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Posts tagged ‘Day Trading’


The End of Wall Street As They Knew It

Bonuses are down, regulation is up.  Its seems that Wall Street has finally killed the Golden Goose and the battered retail investor has left the room.  I love this quote:

“We used to rely on the public making dumb investing decisions,” one well-known Manhattan hedge-fund manager told me. “but with the advent of the public leaving the market, it’s just hedge funds trading against hedge funds. At the end of the day, it’s a zero-sum game.”

(click on title for article)



Risk and Return in Momentum Strategies (paper)

An interesting paper on the classic Momentum strategy but with a few new twists to factor in tail risk (click on title):

“We apply risk-return ratios at the individual security level in order to drive the stock ranking process (construction of momentum portfolio) and at the portfolio level in order to evaluate and optimize the risk-return profile of the winner and loser portfolio.  We investigate whether the application of risk-adjusted criteria with balanced risk-return performance can generate more profitable strategies than those based on a simple cumulative return criterion which serves as a benchmark. Moreover, by introducing risk return ratios as portfolio selection criteria, we are able to postulate a portfolio optimization problem with a ratio as an objective function. Therefore we devise an optimized-weighted strategy that creates optimal risky winner and loser portfolios”

Bayesian Adaptive Trading with a Daily Cycle (paper)

“We construct a model in which the trader uses information from observations of price evolution during the day to continuously update his estimate of other traders’ target sizes and directions. He uses this information to determine an optimal trade schedule to minimize total expected cost of trading, subject to sign constraints (never buy as part of a sell program). We argue that although these strategies are determined using very simple dynamic reasoning—at each moment they assume that current conditions will last until the end of trading—they are in fact the globally optimal strategies as would be determined by dynamic programming.”

Combining Mean Reversion and Momentum Trading Strategies in FX Markets (paper)

Interesting paper on Forex RTM / MOM strategies (click on title for paper):

“This paper implements a trading strategy combining mean reversion and momentum in foreign exchange markets. The strategy was originally designed for equity markets, but it also generates abnormal returns when applied to uncovered interest parity deviations for ten countries. I find that the pattern for the positions thus created in the foreign exchange markets is qualitatively similar to that found in the equity markets. Quantitatively, this
strategy performs better in foreign exchange markets than in equity markets. Also, it outperforms traditional foreign exchange trading strategies, such as carry trades and moving average rules.”

Prosecuting Wall Street (60 Minutes)

Two high-ranking financial whistle blowers say they tried to warn their superiors about defective and even fraudulent mortgages. So why haven’t the companies or their executives been prosecuted? Steve Kroft reports.


Quote of the Day


Beware Black Swans Sporting Fat Tails

After surviving the August 2011 meltdown, it occurred to me that the market is experiencing six sigma events (crashes) these days with increasing frequency.  To wit:  In just the past 3 years we’ve had the 2008 Mortgage Meltdown, the Flash Crash, the Japanese Tsunami, and the Debt Ceiling Crisis.  That averages out to around one market crash per year.

I was curious to see how fat these “fat tails” actually get,  so I ran some quick tests.   Here’s a histogram of the daily returns for SPY (the S&P 500 index ETF) over the past 12 years (click to zoom):