New strategies:
#243 – Diversified Commodity Risk Factors
Period of rebalancing: monthly
Markets traded: commodities
Instruments used for trading: futures
Complexity: Moderately complex strategy
Bactest period: 1979 – 2012
Indicative performance: 14.16%
Estimated volatility: 15.17%
Source paper:
Blitz, de Groot: Strategic Allocation to Commodity Factor Premiums
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2265901
Abstract:
Investors may wonder whether the traditional arguments for investing in commodities still apply, as the return, diversification and inflation-hedging potential of commodities appear to have declined. In this study, we take a fresh look at the strategic allocation to commodities, considering not only the commodity market portfolio, but also various other factor premiums documented to exist in the commodities market. We find that a commodity factor portfolio consisting of the momentum, carry and low-volatility factor premiums exhibits a significantly better risk-adjusted performance than a conventional commodity portfolio. We also find that only such a commodity multi-factor portfolio adds value in the strategic asset allocation. As the traditional commodity market portfolio appears to deserve little or no role at all in the strategic asset allocation, we argue that investors should not postpone the consideration of alternative commodity factor premiums to a later stage of the investment process.
New research papers related to existing strategies:
#6 – Volatility Effect in Stocks – Long-Short Version
#7 – Volatility Effect in Stocks – Long-Only Version
Collver, De Jong, Palkar: Risk and the Volatility Anomaly: A Global Analysis
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2236693
Abstract:
The only true global volatility anomaly is the high variance anomaly. High volatility stocks in the United States earn extremely low returns over time and investors should shun them. Our tests with data from forty international markets tend to support the U.S. findings. Portfolios of stocks sorted by variance tend to have characteristics similar to portfolios sorted by net variance (upside semi-variance minus downside semi-variance). However, beta and net beta sorted portfolios exhibit notable differences in associated risk proxies such as dispersion, split factor or size. When net variance or net beta is the risk measure, the volatility anomaly generally disappears.
#6 – Volatility Effect in Stocks – Long-Short Version
#7 – Volatility Effect in Stocks – Long-Only Version
#77 – Beta Factor in Stocks
Blitz, Falkenstien, Van Vliet: Explanations for the Volatility Effect: An Overview Based on the CAPM Assumptions
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2270973
Abstract:
The Capital Asset Pricing Model (CAPM) predicts a positive relation between risk and return, but empirical studies find the actual relation to be flat, or even negative. This paper provides a broad overview of explanations for this ‘volatility effect’ that have been proposed in different streams of literature, and categorizes each explanation according to the CAPM assumption it relates to. Interestingly, various explanations relate to investor behavior that is rational given exogenous incentive structures or constraints, which may explain why the volatility effect has been so persistent over time. We argue that although the CAPM may be bad at explaining reality, addressing the reasons for its failure could actually be a normative arbitrage opportunity.
#26 – Value (Book-to-Market) Anomaly
Caliskan, Hens: Value Around the World
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2274823
Abstract:
Over the last decades the value premium has well been documented for various time spans and countries. It is proven to be a consistent asset pricing anomaly. This study presents the largest international study on portfolio returns formed according to the book-to-market ratio and examines how cultural differences affect the magnitude of value returns. The cultural differences are measured in two dimensions: patience and risk aversion based on the data collected by the International Test on Risk Attitudes (INTRA). In accordance with a consumption based Gordon model we find that risk aversion is positively and patience negatively related to the magnitude of value profits. Similar results hold for the average stock volatility. Although patience is positively related with the degree of economic development, its relation to value returns does not disappear after controlling for general economic and financial development measures. Furthermore, we find that the value premiums are also positively associated with the country price earnings ratio and negatively related to firm size.
