New strategies:
#244 – Long-Term PE Ratio Effect in Stocks Combined with Momentum
Period of rebalancing: monthly
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 1973 – 2012
Indicative performance: 21.60%
Estimated volatility: 20.47%
Source paper:
Gray, Vogel: On the Performance of Cyclically Adjusted Valuation Measures
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2329948
Abstract:
We confirm the effectiveness of using cyclically-adjusted valuation metrics to identify high performing stocks. The Shiller P/E, or cyclically-adjusted price-to-earnings (CAPE) ratio, is not the optimal way to implement a cyclically-adjusted value measure. At the margin, the cyclically-adjusted book-to-market (CA-BM) is a better measure to predict returns. We find that more frequent rebalancing and momentum can enhance strategies based on cyclically-adjusted valuation metrics.
New research papers related to existing strategies:
#26 – Value (Book-to-Market) Anomaly
Lakonishok, Schleifer, Vishny: Contrarian Investment Extrapolation and Risk
http://www.lsvasset.com/pdf/Contrarian-Investment-Extrapolation-and-Risk.pdf
Abstract:
For many years, scholars and investment proffesionals have argued that value strategies outperform the market. These value strategies call for buying stocks that have low prices relative to earnings, dividends, book assets, or other measures of fundamental value. While there is some agreement that value strategies produce higher returns, the interpretation of why they do so is more controversial. This article provides evidence that value strategies yield higher returns because these strategies exploit the suboptimal behavior of the typical investor and not because these strategies are fundamentally riskier.
#207 – Value Effect within Countries
Ellahie, Katz, Richardson: Risky Value
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2325524
Abstract:
Countries with higher levels of B/P have higher levels of subsequent earnings growth and exhibit much greater variability in that future earnings growth. Consistent with a risk based explanation for B/P predicting country level returns, we find strong evidence that the sensitivity of subsequent earnings growth to contemporaneous global earnings growth (and global market returns) is greater on the downside for countries with higher levels of B/P. Furthermore, B/P is relatively more important than E/P in explaining country level returns for countries with higher and more uncertain expectations of future earnings growth. Controlling for ex post realizations of earnings growth subsumes the ability of B/P to explain country returns. Overall, the results suggest that expectations of risky earnings growth, as reflected in B/P, play a significant role in explaining country returns.
