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Finding Alphas: A Quantitative Approach to Building Trading Strategies



Finding Alphas: A Quantitative Approach to Building Trading Strategies

Igor Tulchinsky

ISBN: 978-1-119-05789-5 August 2015 272 Pages


Design more successful trading systems with this practical guide to identifying alphas

Finding Alphas seeks to teach you how to do one thing and do it well: design alphas. Written by experienced practitioners from WorldQuant, including its founder and CEO Igor Tulchinsky, this book provides detailed insight into the alchemic art of generating trading signals, and gives you access to the tools you need to practice and explore. Equally applicable across regions, this practical guide provides you with methods for uncovering the hidden signals in your data. A collection of essays provides diverse viewpoints to show the similarities, as well as unique approaches, to alpha design, covering a wide variety of topics, ranging from abstract theory to concrete technical aspects. You'll learn the dos and don'ts of information research, fundamental analysis, statistical arbitrage, alpha diversity, and more, and then delve into more advanced areas and more complex designs. The companion website,, features alpha examples with formulas and explanations. Further, this book also provides practical guidance for using WorldQuant's online simulation tool WebSim® to get hands-on practice in alpha design.

Alpha is an algorithm which trades financial securities. This book shows you the ins and outs of alpha design, with key insight from experienced practitioners.

  • Learn the seven habits of highly effective quants
  • Understand the key technical aspects of alpha design
  • Use WebSim® to experiment and create more successful alphas

Finding Alphas is the detailed, informative guide you need to start designing robust, successful alphas.

Preface xi

Acknowledgments xiii

About the WebSim? Website xv

Part I Introduction 1

1 Introduction to Alpha Design 3

By Igor Tulchinsky

2 Alpha Genesis Life-Cycle of a Quantitative

Model Financial Price Prediction 7

By Geoffrey Lauprete

3 Cutting Losses 13

By Igor Tulchinsky

Part II Design and Evaluation 19

4 Alpha Design 21

By Scott Bender/Yongfeng He

5 How to Develop an Alpha. I: Logic with an Example 27

By Pankaj Bakliwal

6 How to Develop an Alpha. II: A Case Study 31

By Hongzhi Chen

7 Fundamental Analysis 43

By Xinye Tang/Kailin Qi

8 Equity Price and Volume 49

By Cong Li

9 Turnover 51

By Pratik Patel

10 Backtest ? Signal or Overfitting 55

By Peng Yan

11 Alpha and Risk Factors 61

By Peng Wan

12 The Relationship between Alpha and Portfolio Risk 65

By Ionut Aron

13 Risk and Drawdowns 71

By Hammad Khan

14 Data and Alpha Design 79

By Weijia Li

15 Statistical Arbitrage, Overfitting, and Alpha Diversity 85

By Zhuangxi Fang

16 Techniques for Improving the Robustness of Alphas 89

By Michael Kozlov

17 Alphas from Automated Search 93

By Yu Huang

18 Algorithms and Special Techniques in Alpha Research 97

By Sunny Mahajan

Part III Extended Topics 101

19 Impact of News and Social Media on Stock Returns 103

By Wancheng Zhang

20 Stock Returns Information from the Stock Options Market 109

By Swastik Tiwari

21 Introduction to Momentum Alphas 117

By Zhiyu Ma

22 Financial Statement Analysis 119

By Paul A. Griffin

23 Institutional Research 101 127

By Benjamin Ee

24 Introduction to Futures Trading 145

By Rohit Agarwal

25 Alpha on Currency Forwards and Futures 151

By Richard Williams

Part IV New Horizon WebSim 155

26 Introduction to WebSim 157

By Jeffrey Scott

27 Alphas and WebSim Fundamentals 165

28 Understanding How WebSim Works 169

29 API Reference 179

30 Interpreting Results and Alpha Repository 187

31 Alpha Tutorials 199

32 FAQs 211

33 Suggested Reading 223

Part V - A Final Word 229

34 The Seven Habits of Highly Successful Quants 231

By Richard Hu

References 235

Index 245