New strategies:
#170 – US Holiday Effect in EU Markets
Period of rebalancing: Daily
Markets traded: equities
Instruments used for trading: ETFs, futures, CFDs
Complexity: Simple strategy
Bactest period: 1991 – 2008
Indicative performance: 6.52%
Estimated volatility: not stated
Source paper:
Casado, Muga, Santamaria: The Effect of US Holidays on the European Markets: When the Cat’s Away
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1876555
Abstract:
This paper presents evidence of the existence of a return effect on European stock markets coinciding with NYSE holidays, which is particularly marked after positive closing returns on the NYSE the previous day. The effect is large enough to be exploited by trading index futures. This anomaly can not be explained by seasonal effects, such as the day of the week effect, the January effect or the pre-holiday effect, nor is it consistent with behavioral finance models that predict positive correlation between trading volume and returns. However, examination of factors such as information volume or investor mix provides a reasonable explanatio
#171 – Market Timing Filter Applied to a Classical Stock Anomalies
Period of rebalancing: Monthly
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 1960 – 2011
Indicative performance: 21.58%
Estimated volatility: 18.69%
Source paper:
Glabadanidis: Market Timing with Moving Averages
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2018681
Abstract:
I present evidence that a moving average trading strategy dominates buying and holding the underlying asset in a mean-variance sense using monthly returns of value-weighted decile portfolios sorted by market size, book-to-market cash-flow-to-price, earnings-to-price, dividend-price, short-term reversal, medium-term momentum, long-term reversal and industry. The abnormal returns are largely insensitive to the four Carhart (1997) factors and produce economically and statistically significant alphas of between 10% and 15% per year after transaction costs. This performance is robust to different lags of the moving average and in subperiods while investor sentiment, liquidity risks, business cycles, up and down markets, and the default spread cannot fully account for its performance. The substantial market timing ability of the moving average strategy does not appear to be the main driver of the abnormal returns.
New research papers related to existing strategies:
#14 – Momentum Effect in Stocks
Maymin, Maymin, Fisher: Momentum's Hidden Sensitivity to the Starting Day
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1899000
Abstract:
We show that the profitability of time-series momentum strategies on commodity futures across their entire history is strongly sensitive to the starting day. Using daily returns with 252-day formation periods and 21-day holding periods, the Sharpe ratio depends on whether one starts on the first day, the second day, and so on, until the twenty first day. This sensitivity is higher for shorter trading periods. The same results also hold in simulation of independent and identically lognormally distributed returns, showing that this is not only an empirical pattern but a fundamental issue with momentum strategies. Portfolio managers should be aware of this latent risk: starting trading the same strategy on the same underlying but one day later could, even after many decades, turn a successful strategy into an unsuccessful one.
Lewis: Relative Strength and Portfolio Management
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1998935
Abstract:
This paper presents the results of several relative strength (momentum) strategies tested in a real world portfolio management setting. Monte Carlo simulations are used to determine the possible range of outcomes if a portfolio manager selects a subset of high relative strength (momentum) securities over time. A testing protocol that rebalances the portfolio on a continuous basis is also used to simulate real world portfolio management practices.
#101 – Earnings Revision Strategy
Hong, Lee, Swaminathan: Earnings Momentum in International Markets
http://www.bschool.nus.edu/Departments/FinanceNAccounting/seminars/Papers/dong%20hong.pdf
Abstract:
This paper examines the profitability of earnings momentum strategies based on analyst forecast revisions in eleven international equity markets. While analyst revisions exhibit persistence in all countries, the profitability of trading strategies based on these revisions varies. Specifically, earnings momentum yields significant profits in Australia, Canada, France, Germany, Hong Kong, and the United Kingdom, but not in Malaysia, South Korea, Japan, Singapore, or Taiwan. Interestingly, price momentum exists only in those countries where earnings momentum is profitable. In general, markets with high levels of corruption (low investor protection) exhibit weak momentum. Collectively, our findings suggest that both price and earnings momentum are related to information dissemination mechanisms within a country.
