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faber.R
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faber.R
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# This is a very simple trend following strategy for testing the results of:
# Faber, Mebane T., "A Quantitative Approach to Tactical Asset Allocation."
# Journal of Risk Management (Spring 2007).
# The article proposes a very simple quantitative market-timing model. They
# test the model in sample on the US stock market since 1900 before testing
# it out-of-sample in twenty other markets.
# The article discusses a 200-day simple moving average, which is proposed
# in Jeremy Seigel's book "Stocks for the Long Run" for timing the DJIA. He
# concludes that a simple market timing strategy improves the absolute and
# risk adjusted returns over a buy-and-hold strategy. After all transaction
# costs are included, the timing strategy falls short on the absolute return,
# but still provides a better risk-adjusted return. Siegel also tests timing on
# the Nasdaq composite since 1972 and finds better absolute and risk adjusted
# returns.
# The article implements a simpler version of the 200-day SMA, opting for a
# 10-month SMA. Monthly data is more easily available for long periods of time,
# and the lower granularity should translate to lower transaction costs.
# The rules of the system are relatively simple:
# - Buy when monthly price > 10-month SMA
# - Sell and move to cash when monthly price < 10-month SMA
# 1. All entry and exit prices are on the day of the signal at the close.
# 2. All data series are total return series including dividends, updated monthly.
# For the purposes of this demo, we only use price returns.
# 3. Cash returns are estimated with 90-day commercial paper. Margin rates for
# leveraged models are estimated with the broker call rate. Again, for the
# purposes of this demo, we ignore interest and leverage.
# 4. Taxes, commissions, and slippage are excluded.
# This simple strategy is different from well-known trend-following systems in
# three respects. First, there's no shorting. Positions are converted to cash on
# a 'sell' signal, rather than taking a short position. Second, the entire position
# is put on at trade inception. No assumptions are made about increasing position
# size as the trend progresses. Third, there are no stops. If the trend reverts
# quickly, this system will wait for a sell signal before selling the position.
# Data
# Instead of using total returns data, this demo uses monthly data for the SP500
# downloaded from Yahoo Finance. We'll use about 10 years of data, starting at
# the beginning of 1998.
# Load required libraries
require(quantstrat)
# Try to clean up in case the demo was run previously
suppressWarnings(rm("account.faber","portfolio.faber",pos=.blotter))
suppressWarnings(rm("ltaccount", "ltportfolio", "ClosePrice", "CurrentDate", "equity",
"GSPC", "stratFaber", "initDate", "initEq", "Posn", "UnitSize", "verbose"))
suppressWarnings(rm("order_book.faber",pos=.strategy))
# Set initial values
initDate='1997-12-31'
initEq=100000
# Set up instruments with FinancialInstruments package
currency("USD")
# symbols = c("XLF", "XLP", "XLE", "XLY", "XLV", "XLI", "XLB", "XLK", "XLU")
symbols = c("XLF")
for(symbol in symbols){ # establish tradable instruments
stock(symbol, currency="USD",multiplier=1)
}
# Load data with quantmod
#getSymbols(symbols, src='yahoo', index.class=c("POSIXt","POSIXct"), from='1998-01-01')
### Download monthly data instead?
### GSPC=to.monthly(GSPC, indexAt='endof')
getSymbols(symbols, src='yahoo', index.class=c("POSIXt","POSIXct"), from='1999-01-01')
for(symbol in symbols) {
x<-get(symbol)
x<-to.monthly(x,indexAt='lastof',drop.time=TRUE)
indexFormat(x)<-'%Y-%m-%d'
colnames(x)<-gsub("x",symbol,colnames(x))
assign(symbol,x)
}
# Initialize portfolio and account
initPortf('faber', symbols=symbols, initDate=initDate)
initAcct('faber', portfolios='faber', initDate=initDate, initEq=100000)
initOrders(portfolio='faber', initDate=initDate)
print("setup completed")
# Initialize a strategy object
stratFaber <- strategy("faber")
# Add an indicator
stratFaber <- add.indicator(strategy = stratFaber, name = "SMA", arguments = list(x = quote(Cl(mktdata)), n=10), label="SMA10")
# There are two signals:
# The first is when monthly price crosses over the 10-month SMA
stratFaber <- add.signal(stratFaber,name="sigCrossover",arguments = list(columns=c("Close","SMA10"),relationship="gte"),label="Cl.gt.SMA")
# The second is when the monthly price crosses under the 10-month SMA
stratFaber <- add.signal(stratFaber,name="sigCrossover",arguments = list(columns=c("Close","SMA10"),relationship="lt"),label="Cl.lt.SMA")
# There are two rules:
# The first is to buy when the price crosses above the SMA
stratFaber <- add.rule(stratFaber, name='ruleSignal', arguments = list(sigcol="Cl.gt.SMA", sigval=TRUE, orderqty=1000, ordertype='market', orderside='long', pricemethod='market',TxnFees=-5), type='enter', path.dep=TRUE)
# The second is to sell when the price crosses below the SMA
stratFaber <- add.rule(stratFaber, name='ruleSignal', arguments = list(sigcol="Cl.lt.SMA", sigval=TRUE, orderqty='all', ordertype='market', orderside='long', pricemethod='market',TxnFees=-5), type='exit', path.dep=TRUE)
# Process the indicators and generate trades
start_t<-Sys.time()
out<-try(applyStrategy(strategy=stratFaber , portfolios='faber'))
end_t<-Sys.time()
print("Strategy Loop:")
print(end_t-start_t)
# look at the order book
#print(getOrderBook('faber'))
start_t<-Sys.time()
updatePortf(Portfolio='faber',Dates=paste('::',as.Date(Sys.time()),sep=''))
end_t<-Sys.time()
print("trade blotter portfolio update:")
print(end_t-start_t)
# hack for new quantmod graphics, remove later
themelist<-chart_theme()
themelist$col$up.col<-'lightgreen'
themelist$col$dn.col<-'pink'
for(symbol in symbols){
dev.new()
chart.Posn(Portfolio='faber',Symbol=symbol,theme=themelist)
plot(add_SMA(n=10,col='darkgreen', on=1))
}
ret1 <- PortfReturns('faber')
ret1$total<-rowSums(ret1)
ret1
if("package:PerformanceAnalytics" %in% search() || require("PerformanceAnalytics",quietly=TRUE)){
getSymbols("SPY", src='yahoo', index.class=c("POSIXt","POSIXct"), from='1999-01-01')
SPY<-to.monthly(SPY)
SPY.ret<-Return.calculate(SPY$SPY.Close)
index(SPY.ret)<-index(ret1)
dev.new()
charts.PerformanceSummary(cbind(ret1$total,SPY.ret), geometric=FALSE, wealth.index=TRUE)
}
faber.stats<-tradeStats('faber')[,c('Net.Trading.PL','maxDrawdown','Num.Trades','Profit.Factor','Std.Dev.Trade.PL','Largest.Winner','Largest.Loser','Max.Equity','Min.Equity')]
faber.stats
###############################################################################
# R (http://r-project.org/) Quantitative Strategy Model Framework
#
# Copyright (c) 2009-2010
# Peter Carl, Dirk Eddelbuettel, Brian G. Peterson,
# Jeffrey Ryan, Joshua Ulrich, and Garrett See
#
# This library is distributed under the terms of the GNU Public License (GPL)
# for full details see the file COPYING
#
# $Id: faber.R 639 2011-06-24 14:29:06Z gsee $
#
###############################################################################