New strategies:
#299 – Absolute Momentum Effect in Stocks
Period of rebalancing: monthly
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 2000-2014
Indicative performance: 19.70%
Estimated volatility: 29.06%
Source paper:
Gulen, Petkova: Absolute strength: Exploring momentum in stock returns
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2638004
Abstract:
We document a new pattern in stock returns that we call absolute strength momentum. Stocks that have significantly increased in value in the recent past (absolute strength winners) continue to gain, and stocks that have significantly decreased in value (absolute strength losers) continue to lose in the near future. Absolute strength winner and loser portfolio breakpoints are recursively determined by the historical distribution of realized cumulative returns across time and across stocks. The historical distribution yields stable breakpoints that are always positive (negative) for the winner (loser) portfolios. As a result, winners are those that have experienced a significant upward trend, losers are those that have experienced a significant downward trend, and stocks with no momentum have cumulative returns that are not significantly different from zero. The absolute strength momentum strategy is related to, but different from, the relative strength strategy of Jegadeesh and Titman (1993). Time-series regressions show that the returns to the absolute strength momentum strategy completely explain the returns to the relative strength strategy, but not vice versa. Absolute strength momentum does not expose investors to severe crashes during crisis periods, and its profits are remarkably consistent over time. For example, an 11-1-1 strategy that buys absolute strength winners and sells absolute strength losers delivers a risk-adjusted return of 2.42% per month from 1965-2014 and 1.55% per month from 2000-2014.
#300 – Overnight Momentum Strategy
Period of rebalancing: intraday
Markets traded: equities
Instruments used for trading: stocks
Complexity: Very complex strategy
Bactest period: 1993-2013
Indicative performance: 50.58%
Estimated volatility: 11.52%
Source paper:
Lou, Polk and Skouras: A Tug of War: Overnight Versus Intraday Expected Returns
http://personal.lse.ac.uk/loud/OvernightMom.pdf
Abstract:
We show that momentum profiÂ…ts accrue entirely overnight while proÂ…fits on all other trading strategies studied occur entirely intraday. Indeed, for four-factor anomalies, intraday returns are particular large as there is a partially-offsetting overnight premium of the opposite sign. We link cross-sectional and time-series variation in our decomposition of momentum expected returns to variation in institutional momentum trading, generating variation in overnight-minus-intraday momentum returns of approximately 2 percent per month. An overnight/intraday decomposition of momentum returns in nine non-US markets is consistent with our US Â…findings. Finally, we document strong and persistent overnight momentum, intraday momentum, and cross-period reversal effects.
New research papers related to existing strategies:
#116 – Insider Trading Combined with Share Repurchases
Cziraki, Lyandres, Michaely: What Do Insiders Know? Evidence from Insider Trading Around Share Repurchases and SEOs
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2732969
Abstract:
We examine the information contained in insider trades prior to open market share repurchases and seasoned equity offerings using a comprehensive sample of over 4,300 repurchase and nearly 1,800 SEO announcements. We show that insiders tend to purchase stock prior to repurchase announcements and sell prior to SEO announcements. More purchasing before both types of events is associated with higher announcement returns. In addition, in the case of repurchases, information gets incorporated into stock prices slowly, leading to a positive relation between pre-event insider trading and post-event long-term returns. We also examine the nature of information contained in pre-event insider trading. We find that more insider purchasing before both types of events predicts better post-event operating performance. In addition, in the case of repurchases, more insider buying is associated with a larger reduction in post-event cost of capital. Taken together, our results suggest that insiders’ trades prior to repurchases and SEOs contain information regarding firms’ future fundamentals, and that such information is incorporated into prices over time.
#264 – Dividend Risk Premium Strategy
Song: Dealer Funding Costs: Implications for the Term Structure of Dividend Risk Premia
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2732133
Abstract:
I show how funding costs to derivatives dealers' shareholders for carrying and hedging inventory affect mid-market derivatives prices. An implication is that some supposed "no-arbitrage" pricing relationships, such as put-call parity, frequently break down. As a result, I show that risk premia for S&P 500 dividend strips estimated in some recent research are notably biased. In particular, I question whether the term structure of S&P 500 dividend risk premia is on average downward sloping.
Two additional related research papers have been included into existing free strategy reviews during last 2 week:
#37 – Net Current Asset Value Effect
Oxman, Mohanty, Carlisle: Deep Value Investing and Unexplained Returns
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1928694
Abstract:
Following Ben Graham’s “net current asset value” (NCAV) rule for stock selection (“net net” strategy), we provide evidence that buying stocks in companies with per share NCAV greater than the current share price produced superior risk-adjusted returns over the 1975- 2010 period. The risk factors that explain the returns associated with these firms include market risk, market liquidity, a factor capturing overreaction (long-term reversal), and a relative distress factor. The only firm characteristics that drive excess stock returns for such firms are the analyst coverage, stock price per share, and turnover. Controlling for firm size and common risk factors, we find that returns are higher among net-net stocks with low analyst coverage, low stock price per share and lower trading volume.
#14 – Momentum Effect in Stocks
#25 – Small Capitalization Stocks Premium
#26 – Value (Book-to-Market) Anomaly
Cakici, Tang, Yan: Do the Size, Value, and Momentum Factors Drive Stock Returns in Emerging Markets?
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2727257
Abstract:
This paper investigates the size, value and momentum effects in 18 emerging stock markets during the period 1990−2013.We find that size and momentum strategies generally fail to generate superior returns in emerging markets. The value effect exists in all markets except Brazil, and it is robust to different periods and market conditions. Value premiums tend to move positively together across different markets, and such inter-market co-movements increase overtime and during the global financial crisis.
