New strategies:
#112 – Acceleration Effect Combined with Momentum in Stocks
Period of rebalancing: 6-Monthls
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 1926-2003
Indicative performance: 18,24%
Estimated volatility: 29,70%
Source paper:
Gettleman, Marks: Acceleration Strategies
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=802724
Abstract:
We define and measure a firm-level metric we term acceleration. This metric ranks a firm based on its change in six-month momentum relative to the cross-section of other firms. Our results indicate that trading strategies based on acceleration offer significant abnormal profits of approximately 4.5% annually when controlled for other known regularities in equity returns. We also examine the profitability of a set of momentum strategies refined in a manner that considers acceleration and its implications. These refinements produce profits of 2%-3% above the already large returns realized on a conventional univariate long-short momentum strategy. The profitability of acceleration strategies is consistent with recent theoretical behavioral models of equity returns.
#113 – 52-Weeks High Effect in Stocks
Period of rebalancing: Monthly
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 1969-2009
Indicative performance: 11,75%
Estimated volatility: 11,00%
Source paper:
Hong, Jordan, Liu: Industry Information and the 52-Week High Effect
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1787378
Abstract:
We find that the 52-week high effect (George and Hwang, 2004) cannot be explained by risk factors. Instead, it is more consistent with investor under-reaction caused by anchoring bias: the presumably more sophisticated institutional investors suffer less from this bias and buy (sell) stocks close to (far from) their 52-week highs. Further, the effect is mainly driven by investor under-reaction to industry instead of firm-specific information. The extent of under-reaction is more for positive than for negative industry information. A strategy that buys stocks in industries in which stock prices are close to 52-week highs and shorts stocks in industries in which stock prices are far from 52-week highs generates a monthly return of 0.60% from 1963 to 2009, roughly 50% higher than the profit from the individual 52-week high strategy in the same period. The 52-week high strategy works best among stocks with high R-squares and high industry betas (i.e., stocks whose values are more affected by industry factors and less affected by firm-specific information). Our results hold even after controlling for both individual and industry return momentum effects.
New research papers related to existing strategies:
#17 – Momentum Effect in Anomalies/Trading Systems
New related paper:
Basu, Hung: Anomaly Timing
http://140.117.75.203/program/FullPaper/076-1519245738.pdf
Abstract:
We construct simple timing strategies based on the lagged return on the market using the portfolios of asset-pricing anomalies. These strategies have similar or higher Sharpe ratios than the corresponding anomalies portfolios, with lower volatility, and remain profitable for relatively high levels of transaction costs. They have positive, often significant, alphas with respect to factor models that explain the returns on the anomalies portfolios. These alphas are accounted for by adding an upside risk factor. Our results indicate that the high returns or upsides of the anomaly portfolios are correlated with the state of the market.
#52 – Asset Growth Effect
New related paper:
Watanabe, Xu, Yao, Yu: The Asset Growth Effect: Insights from International Equity Markets
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1787237
Abstract:
Stocks with higher asset growth rates experience lower future returns in 40 international equity markets, consistent with the U.S. evidence documented by Cooper et al. (2008). This negative effect of asset growth on stock return is stronger in developed markets and in markets where stocks are more efficiently priced. For each country, we estimate a parsimonious model to quantify the cash flow channel and the discount rate channel of the investment-return relationship proposed by the q-theory model of Li, Livdan, and Zhang (2008). The estimated cash flow beta and discount rate beta successfully explain the cross-country variation in the asset growth effect on future stock returns. In contrast, country characteristics related to corporate governance and investor protection, and measures of limits to arbitrage, do not explain such effect. This evidence suggests that the q-theory model does better than mispricing-based hypotheses in explaining the asset growth effect internationally.
#79 – Election Cycle
New related paper:
Sturm: Economic Policy and the Presidential Election Cycle in Stock Returns
http://69.175.2.130/~finman/Reno/Papers/EconPolicyElectionv1.pdf
Abstract:
Several papers in the academic literature have documented a “Presidential Election” cycle in stock returns. Prior literature also documents that stock returns appear to be influenced by economic policy. The goal of this study is to examine the tools of fiscal and monetary policy to test for the presence of a presidential election cycle. My findings strongly suggest that the presidential election cycle in stock returns and the government’s economic policy influence on stock returns are two separate phenomena. Moreover, it is much more likely that stock returns are influencing economic policy rather than the other way around.
#91 – Momentum and Style Rotation Effect
New related paper:
Wang, Brooks: Growth/Value, Market-Cap, and Momentum
http://www.fma.org/NY/Papers/GrowthValueMarketCapandMomentum.pdf
Abstract:
This paper examines the profitability of style momentum strategies on portfolios based on firm growth/value characteristics and market capitalization. We use monthly total returns of nine S&P style indices to avoid concerns about firm size, liquidity, credit risk, short-sale constraints, and transaction costs. We find that historically buying a past best performing style index and short-selling a past worst performing style index generates economically and statistically significant profit of 0.8% per month over the period June 1995 to March 2009. This profitability remains economically plausible after adjusting for systematic risk, short-sale costs, and transaction costs. Investors may actually implement style momentum strategies on exchange traded funds linked to the S&P style indices.
