Few books to review on the topic:
- Applied Quantitative Method by Christian L Dunis, Jason Laws, Patrick Naim 2003. regression analysis, Neil Burgess cointegration, interest curve term structure model, recurrent neural model for ccy vol, decision tree and nn for credit risk, volatility regime switch for fx, equity invest with time varying (kalman) factor sensi, stoch vol for options, markowitz portfolio analysis alternatives for many assets, volatility and correl models in excel, optimal allocation of trend follow rules, portfolio mgt for otc options, filling missing data: wheather derivatives
- Statistical Arbitrage by Andrew Poole 2007, covers pair trading, factors/pca, cointegration, a 225 page book that is verbose and uses elaborate prose but drops many insights along the way. Mentions decimalisation as reducing pair trading pnl for many. Never mentions ADF.
- Quantitative Investment Analysis 3rd ed Richar DeFusco, Dennis W McLeavey, Jerald E Pinto, David E Runkle,2015; Time Value of Money; DCF Applications; Statistical Concepts and Market Returns (sharpe ratio, skew...); Probability Concepts (Bayes); Common Probability Distributions (Uniform,Binomial, Gauss, LogNormal); Sampling and Estimation; Hypothesis testing; Correlation and Regression; Multilple Regression and issues in regression analysis; Time Series Analysis (linear trend, log trend, AR models, Random walks, unit root test, moving average); Introduction to Multifactor models (MPT; APT; returm attribution, risk attribution, portfolio construction, portfolio decision)
- Quantitative Trading Algorithms, Data, Models, Optimizations X Guo (Berkeley), Tze Leung Lai (Stanford), Howard Shek (Tower Research Capital), Samuel Po-Shing Wong (5Lattices Capital HK) 2016: Statistical models and methods for quant trading, active portfolio mgt and investment, econometrics of transactions on electronic platforms, limit order book: data analytics and dynamic models, optimal execution and placement, market making and smart order routing; informatics, regulations and risk mgt.
- Python for Algo Trading Yves Hilpsich 2021: Python and Algo Trading; Python Infrastructure; Working with Financial Data; Mastering Vectorized Backtesting; Predicting Mkt Movement with ML; Building classes for event-based backtesting; Working with RT data and sockets; CFD trading with OANDA; FX trading with FXCM; Automating trading Operations (Kelly Criterion for binomial bets, for stocks and indexes). see github source.
- Algorithmic Trading Methods 2nd Ed Robert Kissel 2021: Algorithmic trading; Transaction costs; Market impact model; Probability and Stats; LR models; Probabiltiy Models; Non-linear regression models; ML Techniques; Estimating I-Star Mkt Impact model params; Risk Vol and Factor models; Volume forecast; Algo Decision making framework; Portfolio optim and trade schedule optim; Advanced algo modeling; Decode and reverse engineer broker models with ML techniques; Portfolio construction with transaction cost analysis; Quantitative analysis with TCA; ML and trade schedule optimization
Quantitative Trading Algorithms, Data, Models, Optimizations
Order books are dual auction market. There is a walrasian equilibrium theory. See Glosten Milgrom 85 on positive bid/offer in specialist markets where specialists make no profit but some market participants have superior information.
- quotes Statistical Models and Methods for Financial Markets, Lai and Xing 2008
- Efficient Market and Martingales LeRoy 1989
- Bid, Ask and Transaction Prices in a Specialist Market with Heterogeneously Informed Traders Milgrom and Glosten 1983
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Random walks with sqrt difference observed by Regnault in 1863, Bachelier formalizes BM, Samuelson in 73 says it must be LN. Mandelbrot proposes stable distributions. Engle in 1982 says increment are not iid but martingale. Volatility follows an ARCH process.
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ma rules and GLR fault detection rules (Brock et al 1992)
- time series momentum, pair trading
- David Dreman 79, 82: value investor as contrarian
- Fama French 3 factor and 5 factors
- factor models for high dimensional matrixes
- high dimension regression: ridge, lasso, OGA
- dynamic factor: vector auto regression. The Federal Fed Fund Rate and the Channels of Monetary Transmissions Bernanke and Blinder 1992
- change point detection: Cusum Techniques for Technical Trading in Financial Markets Lam and Yam 1997
- ma and glr detection rules Sequential Changepoint Detection in Quality Control and Dynamical Systems Lai 1995
- Value and momentum everywhere Asness 2013
- Behavioral finance, Jin and Zhou 2008
- portfolio allocation under uncertainty of alpha. Dynamic Portfolio Choice with Parameter Uncertainty and the Economic Value of Analysts’ Recommendations cvitanic 2006
Volatility estimation - based on ohlc: Drift Independent Volatility Estimation Based on High, Low, Open, and Close Prices Yang Zhang 2000 - based on different bar return (min, day): Consistent high‐precision volatility from high‐frequency data Dacorogna et al 2001 - realized kernels: Designing realized kernels to measure the ex post variation of equity prices in the presence of noise Barndorf-Nielsen et al 2008
Adaptive Regression: equity invest with time varying (kalman) factor sensi in Dunnis
- Some necessary conditions for common factor analysis Guttman 1954. If R is a correlation matrix, R-I number of non negative edge values must be lower than nb of factors. Same criteria with R-D where D diagonal is the correlation of element I to the rest of the matrix. Author advises to watch distribution of eigenvalues, (they are positive, average at 1, so there must be cluster above 1 and one below 1)
- A rationale and test for factor analysis Horn 1965
- Random Coefficient Models Rosenberg 1973
- A factor approach to asset allocation Clarke, Silva, Murdoch, 2005
- Global Tactical Cross Asset Allocation Blitz and Vliet, 2007
- Wealth Management, relative importance of asset allocation and security selection Hlawitschka 2006
- How Many independent bets are there? Polakow 2008
- Using a Zscore approach to combine momentum and value in tactical allocation Wang 2012
- Value and Momentum Everywhere Asness 2013