Macro-quantamental indicators
Overall, statistical programming nowadays allows the construction of quantamental systems (view post here). A quantamental system combines customized, high-quality databases and statistical programming outlines in order to systematically investigate relations between market returns and plausible predictors. The term “quantamental” refers to a joint quantitative and fundamental approach to investing.
Macro quantamental indicators record the market’s information state with respect to macroeconomic activity, balance sheets, and sentiment. Quantamental indicators are distinct from regular economic time series insofar as they represent information that was available at the time of reference. Consequently, indicator values are comparable to market price data and are well-suited for backtesting trading ideas and implementing algorithmic strategies.
Quantamental indicators increase the market’s macro information efficiency (and trading profits) for two simple reasons:
- Quantamental indicators broaden the scope of easily backtestable and tradable strategy inputs. Currently, most systematic strategies focus on market data, such as prices and volumes. Quantamental indicators capture critical aspects of the economic environment, such as growth, inflation, profitability, or financial risks, directly and in a format that is similar to price data. Data in this format can be easily combined across macroeconomic concepts and with price data.
- Readily available quantamental indicators reduce information costs through scale effects. A quantamental system spreads the investment of low-level data wrangling and codifying fundamental domain know-how across many institutions. For individual managers, developing trading strategies that use fundamentals becomes much more economical. Access to the system removes expenses for data preparation and reduces development time. It also centralizes curation and common-sense oversight.
- Finally, quantamental indicators reduce moral hazard in systematic strategy building. Typically, if the production of indicators takes much time and high costs, there is a strong incentive to salvage failed related strategy propositions through “flexible interpretation” and effective data mining.
The main source of macro quantamental information for institutional investors is the J.P. Morgan Macrosynergy Quantamental System (JPMaQS). It is a service that makes it easy to use quantitative-fundamental (“quantamental”) information for financial market trading. With JPMaQS, users can access a wide range of relevant macro quantamental data that are designed for algorithmic strategies, as well as for backtesting macro trading principles in general.
Quantamental indicators are principally based on a two-dimensional data set.
- The first dimension is the timeline of real-time dates or information release dates. It marks the progression of the market’s information state.
- The second dimension is the timeline of observation dates. It describes the history of an indicator for a specific information state.
For any given real-time date, a quantamental indicator is calculated based on the full information state, typically a time series that may be based on other time series and estimates that would be available at or before the real-time date. This information state-contingent time series is called a data vintage.
The two-dimensional structure of the data means that, unlike regular time series, quantamental indicators convey information on two types of changes: changes in reported values and reported changes in values. The time series of the quantamental indicator itself shows changes in reports arising from updates in the market’s information state. By contrast, quantamental indicators of changes are reported dynamics based on the latest information state alone.