Data Driven Finance II


Kerry Back

Shmuel Baruch

Zoom Sessions

Mondays, Mar 4 and Mar 18 - Apr 22
8:00 PM Central Time
Zoom Link

Course Description

We’ll cover two topics in this course: quantitative equity investing and derivative securities. Quantitative equity investing is using quantifiable signals to select stocks via algorithms. We’ll explore machine learning methods to predict returns and classify stocks as Buy/Hold/Sell. We’ll backtest trading strategies based on the signals. And, we will analyze the results in the way that endowments and other institutions evaluate investment managers. We’ll do a real-world implementation of our algorithms using daily updated company financials and market data from a SQL database and with paper trading via the python API at Alpaca Brokerage.

Derivative securities are securities whose values depend upon (are derived from) other securities. We’ll cover options and futures, which are the basic derivative securities. Options and futures are important instruments for risk management and also for investing. We’ll explain what the securities are and how they trade, how they are used in risk management and investments, and how to value them.

Assignments and Grading

Grades will be based on weekly assignments and a project. They will count equally towards the course grade.

The project requires conducting backtests of strategies and implementing a strategy on Alpaca. The strategy that is implemented should be a 150/50 strategy, meaning 150% long and 50% short. Each person should submit a pdf containing the following elements.

  • Descriptions of at least two strategies
  • Description of the backtest procedure
  • Evaluation of backtest results for the two strategies
  • Explanation for why one of the strategies was chosen for implementation
  • Description of the trading process: how many stocks and when were trades made
  • Evaluation of the weekly returns of the Alpaca strategy (return compared to SPY over the same time period)

The first trades on Alpaca should be on Friday, April 12. Portfolios should be adjusted based on changes in stock features on April 19, and the portfolio value at that time should be recorded. The portfolio value should be recorded again on April 26. The report should describe the weekly returns from April 12 to 19 and April 19 to 26. The submission is due by midnight on Tuesday, April 30.

Honor Code

The Rice University honor code applies to all work in this course. Each student must do his or her own assignments, but it is allowed and in fact encouraged for students to seek advice from each other.

Disability Accommodations

Any student with a documented disability requiring accommodations in this course is encouraged to contact me outside of class. All discussions will remain confidential. Any adjustments or accommodations regarding assignments or the final exam must be made in advance. Students with disabilities should also contact Disability Support Services in the Allen Center.