From our good friends over at Innovative Quant Solutions, whose new blog is a must read for the Quant minded.
| Attachment | Size |
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| IQS October.pdf | 382.43 KB |
Tyler Durden - Founder
Marla Singer - Foil
Travis - Author
Cornelius - Author
Sacrilege - Senior Researcher
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on Mon, 11/02/2009 - 18:49
#117718
OT: Hey RobotTrader, Did you see DDRX is being acquired by Peet's Coffee for $26? Madness.
on Mon, 11/02/2009 - 19:09
#117740
Dow Transports (DJ-20) aren't playing the game with the Dow-30. Transports already at the 200 day EMA and a new 2 month low. Vix appears to have broken negative down trend - like the report above says. Where the transports go, the Dow-30 eventually goes.
http://stockcharts.com/h-sc/ui?s=$TRAN&p=D&yr=0&mn=6&dy=0&id=p90115481466
Sam
thelastcanary.blogspot.com
on Mon, 11/02/2009 - 20:27
#117820
This analysis was for October, no? Which factors outperformed post-March to current? I would assume momentum and sentiment given all the beta chasing going on this year.
I think the volatility rise is the key to understanding the stated factor performance: vol too low means investors don't get paid to take risk, and as vol rises active risk-taking dominates beta.
on Mon, 11/02/2009 - 22:27
#117938
If you enjoyed reading the IQS Report, you must read the report at the following link:
http://www.palantirfinance.com/analysis-blog/?p=539#more-539
Why? Because it contains 'common knowledge' that when the VIX (moving average) screams, the best returns occur ~150 days into the future.
I also recommend checking out the Credit Suisse Quant paper that is linked in the article. The CS group found very similar data, with the best returns ~180 days in the future.
I wrote a paper about VIX/S&P returns in grad school, so please send more info if you've got it. The info I posted is several years old, but still highly relevant.
on Tue, 11/03/2009 - 03:20
#118105
Berlin I read what you posted, but being a simpleton I don't have access to any of the cool financial tools you all use. As such I was forced to just compare a yahoo finance chart of the ^vix vs the S&P for as long out as I could and eyeball their conclusions. It seems that if anything after a spike in the VIX, 150 days later the S&P moves up, or seems to stagger up at times. But I really was just eyeballing it considering it ranged from '90 to now. Any clarification of your results would be awesome. TIA.
on Tue, 11/03/2009 - 18:13
#119065
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Anon,
Yeah… I feel your pain. I did everything in Excel ‘by hand’ when I did my research paper. I would love to have had a stat package to compute more dates. I only looked at the 5 day VIX moving average over 4 future periods (X+5, +30, +60, +90). (Keep that in mind when reading about my results.)
Initially, I was more interested in the immediate short term (X+1 to X+7) as a potential trading strategy. It was a fruitless exercise because the VIX is like the market (a random walk) and does not predict future volatility. However, the VIX is consistently higher than ACTUAL volatility about 90% of the time. I took to mean that it is the market for options; people are paying the option premium but losing it at the volatility table.
My favorite graphs in the Palatir and CS papers are the ‘heat map’ and topographic chart (in the CS paper). I think they capture the issue the best. However, just note that the greatest correlation between the two is only ~.30. It’s still not that great, and does not tell you anything about the absolute returns on the S&P (ie avg. returns were 5%). I wish they would have done this.
For example, I looked into time frames when the VIX went over 35, and found that returns were about 10% on average after 90 days, but the sample size was pretty small (N=7). I would love to re-do my results with a more time frames, since it seems I ended too early for the time frames. Here’s another Palantir study about returns, but I haven’t had a chance to look at it yet:
http://www.palantirfinance.com/analysis-blog/?p=494
Lastly, I looked at LOW volatility time frames to find potential sell signals. I did not receive any good results. There was not any correlation, nor were there any negative returns on the S&P.
I hope this was helpful and interesting. The way I see it… the big boys know these studies, so the little guy should be aware as well.