Editor’s note: In his presentation to the Denver Chapter, Matt Radtke stressed the importance of using data free from survivorship bias. Cesar Alvarez has quantified this problem in this blog post which was originally published at Alvarez Quant Trading in February 2014. It is reprinted here with permission. Over the last month several people have asked me how important it is to have survivorship-free data. For any researcher this is an important question to understand how the different data can change your results. We will be exploring three potential data issues: as traded prices, delisted stocks (survivorship-bias), and historical index constituents (pre-inclusion bias). My data source is CSI Data, which includes delisted stocks and as traded prices. Unfortunately they are no longer selling this package to individuals. Norgate Investor Services supplies delisted stocks and as-traded pricing. I welcome comments from people that have on the quality of their data and customer service. General

Editor’s note: this was originally published by KCG and is reprinted here with permission. Market on Close (MOC) ETF trading can cause volume shocks that disconnect ETFs from net asset value (NAV). Illiquid and high beta ETFs seem most at risk of mispricing in MOC. This creates tracking errors that make ETF PMs look bad too. Crib Sheet: ETFs depend on arbitrageurs to hold their price at fair value (NAV). And arbitrageurs depend on having a cheap and reliable hedge to offset risks. The close is one time that arbitrageurs can’t hedge. This makes market making in ETFs in MOC more risky. Data shows that disconnects from NAV in the MOC are common, but they are typically pretty small for most US ETFs, most of the time. This is good news for investors. It indicates that the markets are surprisingly efficient despite the lack of riskless arbitrage. However, disconnects do occur, mostly in less-liquid ETFs and

Editor’s note: This article was originally published at The Educated Analyst, an education blog maintained by Market Analyst. Volatility Makes the World Go Around Volatility is the most important technical measurement we can make as analysts. We are all familiar with the old saying, ‘money makes the world go around’. I now believe ‘volatility makes the world go around’. By my estimate I think this to be true beginning about 20 years ago. This owes mostly to the radical expansion of securitization which began in the 1990’s. What does volatility have to do with Support and Resistance? You’re about to see. Strap on your thinking cap, this is likely to be conceptually new for you. First let’s take a quick look at what we covered in the first article, which shed needed light on why volatility is so important. For an in-depth definition of Big Money see the Lagniappe section at the end of this

Studying Sentiment On StockTwits During A 10% Correction by Stefan Cheplick Editor’s note: this was originally published on August 29, 2015 at The StockTwits Blog and is reposted with permission. This week was anything but ordinary: from last Friday to Monday morning S&P 500 futures declined nearly 10% in one of the swiftest declines possible short of a crash. The fire swept through as quickly as it started; however, prices ended up making a near full recovery. To give you some idea of how extreme this all was, we counted the number of Bullish and Bearish messages for the cashtag $SPY (the largest S&P 500 ETF) over the last week. Then we plotted the price of the nearest S&P 500 futures contract against the net sentiment level (i.e. Bullish minus Bearish messages). As you can see in the chart below, sentiment turned negative for the broader stock market. In some instances it was very

Editor’s note: this was originally published on August 29, 2015 at The StockTwits Blog and is reposted with permission. After seeing the results of our last sentiment stock screener we wanted to extend the results to include this week’s startling action. It was characterized by extremes in both price and sentiment. The Dow and S&P 500 suffered their first 10% corrections in several years. But what’s equally startling is how sentiment changed for individual stocks. Take a look: 1.  Group RR: Rising Sentiment + Rising Prices This group is led by coal mining and processing firm Arch Coal ($ACI) which saw its stock price soar 107% on an extremely Bullish sentiment imbalance. The stock has been beat down of late as commodity prices and China’s economic prospects have sagged, but it seems to have caught a serious bid. Inovio Pharmaceuticals ($INO) had one of the most imbalanced sentiment pictures for the week, with fully

Editor’s note: this case study is adapted from Lawton, Ethics in Practice. The full text is available at the CFA Institute web site. This and all ethics study material has been licensed for use by the MTA and is used here under the terms if that license.  It is presented here as an example of the ethics challenges MTA members could face. Ethics extend beyond the markets to all aspects of the investment profession. Case Study: River City Pension Fund Case Facts Jack Aldred was reviewing his notes in preparation for an Investment Commission meeting when his manager, River City Treasurer Barbara Castel, stepped into his office. “The meeting is in two hours,” she said. “I want to know what you’re planning to say about Northwest Capital.” Aldred is the Chief Investment Officer of the River City Pension Fund, a mature defined benefit pension plan for municipal employees. He accepted this appointment six months

Editor’s note: This was originally published on September 21, 2015 and is republished here with permission. After a multi-year advance the breakdown of the prolonged trading range in the S&P 500 and the volatile plunge into the late-August low changed the “feel” of the markets for most participants. As we move past Labor Day – and enter the historically important September/October period – three facts stand out. First, as our recent Market Comments detailed, the interpretation of the August 24th low as a “selling climax” is strongly supported by numerous technical and sentiment indicators that reached extreme levels as the stampede out of stocks accelerated. As further confirmation, the Investors Intelligence survey of investment adviser sentiment shows that the percentage of bullish advisers has now sunk to its lowest level (25.7%) since the bull market started. Second, the current corrective move is best interpreted as “Leg 4” of an ongoing bull market. Substantial