New strategies:
#135 – Volatility Effect in Commodities
Period of rebalancing: Weekly
Markets traded: commodities
Instruments used for trading: futures
Complexity: Complex strategy
Bactest period: 1992-2011
Indicative performance: 12.36%
Estimated volatility: 19.30%
Source paper:
Perez, Fuertez, Miffre: Idiosyncratic Volatility Strategies in Commodity Futures Markets
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1971917
Abstract:
This paper studies the relationship between lagged idiosyncratic volatility and subsequent returns in commodity futures markets. The negative pattern observed in international equity markets by Ang et al. (2006, 2009) prevails in commodity futures markets too, suggesting that it may relate to a yet-to-be-specified risk factor that is pervasive across markets. Systematically buying commodities with low idiosyncratic volatility and shorting commodities with high idiosyncratic volatility generates an average alpha of 4.62% a year. Idiosyncratic volatility signals appear more robust to extreme market volatility conditions than momentum and/or term structure signals. Robustness tests show that the profitability of idiosyncratic volatility signals is not an artifact of transaction costs, illiquidity or data mining. They are neither a mere compensation for backwardation and contango nor a manifestation of overreaction.
#136 – Residual Momentum
Period of rebalancing: Monthly
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 1926-2009
Indicative performance: 9.18%
Estimated volatility: 15.27%
Source paper:
Blitz, Huij, Martens: Residual Momentum
http://repub.eur.nl/res/pub/22252/ResidualMomentum-2011.pdf
Abstract:
Conventional momentum strategies exhibit substantial time-varying exposures to the Fama and French factors. We show that these exposures can be reduced by ranking stocks on residual stock returns instead of total returns. As a consequence, residual momentum earns risk-adjusted profits that are about twice as large as those associated with total return momentum; is more consistent over time; and less concentrated in the extremes of the cross-section of stocks. Our results are inconsistent with the notion that the momentum phenomenon can be attributed to a priced risk factor or market microstructure effects.
New research paper related to existing strategies:
#42 – Overnight Anomaly
Tao, Qiu: The International Evidence of the Overnight Return Anomaly
http://69.175.2.130/~finman/Reno/Papers/OvernightReturnTaoQiu.pdf
Abstract:
We decompose the daily stock market returns of 29 countries into daytime trading period and overnight non-trading period returns. We find that the overnight returns are significantly higher than the trading period returns in 23 countries, indicating that the overnight return anomaly exists on a global level. We argue that this phenomenon may be explained by the upward bias of opening prices which is a result of increasing dispersion of opinions among investors over the non-trading period. Consistent with Miller’s (1977) optimism theory, we find that the overnight return anomaly is stronger in the markets with short sale constrains.
