The overnight gap strategy (mean reversion of the overnight price gap) is well known and in this example I wanted to quantify the alpha associated with it. The alpha is huge but is that easy to trade it?
Note that I used FixedSlippage, so there is no volume limitation in the orders. This is just for fun, I wanted to see huge numbers.
@Luca,
Thanks for posting this...always interesting to see your work!
Couldn't resist mucking with this a bit...didn't actually change much, if anything, except for running it for the past two years, which is my pavlovian version of Q-normalization!
Here is my take:
GOOD NEWS:
Fantastic results as measured by cumulative returns!...>49%/2 years
BAD NEWS:
Pretty much ZERO risk factors, except for ~200% turnover each day!
Hmmm. why is this bad you might ask...well bad for me in that now I don't trust that this simulator(backtester) is set up at all to handle intraday trading,
hence, I don't trust the GOOD NEWS of high cumulative returns without a lot more work and validation, especially in the commisions&slippage areas.
I suppose that High Frequency Traders have figured all this out, yet I don't currently trust Zipline in the intraday sphere.
Love to be wrong here...as I really like those returns!
alan
I also really appreciate Luca’s work and for sharing it. However, I also don’t trust these numbers. Too good for such a simple strategy. I don’t think Zipline was really designed with intraday trading in mind, and I believe the risk model doesn’t work unless you have overnight positions.
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