New strategies:
#186 – Adaptive Moving Averages used for Market Timing
Period of rebalancing: Daily
Markets traded: equities
Instruments used for trading: ETFs, CFDs, futures
Complexity: Moderately complex strategy
Bactest period: 1994 – 2008
Indicative performance: 14.60%
Estimated volatility: 17.41%
Source paper:
Isakov, Marti: Technical Analysis with a Long Term Perspective: Trading Strategies and Market Timing Ability
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1833613
Abstract:
This paper extends the literature on the profitability of technical analysis in three directions. First, we investigate the performance of complex trading rules based on moving averages computed over longer periods than those usually considered. Different trading rules are simulated on daily prices of the Standard & Poor’s 500 index and we find that trading rules are more profitable when signals are generated over long horizons. Second, we analyse whether financial leverage can improve the profitability of different strategies, which appears to be the case when leverage is achieved with debt. Third, we propose a new market timing test that assesses whether a trading strategy can generate signals corresponding to bull and bear markets. The results of this test show that complex rules produce high proportions of accurate signals.
#187 – CEO Interviews Effect
Period of rebalancing: Daily
Markets traded: equities
Instruments used for trading: stocks, futures
Complexity: Moderately complex strategy
Bactest period: 1997 – 2006
Indicative performance: 32.08%
Estimated volatility: 13.28%
Source paper:
Kim, Meschke: CEO Interviews on CNBC
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1745085
Abstract:
This paper investigates whether media attention systematically affects stock prices by exploiting the substantial discrepancy between perceived and actual information content of almost 7,000 CEO interviews on CNBC. The average cumulative abnormal stock return over the [-2, 0] trading day window is 162 basis points, yet prices exhibit strong reversion of 108 bps over the following ten trading days. The paper traces the mechanism through which media attention affects stock prices by capturing the trading behavior of individual investors and short sellers, and by collecting interview transcripts, confounding event dates, and surrounding news stories to control for information effects. The results show that the number of people watching CNBC, the trading behavior of individual investors and short-sellers, and the characteristics of CEO interviews help explain the ensuing market reaction.
New research paper related to existing strategies:
#90 – Pairs Trading with ADRs
De Medeiros, Lima: Brazilian Dual-Listed Stocks, Arbitrage and Barriers
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=896358
Abstract:
We seek for verification and explanation of arbitrage between securities of dual-listed Brazilian-based companies which are simultaneously traded on the Brazilian and the US stock markets. Following the extant literature, our underlying hypothesis is that arbitrage events can be explained by shocks occurring on the Brazilian and the US stock markets, as well as on the R$/US$ exchange rate. We also aimed at determining factors that act as barriers to arbitrage, hampering arbitrageurs' activity. For this purpose, we test as potential barriers: synchronicity, illiquidity, relative turnover, market capitalization, and trading costs. The methodology involves the use of time-series and cross-section linear regressions using daily data from 1995 through 2004. We confirm that during that period arbitrage events occurred in 32 of 34 stock/ADR pairs included in the sample. Therefore, we come to the conclusion that the Brazilian and the US stock markets are segmented rather than integrated. We also found that synchronicity is the only of the tested factors that act as a significant barrier to arbitrage between Brazilian stocks and their corresponding ADRs.
