New strategies:
#109 – Accrual Volatility Anomaly
Period of rebalancing: Monthly
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 1980-2008
Indicative performance: 17,60%
Estimated volatility: 17,30%
Source paper:
Bandyopadhyay, Huang, Wirjanto: The Accrual Volatility Anomaly
http://www.fma.org/NY/Papers/AA_4Jan10.pdf
Abstract:
We find that quarterly cash flow shocks are more likely to be offset by contemporaneous accruals than to be reported as earnings. We examine the pricing implications of a consistent deviation of earnings from cash flow. Measuring the consistent deviation by accrual volatility, we find a strong and long-lasting negative association between accrual volatility and future stock returns. In decile portfolios that rank accrual volatility, a hedge portfolio that goes long in the lowest decile and short in the highest decile generates an annual, risk-adjusted return in the order of 10% from one-month to five-year horizon. These results are robust to common risk factors and return-informative variables, extend to both operating accruals and discretionary accruals, are distinct from the accrual anomaly, and are not subsumed by transaction costs and short-sale constraints. In addition, an accrual-volatility mimicking portfolio provides additional explanatory power to returns on the Fama-French 25 size/book to market portfolio. The accrual volatility effect is consistent with the information uncertainty effect where higher historical information uncertainty leads to lower future returns, and is also consistent with the earnings fixation hypothesis in that investors overprice the transitory accruals component of earnings in high accrual volatility stocks.
#110 – Speculators' Effect in Commodities
Period of rebalancing: Weekly
Markets traded: commodities
Instruments used for trading: futures, CFDs
Complexity: Complex strategy
Bactest period: 1992-2010
Indicative performance: 8,35%
Estimated volatility: 17,17%
Source paper:
Miffre: Long-Short Commodity Investing: Implications for Portfolio Risk and Market Regulation
http://papers.ssrn.com/sol3/papers.cfm?abstract-id=460500
Abstract:
The paper studies the conditional volatility of long-short commodity portfolios and their conditional correlations with traditional assets. Aside from offering better performance, lower volatility and lower correlation with stocks than the S&P-GSCI, the long-short strategies based on speculators and hedgers positions stand out for also having decreasing conditional correlations with the S&P500 index in periods of high volatility in equity markets: unlike long-only commodity portfolios, these long-short commodity portfolios thus serve as partial hedge against extreme equity risk. They are also better diversifiers than long-only commodity portfolios in periods of extreme risk in fixed income markets. The paper also contributes to the recent debate on the financialization of commodity futures markets by showing that long-short speculators had no impact on the volatility of commodity markets or on their correlation with traditional assets.
#111 – Hedgers' Effect in Commodities
Period of rebalancing: Weekly
Markets traded: commodities
Instruments used for trading: futures, CFDs
Complexity: Complex strategy
Bactest period: 1992-2010
Indicative performance: 11,40%
Estimated volatility: 18,09%
Source paper:
Miffre: Long-Short Commodity Investing: Implications for Portfolio Risk and Market Regulation
http://papers.ssrn.com/sol3/papers.cfm?abstract-id=460500
Abstract:
The paper studies the conditional volatility of long-short commodity portfolios and their conditional correlations with traditional assets. Aside from offering better performance, lower volatility and lower correlation with stocks than the S&P-GSCI, the long-short strategies based on speculators and hedgers positions stand out for also having decreasing conditional correlations with the S&P500 index in periods of high volatility in equity markets: unlike long-only commodity portfolios, these long-short commodity portfolios thus serve as partial hedge against extreme equity risk. They are also better diversifiers than long-only commodity portfolios in periods of extreme risk in fixed income markets. The paper also contributes to the recent debate on the financialization of commodity futures markets by showing that long-short speculators had no impact on the volatility of commodity markets or on their correlation with traditional assets.
New research papers related to existing strategies:
#75 – Federal Open Market Comitee Meeting Effect in Stocks
New related paper:
Lucca, Moench: The Pre-FOMC Announcement Drift
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1923197
Abstract:
Since the Federal Open Market Committee (FOMC) began announcing its policy decisions in 1994, U.S. stock returns have on average been more than thirty times larger on announcement days than on other days. Surprisingly, these abnormal returns are accrued before the policy announcement. The excess returns earned during the twenty-four hours prior to scheduled FOMC announcements account for more than 80 percent of the equity premium over the past seventeen years. Similar results are found for major global equity indexes, but not for other asset classes or other economic news announcements. We explore a few risk-based explanations of these findings, none of which can account for the return anomaly.
#87 – Baltic Dry Index as Predictor of Stock Returns
New related paper:
Alizadeh, Muradoglu: Stock Market Returns and Shipping Freight Market Information: Yet Another Puzzle!
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905590
Abstact:
Changes in shipping freight rates predict stock market returns. In today’s global world, where economies are linked through international trade, shipping freight rates carry information about economic activity which is reflected in stock returns. Our results are statistically and economically significant and cannot be explained by time-varying risk premia as shipping freight rate changes significantly predict negative excess returns. Consistent with the delayed reaction hypothesis, it seems that investors are slow in responding to the information on changes in shipping freight rates. Moreover, results are robust across world and international stock indexes.
#14 – Momentum Effect in Stocks
New related paper:
Jagadeesh, Titman: Momentum (2011 version)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1919226
Abstract:
There is substantial evidence that indicates that stocks that perform the best (worst) over a three to 12 month period tend to continue to perform well (poorly) over the subsequent three to 12 months. Up until recently, trading strategies that exploit this phenomenon were consistently profitable in the United States and in most developed markets. Similarly, stocks with high earnings momentum outperform stocks with low earnings momentum. This article reviews the momentum literature and discusses some of the explanations for this phenomenon.
