ABSTRACT The empirical aim of this paper is motivated by the anecdotal belief among the professional and non-professional investment community, that a “low” reading in the CBOE Volatility Index (VIX) or large decline alone are ample reasons to believe that volatility will spike in the near future.  While the Volatility Index can be a useful tool for investors and traders, it is often misinterpreted and poorly used. This paper will demonstrate that the dispersion of the Volatility Index acts as a better predictor of its future VIX spikes. INTRODUCTION According to the United Kingdom’s National Oceanography Centre, tsunami waves can be as much as 125 miles in length and have resulted in some of the deadliest natural disasters in history. Fortunately, scientists have discovered warning signs of these massive waves, which are believed to be caused by shifts in the earth’s tectonic plates. One of the visible signs of a forthcoming tsunami is

Editor’s note: Stephen Duneier is among the presenters at the Annual Symposium in April.  Below is a reprint of his work from his work at BijaAdvisorsLLC.com. I recently gave a TED Talk titled, “How to Achieve Your Most Ambitious Goals.” In it, I repeatedly tell the audience that I possess no magical gift of skill or talent. I don’t say it out of humility, but rather because I believe it to be the truth. Listen in on any coaching call or read any of the publications I’ve written and you will discover that very little of what I say could be considered rocket science. In fact, it is all quite obvious. However, if there is something that separates me from the majority, it is that I actually enjoy frolicking in the domain of the obvious, the simple, and the easy to understand and predict. It is my philosophy that everything can

Editor’s note: Tucker Balch is among the presenters at the Annual Symposium in April. Below is a reprint of his work from his web site at AugmentedTrader.com. “A stop order is an order placed with a broker to sell a security when it reaches a certain price. A stop-loss order is designed to limit an investor’s loss on a position in a security” —investopedia. In this article, we investigate how the addition of stop-loss orders affect a generic trading strategy.  When investors enter a new position in a stock, they often simultaneously put in an order to exit that position if the price dips to a certain level. The intent being to prevent a substantial loss on that stock if a significant unanticipated negative event occurs. As an example, if we bought a fictitious stock XYZ at $100.00, we might put in a 5% stop-loss order (at $95.00). If the price of XYZ continues

Editor’s note: Cory Hoffstein is among the presenters at the Annual Symposium in April. This post was originally published at ThinkNewfound.com and is available as a PDF here. Summary • Prospect theory states that the pain of losses exceeds the pleasure of equivalent gains.  An oft-quoted ratio for this pain-to-pleasure experience is 2-to-1. • Evidence suggests a similar emotional experience is true for relative performance when investors compare their performance to common reference benchmarks. • The anxiety of underperforming can cause investors to abandon approaches before they benefit from the long-term outperformance opportunity. • We plot the “emotional” experience investors might have based upon the active approach they are employing as well as the frequency with which they review results. The more volatile the approach, the greater the emotional drag. • Not surprisingly, diversifying across multiple active approaches can help significantly reduce anxiety. Last week, Longboard Asset Management published blog post titled A Watched Portfolio Never Performs.

Since ending 2016 at a price of 72.23, Target shares have broken technical support and dropped by 24%. One quantitative factor that could have helped investors avoid this stock is the credit default swap spread. CDS spreads indicate the market’s perception of a company’s creditworthiness.  As spreads rise, credit quality is thought to deteriorate. In the case of Target, the rise in spreads from a low of 22 last March to the February 2017 high of 65 provided an early warning that Target shares were increasing in risk. While there’s currently no inexpensive source for investors to see single name CDS spreads, HIS Markit will soon be launching a report on Yahoo Finance that includes this data, along with a quantitative scoring system. It will also include Markit’s proprietary ETP flows, sector PMI, and short interest data.