 1948)

  1. BUY: GDP falls > 2% year-over-year
  2. BUY: Coincident-to-lagging indicator falls 10 points from highs

8. INSIDERS

  1. BUY: Insider buying > 20% of 5 year mean
  2. BUY: C-level insiders (CEO/CFO etc) > 15% 5 year mean

9. EARNINGS

  1. BUY: Earnings < -25% Year-over-year
  2. BUY: Earnings revisions > -9% (negative 9% or worse)

 

Based on some preliminary research, suggestions from friends and colleagues, and a dollop of gut feel, this is what we are going to be back-testing.

I would appreciate any suggestions, comments or ideas on the subject.

Category: Investing, Quantitative

Factors Institutional Investors Are Favoring

Every year since 1989, Merrill Lynch surveys a few 100 institutional investors using a broad variety of quantitative, valuation, process and modeling questions. Their responses get summarized in a 39 chart, 27 page report. You can get a sense of the depth and breadth of the report in just a few charts — but overall,…Read More

Category: Hedge Funds, Investing, Markets, Quantitative, Trading

Are Stocks Ahead of the Economy?

> Today, I want to bring a simple analysis to your attention. It is based upon the chart of GDP versus the total stock market valuation: Another measure bodes worse, however. That’s a comparison of the total value of U.S. shares with the yearly output of the U.S. economy (see chart). The stock market is…Read More

Category: Cycles, Data Analysis, Markets, Quantitative

Jim Simons on Math

Math for America Founder Jim Simons’ interview on Need to Know on PBS, April 15, 2011.

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Physicist C.N. Yang and mathematician/philanthropist James Simons interviewed by Bill Zimmerman

Hat tip Frank Voison

Category: Hedge Funds, Mathematics, Quantitative, Video

Colbert: Surrender to a Buyer Power

By using predictive analytics, Target doesn’t just track when customers buy sheets, they know what customers are doing between the sheets. The Word – Surrender to a Buyer Power The Colbert Report Get More: Colbert Report Full Episodes,Political Humor & Satire Blog,Video Archive Wednesday February 22, 2012

Category: Consumer Spending, Quantitative, Weekend

The Big Apple (AAPL)

> Apple is disproportionately impacting indices and earnings data, skewing the picture of what is actually occurring. WSJ: “While most U.S. companies have struggled to meet earnings expectations, the Cupertino, Calif.-based maker of iPads and iPhones has surpassed even the most bullish of expectations, reporting $13.1 billion in profits during the fiscal 2012 first quarter…Read More

Category: Investing, Quantitative, Valuation

> I am the keynote speaker today at the Dow Jones event: Correlation Nation: What happens when all markets and asset classes are in correlation? As markets trade on headline risk versus pure fundamentals, finding a winner is more challenging than ever before.  Kelly Evans hosts a panel discussion afterwards, with a reception to follow….Read More

Category: Markets, Quantitative

Revisiting “Quant Approach to Tactical Asset Allocation”

Over the years, I have become friendly with Mebane Faber, co-founder and the Chief Investment Officer of Cambria Investment Management. He manages an ETF called the Cambria Global Tactical ETF (GTAA). Back in 2007, Meb authored an excellent paper titled “A Quantitative Approach to Tactical Asset Allocation.” It was published in the Journal of Wealth…Read More

Category: Investing, Quantitative, Trading

SEC Goes Quant

I was pleasantly surprised this morning to see a WSJ article that suggests the SEC is beginning to use the tools of Quantitative Research in its enforcement: SEC Ups Its Game to Identify Rogue Firms. This is a positive step for enforcing the laws governing markets. Recall 3 years ago, we asked if the SEC…Read More

Category: Legal, Quantitative, Regulation

Intro: FusionIQ Investor

FusionIQ Investor
https://www.fusioniqinvestor.com/

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Category: Quantitative, Video