Quantpedia’s Master lists – Historical Data and Backtesting Software

20.April 2015

Dear visitors,

We have launched a new subpage on Quantpedia.com which will contain master lists of tools for quantitative traders. We have started with a comprehensive lists of backtesting software and historical data sources:


We have a good responses on them so far therefore I hope you will find them helpful too. Let us know if you are missing some source in our list, we will add it there.


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New related paper to #5 – FX Carry Trade

17.April 2015

#5 – FX Carry Trade

Authors: Maurer, To, Tran

Title: Pricing Risks Across Currency Denominations

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2589545


Investors based in different countries earn different returns on same strategies because the same risks covary differently with countries' stochastic discount factors (SDFs). We document that investors in low-interest-rate countries earn more than those in high-interest-rate countries on identical carry trade strategies. We propose a novel econometric procedure to estimate country-specific SDFs from foreign exchange market data. We provide out-of-sample evidence that (i) a country's interest rate is inversely related to its SDF volatility, (ii) output gap fluctuations across countries strongly correlate with estimated SDFs, and (iii) our estimated SDFs explain half of the risk in equity markets as measured by priced equity premia.

Notable quotations from the academic research paper:

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New related paper to #21 – Momentum Effect in Commodities and #22 – Term Structure Effect in Commodities

13.April 2015

#21 – Momentum Effect in Commodities
#22 – Term Structure Effect in Commodities

Authors: Zaremba

Title: Strategies Based on Momentum and Term Structure in Financialized Commodity Markets

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2469407


The aim of this paper is to investigate the impact of the financialization of commodity markets on the profitability of strategies based on momentum and term structure. The performance of an array of portfolios from double-sorts on non-commercial traders’ participation, historical returns and term spreads is tested against a risk model. Both strategies reveal better performance in case of commodity markets with low financialization level and generate little profits in the markets with a significant participation of investors. The findings of this study can be used for the purposes of tactical and strategic asset allocation.

Notable quotations from the paper:

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New related paper to #12 – Pairs Trading with Stocks

8.April 2015

#12 – Pairs Trading with Stocks

Authors: Xie, Liew, Wu, Zou

Title: Pairs Trading with Copulas

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2383185


Pairs trading is a well-acknowledged speculative investment strategy that is widely used in the financial markets, and distance method is the most commonly implemented pairs trading strategy by traders and hedge funds. However, this approach, which can be seen as a standard linear correlation analysis, is only able to fully describe the dependency structure between stocks under the assumption of multivariate normal returns. To overcome this limitation, we propose a new pairs trading strategy using copula modeling technique. Copula allows separate estimation of the marginal distributions of stock returns as well as their joint dependency structure. Thus, the proposed new strategy, which is based on the estimated optimal dependency structure and marginal distributions, can identify relative undervalued or overvalued positions with more accuracy and confidence. Hence, it is deemed to generate more trading opportunities and profits. A simple one-pair-one-cycle example is used to illustrate the advantages of the proposed method. Besides, a large sample analysis using the utility industry data is provided as well. The overall empirical results have verified that the proposed strategy can generate higher profits compared with the conventional distance method. We argue that the proposed trading strategy can be considered as a generalization of the conventional pairs trading strategy.

Notable quotations from the paper:

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New related paper to #5 – FX Carry Trade and #8 – FX Momentum

1.April 2015

#5 – FX Carry Trade
#8 – FX Momentum

Authors: Olszweski, Zhou

Title: Strategy diversification: Combining momentum and carry strategies within a foreign exchange portfolio

Link: http://apps.olin.wustl.edu/faculty/zhou/O_Z_JHDF_2014.pdf


Hedge funds, such as managed futures, typically use two different types of trading strategies: technical and macro/fundamental. In this article, we evaluate the impact of combining the two strategies, and focus on, in particular, two common foreign exchange trading strategies: momentum and carry. We find evidence that combining the strategies offers a significant improvement in risk-adjusted returns. Our analysis, which uses data spanning 20 years, highlights the potential benefits of achieving strategy-level diversification.

Notable quotations from the paper:

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New related paper to #12 – Pairs Trading with Stocks and #55 – Pairs Trading with Country ETFs

26.March 2015

#12 – Pairs Trading with Stocks
#55 – Pairs Trading with Country ETFs

Authors: Leung, Li

Title: Optimal Mean Reversion Trading with Transaction Costs and Stop-Loss Exit

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2222196


Motivated by the industry practice of pairs trading, we study the optimal timing strategies for trading a mean-reverting price spread. An optimal double stopping problem is formulated to analyze the timing to start and subsequently liquidate the position subject to transaction costs. Modeling the price spread by an Ornstein-Uhlenbeck process, we apply a probabilistic methodology and rigorously derive the optimal price intervals for market entry and exit. As an extension, we incorporate a stop-loss constraint to limit the maximum loss. We show that the entry region is characterized by a bounded price interval that lies strictly above the stop-loss level. As for the exit timing, a higher stop-loss level always implies a lower optimal take-profit level. Both analytical and numerical results are provided to illustrate the dependence of timing strategies on model parameters such as transaction cost and stop-loss level.

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