Tuesday, September 30, 2014

Equities--Quant Stuff: "SPY Higher Close Over Next 5 Days..."

Always bearing in mind the old trader's lament: "As soon as you think you've found the key, they go and change the lock", you pays your money and you takes your chances.

From Victor Niederhoffer:
A study by Kora Reddy showed that for a sample of SPY days:
"4th trading day from the last trading day of the month (i.e 25th September 2014 in this month's case) is down and it is quarter ending (in the months of Mar, Jun, Sep, Dec)"
There were 45 instances, and all 45 had a higher close during the following 5 trading days.
For analysis, starting with all SPY days since 1993, we want to avoid overlap, so we pick every 6th SPY close and determine whether or not it had a higher close over the next 5 days.
Original study:
count: 45
with higher close next 5 tdays: 45
success rate: 100%
Non-overlapping SPY closes (every 6th):
count: 908
with higher close next 5 tdays: 863
success rate: 95%
To get a measure of the significance of the original results, we take our "every 6th SPY close" data set and assign a value of "1" for instances that have a higher high over the next 5 trading days, and "0" for instances that don't. Then we take that series of 1's and 0's and randomly pull 45 observations at a time (with replacement) for 1000 iterations....

Just freakin' lovely as I sit here patiently waiting for a measly little 5% decline.
SPX 1971.98 down 5.82; DJIA 17045.21 down 26.01.