demo/faber.R

# 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)

#correct for TZ issues if they crop up
oldtz<-Sys.getenv('TZ')
if(oldtz=='') {
	Sys.setenv(TZ="GMT")
}
# 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", "startDate", "initEq", "Posn", "UnitSize", "verbose"))
suppressWarnings(rm("order_book.faber",pos=.strategy))

# Set initial values
startDate='1997-12-31'
initEq=100000

# Set up instruments with FinancialInstruments package
currency("USD")
symbols = c("XLF", "XLP", "XLE", "XLY", "XLV", "XLI", "XLB", "XLK", "XLU")
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)
initAcct('faber', portfolios='faber', initEq=initEq)
initOrders(portfolio='faber')

print("setup completed")

# Initialize a strategy object
strategy("faber", store=TRUE)

# Add an indicator
add.indicator('faber', 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
add.signal('faber',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
add.signal('faber',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
add.rule('faber', name='ruleSignal', arguments = list(sigcol="Cl.gt.SMA", sigval=TRUE, orderqty=500, 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
add.rule('faber', 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='faber' , 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=''))
updateAcct('faber')
updateEndEq('faber')
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'

dev.new()
layout(mat=matrix(1:(length(symbols)+1),ncol=2))
for(symbol in symbols){
    chart.Posn(Portfolio='faber',Symbol=symbol,theme=themelist,TA="add_SMA(n=10,col='darkgreen')")
}

ret1 <- PortfReturns('faber')
ret1$total <- rowSums(ret1)

print(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, indexAt='lastof')  
	SPY.ret<-Return.calculate(SPY$SPY.Close)
	dev.new()
	charts.PerformanceSummary(cbind(ret1$total,SPY.ret), geometric=FALSE, wealth.index=TRUE)
}

faber.stats<-tradeStats('faber')[,c('Net.Trading.PL','Max.Drawdown','Num.Trades','Profit.Factor','Std.Dev.Trade.PL','Largest.Winner','Largest.Loser','Max.Equity','Min.Equity')]
print(faber.stats)

Sys.setenv(TZ=oldtz)
###############################################################################
# R (http://r-project.org/) Quantitative Strategy Model Framework
#
# Copyright (c) 2009-2012
# 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
#
# $Id$
#
###############################################################################
naturalsmen/quantstrat documentation built on May 23, 2017, 10:38 a.m.