New strategies:
#248 – Momentum Combined with Value Effect within Countries
Period of rebalancing: monthly
Markets traded: equities
Instruments used for trading: ETFs, futures
Complexity: Complex strategy
Bactest period: 2000 – 2013
Indicative performance: 24.16%
Estimated volatility: 24.53%
Source paper:
Zaremba, Konieczka: Value, Size and Momentum Across Countries
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2375902
Abstract:
The study investigates the characteristics of inter-country value, size and momentum premiums. We contribute to the asset-pricing literature in three ways. First, we provide fresh evidence for value, size and momentum premiums in country returns. Second, we show that these premiums are robust to the changes of functional currencies or countries’ representative indices. Third, we demonstrate, that the country-level value, size and momentum premiums tend to strengthen each other in double-sorted portfolios. We examine listings of stocks in 66 countries between 2000 and 2013.
New research papers related to existing strategies:
#5 – FX Carry Trade
Cenedese, Sarno, Tsiakas: Foreign Exchange Risk and the Predictability of Carry Trade Returns
http://www.uoguelph.ca/~itsiakas/papers/FX_Risk.pdf
Abstract:
This paper provides an empirical investigation of the time-series predictive ability of exchange risk measures on the return to the carry trade, a popular investment strategy that borrows in low-interest currencies and lends in high-interest currencies. Using quantile regressions, we find that higher market variance is significantly related to large future carry trade losses, which is consistent with the unwinding of the carry trade in times of high volatility. The decomposition of market variance into average variance and average correlation shows that the predictive power of market variance is primarily due to average variance since average correlation is not significantly related to carry trade returns. Finally, a new version of the carry trade that conditions on market variance generates performance gains net of transaction costs.
#112 – Acceleration Effect Combined with Momentum in Stocks
Docherty, Hurst: Trend Salience, Investor Behaviors and Momentum Profitability
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2395718
Abstract:
Trend extrapolation in financial markets has been well documented, however it is contentious as to which trends will be extrapolated or mean reverted. We examine whether investors are more likely to extrapolate trends that they perceive to be salient by examining an investment strategy that considers both the magnitude and the strength of the trend. Consistent with behavioral models of momentum, our investment strategy based on trend salience significantly outperforms traditional momentum strategies and is not explained by the Carhart [1997] four-factor model. The relative performance of the trend salience signal is robust across different investment horizons and size-sorted portfolios, although is time-varying; the strategy does not outperform momentum in "down" markets where volatility is high and salient trends are more difficult to identify.
#14 – Momentum Effect in Stocks
#26 – Value (Book-to-Market) Anomaly
#229 – Earnings Quality Factor
Jensen-Gaard: Equity Investment Styles – Recent evidence on the existence and cyclicality of investment styles
http://studenttheses.cbs.dk/xmlui/bitstream/handle/10417/4053/christian_jensen-gaard.pdf?sequence=1
Abstract:
Over the past two decades, financial academics and investment professionals have documented several anomalies on the global financial markets. A subset of these anomalies, known as equity style strategies, has been shown to yield substantial excess returns, which cannot be explained by traditional finance theory. However, in the light of the financial turmoil during the 2000s, several studies have shown considerable changes in the magnitude of the style-based strategy premiums. The purpose of this thesis is to investigate whether recent data support the continued existence of these premiums and evaluate how these premiums fluctuate in relation to the economic cycle. Furthermore, this thesis provides practical advice on how investors can apply the findings.
