New strategies:
#120 – Speculators' Effect in FX
Period of rebalancing: Weekly
Markets traded: currencies
Instruments used for trading: futures, forwards, swaps, CFDs
Complexity: Moderately complex strategy
Bactest period: 1993-2000
Indicative performance: 17.90%
Estimated volatility: not stated
Source paper:
Wang: Futures trading activity and predictable foreign exchange market movements
http://tcnh.ntt.edu.vn/images/futures/7.pdf
Abstract:
In this paper, we examine the relation between futures trading activity by trader type and returns over short horizons in five foreign currency futures markets – British pound, Canadian dollar, Deutsche mark, Japanese yen, and Swiss franc. Transforming trading activity into a sentiment measure, we find that speculator sentiment is positively related to future returns. In contrast, hedger sentiment covaries negatively with future returns. We also find that extreme sentiment by trader type is more correlated with future market movements than moderate sentiment. Our results suggest that hedgers lose to speculators in these futures markets, on average. Based on equilibrium pricing models that futures risk premiums are determined by both market risk and hedging pressure, we show that the profits to speculators are in general compensation for bearing risk.
#121 – Hedgers' Effect in FX
Period of rebalancing: Weekly
Markets traded: currencies
Instruments used for trading: futures, forwards, swaps, CFDs
Complexity: Moderately complex strategy
Bactest period: 1993-2000
Indicative performance: 16.10%
Estimated volatility: not stated
Source paper:
Wang: Futures trading activity and predictable foreign exchange market movements
http://tcnh.ntt.edu.vn/images/futures/7.pdf
Abstract:
In this paper, we examine the relation between futures trading activity by trader type and returns over short horizons in five foreign currency futures markets – British pound, Canadian dollar, Deutsche mark, Japanese yen, and Swiss franc. Transforming trading activity into a sentiment measure, we find that speculator sentiment is positively related to future returns. In contrast, hedger sentiment covaries negatively with future returns. We also find that extreme sentiment by trader type is more correlated with future market movements than moderate sentiment. Our results suggest that hedgers lose to speculators in these futures markets, on average. Based on equilibrium pricing models that futures risk premiums are determined by both market risk and hedging pressure, we show that the profits to speculators are in general compensation for bearing risk.
#122 – Momentum Combined with Asset Growth Effect
Period of rebalancing: monthly
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 1964-2006
Indicative performance: 23%
Estimated volatility: 20.30%
Source paper:
Nyberg, Poyry: Firm Expansion and Stock Price Momentum
http://www.fma.org/NY/Papers/Expansion2010.pdf
Abstract:
We document a significant and robust connection between firm-level asset expansion and stock price momentum. Momentum profits are large and significant within groups of firms that have experienced large asset expansions or contractions, whereas they are small and often insignificant within groups of firms with smaller changes in assets. The interaction between asset growth and momentum is not subsumed by and often dominates previously documented cross-sectional drivers of momentum, and it shows up in various market states where prior literature has documented an absence of momentum profits. Furthermore, we find a positive time-series relation between aggregate firm asset expansion and return momentum. Our results have implications for theories aiming to explain the momentum anomaly.
New research papers related to existing strategies:
#54 – Momentum and State of Market (Sentiment) Filters
New related paper:
Daniel: Momentum Crashes
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1914673
Abstract:
Momentum strategies have produced high returns and Sharpe ratios, and strong positive alphas relative to market models and other standard factors models. However, the returns to momentum strategies are highly skewed; they experience infrequent but strong and persistent strings of negative returns. These momentum "crashes" are forecastable: they occur following market declines, when market volatility is high, and contemporaneous with market "rebounds." The low ex-ante expected returns associated with the crashes appear to result from a a conditionally high premium attached to the the option-like payoffs of the past-loser portfolios.
