New strategies:
#142 – Seasonality in Gold
Period of rebalancing: Monthly
Markets traded: commodities
Instruments used for trading: ETFs, funds, futures, CFDs
Complexity: Simple strategy
Bactest period: 1981-2010
Indicative performance: 7.15%
Estimated volatility: not stated
Source paper:
Baur: The Seasonality of Gold – Jewelery Demand and Investor Behavior
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1989593
Abstract:
The demand for gold consists of industrial, investment and consumption demand. The latter two components comprise recurring annual events potentially introducing seasonality into gold prices. We analyze gold returns for each month from 1980 to 2010 and find that September and November are the only months with positive and statistically significant gold price changes. This result holds unconditionally and conditional on several risk factors such as stock market conditions, general commodity prices, the US dollar and stock market volatility. We hypothesize that this seasonality is due to increased gold jewelery demand associated with the wedding season in India and the pre-Christmas period in many industrial countries. This hypothesis is supported by actual gold jewelery demand figures. An alternative explanation for the anomalies in September is that investors hedge against financial crises prior to its potential occurrence in October in contrast to safe haven purchases that are a response to such crises.
#143 – Momentum and Trendfollowing in Country Equity Indexes
Period of rebalancing: Monthly
Markets traded: equities
Instruments used for trading: ETFs, funds
Complexity: Simple strategy
Bactest period: 1970-2008
Indicative performance: 20.59%
Estimated volatility: 17.64%
Source paper:
Gwilym, Clare, Seaton, Thomas: Price and Momentum as Robust Tactical Approaches to Global Equity Investing
http://www.cass.city.ac.uk/__data/assets/pdf_file/0009/69939/Price-and-momentum-as-robust-tactical-approaches….pdf
Abstract:
We investigate the performance of momentum and timing approaches for investing across 32 international equity markets, adding to a growing body of literature including Siegel [2002] and Faber [2007, 2009], using data back to 1971. Momentum strategies are found to be profitable using a global portfolio although the outperformance has diminished somewhat in the last two decades. We find that a trend following method significantly reduces the volatility of international equities and provides superior risk-adjusted returns compared to a conventional buy-and-hold method. Finally, we observe that the performance of a portfolio momentum “winners” can be improved still further by the addition of a trend following filter.
New research papers related to existing strategies:
#52 – Asset Growth Effect
Kam, Wei: Asset Growth Reversals and Investment Anomalies
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1988585
Abstract:
We simultaneously test the prominent rational and behavioral explanations of the negative relations between corporate asset growth or investments and subsequent stock returns by extensively examining the effects of realized and predicted subsequent growth on the relations. We find: (i) returns on low growth firms with low subsequent growth are not higher than those on high growth firms with high subsequent growth; (ii) high growth firms that have high subsequent growth do not underperform and the return spreads between low and high growth firms are lower when high growth firms have higher subsequent growth; (iii) the relations between growth and returns are weak or even in opposite direction when subsequent growth tend not to reverse but are significantly negative when subsequent growth tend to reverse and are stronger when the reversals are more extreme. Our findings are consistent with the hypothesis based on extrapolation and growth-based style investing but less consistent with the other explanations.
#2 – Asset Class Momentum – Rotational System
Kessler, Scherer: Macro Momentum and the Economy
https://workspace.imperial.ac.uk/business-school/Public/research/annadvanceshedgefunds5/12_Kessler.pdf
Abstract:
We find strong evidence for momentum across asset classes. An investment strategy that simultaneously looks at relative momentum between currencies, equities, real estate, commodities and equities leads to stable and robust outperformance that survives both transaction costs as well as various stability tests. The success of the strategy can be attributed to predictable variations in the investment opportunity set. Excess returns can be interpreted as payoffs for rational investors hedging against predictable changes in investment opportunity set. While this further confirms the existence of predictability for global risk premia it also establishes macro momentum as a “poor mans” version of more sophisticated predictive regression. We find that momentum across asset classes is particularly successful in times of macroeconomic uncertainty.
