Quantocracy

Recent Quant Links from Quantocracy as of 08/03/2025

We interrupt this service for an important message [Klement on Investing] #quant Hi everyone Usually, I dont comment too much on current affairs on this substack. Still, Trump firing the Head of the BLS, Erika McEntarfer, because he didnt like the labour market data, is extremely dangerous for investors everywhere. If you have investments in the US, you should be highly concerned about this because having truthful data about the state of the US economy is the foundation

We interrupt this service for an important message [Klement on Investing] #quant

A Quant's Guide to Covariance Matrix Estimation [OS Quant] #quant In this article, we explore three techniques to improve covariance matrix estimation: evaluating estimates independently of backtests, decoupling variance and correlation, and applying shrinkage for more robust outputs. Author Adrian Letchford Published 2 August 2025 Length 12 minutes Like what you see? Follow Adrian on Twitter to be notified of new content. Follow Estimating a covariance matrix

A Quant's Guide to Covariance Matrix Estimation [OS Quant] #quant

Overnight Crypto Returns [Falkenblog] #quant On Monday, I examined the flaw in capturing the overnight equity return anomaly. The basic issue was that the anomaly shrank considerably after the 2008 bear market, and given that one has to turn over the entire portfolio twice a day, the minuscule transaction costs eliminate any alpha. The guys who created the overnight ETFs were also plagued by incredibly bad luck, but that just did them a

Overnight Crypto Returns [Falkenblog] #quant

A Different Way of Looking at Returns [Mark Best] #quant

Recent Quant Links from Quantocracy as of 08/01/2025

100 Papers an Hour: 10x'ing Your Strategy Research Speed With AI [Paper to Profit] #quant As much as LLMs and AI seem to be writing our code, creating our art, and potentially replacing (or at least supplementing) our own artistic souls, they also still excel at pretty mundane tasks. When applied correctly, they can chew through hundreds of research papers at a time and give you deeper insights, inspiration, and clarity that you can use to apply to your own research process. So, if

100 Papers an Hour: 10x'ing Your Strategy Research Speed With AI [Paper to Profit] #quant

Weekly Research Recap from @quantseeker.bsky.social #quant The Actual Retail Price of Equity Trades (Schwarz, Barber, Huang, Jorion, and Odean) Contrary to conventional wisdom, payment for order flow (PFOF) isnt systematically linked to worse execution. This paper finds large cost differences across brokers for identical orders, not explained by PFOF or commissions. Market makers like Citadel treat each brokers flow differently, possibly due

Weekly Research Recap from @quantseeker.bsky.social #quant

Options: Iron Condor Strategy [Trading the Breaking] #quant The iron condors appeal is statistically seductive: a high-probability, defined-risk structure promising steady income from time decay and volatility erosion. Yet beneath its deceptively flat payoff profile lies a quantitatively intricate realityone where theoretical win rates often mask a negative expected value. This isnt a flaw in the strategy itself, but a consequence of its dynamic

Options: Iron Condor Strategy [Trading the Breaking] #quant

Recent Quant Links from Quantocracy as of 07/28/2025

The Equity Overnight Anomaly ETFs [Falkenblog] #quant TL;DR The overnight return anomaly became much less anomalous around 2009 The failed ETFs designed to capture it suffered from horrible timing, but also transaction costs Transaction costs are much greater than fees, and also greater than fees + (ask-bid)/2 The overnight equity anomaly is that most of the total equity returns are generated from the opening to the close. When I was an active

The Equity Overnight Anomaly ETFs [Falkenblog] #quant

From Defense to Offense: A Tactical Model for All Seasons [Quantitativo] #quant Basketball is a game of adjustments. Bob Knight. Bob Knight was the last coach to lead an NCAA team to a perfect season: 32 wins, zero losses. That record still stands nearly half a century later. His secret? He was a masterful tactician. Obsessed with preparation, relentless on fundamentals, and unmatched in making in-game adjustments. Knight believed basketball wasnt about memorizing

From Defense to Offense: A Tactical Model for All Seasons [Quantitativo] #quant

How to Identify Ponzi Funds? from @quantpedia.bsky.social #quant

The Risks of Passive Investing Dominance [Alpha Architect] #quant Fueled by the persistent failure of active management (as evidenced, for example, by the annual SPIVA scorecards), passive investing now commands the majority of assets under management. This structural shift is not without consequence. Chris Brightman and Campbell Harveys May 2025 paper Passive Aggressive: The Risks of Passive Investing Dominance, along with recent academic and industry

The Risks of Passive Investing Dominance [Alpha Architect] #quant

Sentiment as Signal: Forecasting with Alternative Data and Generative AI from @harbourfrontquant.substack.com #quant

Recent Quant Links from Quantocracy as of 07/23/2025

Validation framework [Trading the Breaking] #quant Look, anyone can show you a backtest with a nice Sharp. I've seen a thousand of them. The question I always ask is simple: Is this real, or did you just get lucky? Did you find a genuine edge, or did you just curve-fit the hell out of the last ten years of data? A pretty equity curve from the past tells you what happened. It tells you nothing about whether it will keep happening. So, we stop

Validation framework [Trading the Breaking] #quant

Why the Last Few Minutes of Trading Might Matter More Than You Think [Alpha Architect] #quant This paper reveals a striking pattern in U.S. stock markets: the prices of individual stocks often reverse direction at the very end of the trading day. Using high-frequency data, the authors find that the last few minutesparticularly the closing auctionare dominated by large institutional flows that cause temporary price pressure. This is followed by a reversal the next day. This

Why the Last Few Minutes of Trading Might Matter More Than You Think [Alpha Architect] #quant

Weekly Research Recap from @quantseeker.bsky.social #quant News Sentiment and Commodity Futures Investing (Yeguang, El-Jahel, and Vu) While momentum and carry strategies are well-known in commodities, this paper shows that weekly news sentiment from financial media also predicts returns. Using Refinitivs MarketPsych indices, the authors construct long-short portfolios that deliver strong risk-adjusted returns, even after accounting for costs. Combining

Weekly Research Recap from @quantseeker.bsky.social #quant

Recent Quant Links from Quantocracy as of 07/20/2025

Carlson's "Defense First" from @allocatesmartly.bsky.social #quant This is a test of Thomas Carlsons Defense First strategy from his paper Defense First: A Multi-Asset Tactical Model for Adaptive Downside Protection. Strategy results from 1971 follow. Results are net of transaction costs see backtest assumptions. Learn about what we do and follow 90+ asset allocation strategies like this one in near real-time. Logarithmically-scaled. Click for

Carlson's "Defense First" from @allocatesmartly.bsky.social #quant

When your strategy works, is it just dumb luck? How to stack the odds in your favour [Robot Wealth] #quant Recently, we had an excellent question on the Trade Like a Quant Discord server: How do you know if your strategy is working out of coincidence rather than actual edge? The strategy might work over a long period just because of blind luck. Damn good question. It hits right in the insecurity because the honest answer is: you can never know for sure. I remember when I first started trading. I

When your strategy works, is it just dumb luck? How to stack the odds in your favour [Robot Wealth] #quant

The Memorization Problem: Can We Trust LLMs Forecasts? from @quantpedia.bsky.social #quant

Behavioral Biases and Retail Options Trading from @harbourfrontquant.substack.com #quant

Do Smart Machines Make Smarter Trades? [Alpha Architect] #quant Can machine learning models help us exploit stock market anomalies more effectively? This paper says yesbut with a few important caveats. By applying gradient boosting algorithms to a wide array of established anomalies (like value, momentum, and quality), the authors show that machine learning methods can significantly improve the performance of long-short strategies. These models capture

Do Smart Machines Make Smarter Trades? [Alpha Architect] #quant

Recent Quant Links from Quantocracy as of 07/15/2025

The Unintended Consequences of Rebalancing [Quantitativo] #quant I picked up one or two pieces and examined them attentively... I then collected four or five pieces and went to Mr. Scott... I said, I believe this is gold. James W. Marshall. He found gold and died broke. James W. Marshall unintentionally sparked one of the greatest migrations in American history. In 1848, while building a sawmill on the American River, he noticed a few glimmers in

The Unintended Consequences of Rebalancing [Quantitativo] #quant

Weekly Research Recap from @quantseeker.bsky.social #quant In-Sample and Out-of-Sample Sharpe Ratios for Linear Predictive Models (Jacquier, Muhle-Karbe, and Mulligan) Combining many weak signals can raise a models in-sample Sharpe ratio, but this paper shows it often backfires out of sample due to overfitting. Even if the combined model looks better in backtests, it tends to perform worse in live trading than simpler models built on fewer, stronger

Weekly Research Recap from @quantseeker.bsky.social #quant

How Fragile is Liquidity Across Asset Classes? from @quantpedia.bsky.social #quant

The Rise of 0DTE Options: Cause for Concern or Business as Usual? from @harbourfrontquant.substack.com #quant