New strategies:
#222 – One Day Momentum Effect in Stocks
Period of rebalancing: daily
Markets traded: equities
Instruments used for trading: stocks
Complexity: Very complex strategy
Bactest period: 1993 – 2010
Indicative performance: 33.15%
Estimated volatility: not stated
Source paper:
Sha: Short Term Momentum: Role of Investor Sentiment in Return Formation
http://spectrum.library.concordia.ca/973721/1/thesis_yuqingSHA.pdf
Abstract:
Using transaction level data spanning across eighteen years over 1993 to 2010, we show that heavily bought stocks or heavily sold stocks display persistence in buy and sell orders respectively. We show that over one trading day horizon, the persistence is strong enough to generate economically significant return. CAPM market factor, Fama-French Size and Book to Market factors, as well as Carhart's momentum factor do not explain these results. However, the returns can be at least partially explained by investor sentiment variables and macroeconomic condition variables such as term and default spread and business cycle.
#223 – Realized Skewness Predicts Equity Returns
Period of rebalancing: weekly
Markets traded: equities
Instruments used for trading: stocks
Complexity: Very complex strategy
Bactest period: 1993 – 2008
Indicative performance: 15.95%
Estimated volatility: 12.26%
Source paper:
Amaya, Christoffersen, Jacobs, Vasquez: Does Realized Skewness Predict the Cross-Section of Equity Returns?
http://business.nd.edu/uploadedFiles/Faculty_and_Research/Finance/Finance_Seminar_Series/2012%20Fall%20Finance%20Seminar%20Series%20-%20Kris%20Jacobs%20Paper.pdf
Abstract:
We use intraday data to compute weekly realized variance, skewness, and kurtosis for equity returns and assess whether this week.s realized moments are informative for the cross-section of next week.s stock returns. We sort stocks each week according to their realized moments, form decile portfolios, and analyze subsequent weekly returns. We .nd a very strong negative relationship between realized skewness and next week.s stock returns. A trading strategy that buys stocks in the lowest realized skewness decile and sells stocks in the highest realized skewness decile generates an average weekly return of 24 basis points with a t-statistic of 3:65. Our results on skewness are robust across a wide variety of implementations, unlike those for alternative skewness measures. They are also robust across sample periods, portfolio weightings, and firm characteristics, and are not captured by the Fama-French and Carhart factors. We find some evidence that the relationship between realized kurtosis and next week.s stock returns is positive, but the evidence is not always robust and statistically signi.cant. We do not .nd a strong relationship between realized volatility and next week.s stock returns.
New research paper related to existing strategy:
#41 – Turn of the Month in Equity Indexes
Desai, Trivedi: A Survey of Day of the Month Effect in World Stock Markets
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2171634
Abstract:
A curious seasonal anomaly found in finance is the turn of the month effect, where the daily mean return of stock market at the end of a month and beginning of a month is significantly higher than the average daily return of all the days of a month. There have been evidences that certain months in a year deliver significantly higher returns. Similar anomalies are found for week days also, where some days in a week deliver above average returns. Seasonal anomalies for researchers have been a subject of great interest and lot of literature is available worldwide. This paper examines presence of day of the month effect on ten stock markets, geographically located in different corners of the world. This paper is not intended to study only the anomalies and inefficiencies present in various world markets, it is intended to highlight the profit potential available to individual investors and professional fund managers. The date wise daily returns are calculated in percentage terms to make the phenomena easy to understand. The statistical significance of daily returns is tested with Z-Statistics, in total 310 hypotheses are tested in the research. We found day of the month effect present in all the stock markets tested across the world, some days in a month historically are found to have delivered significantly higher returns.
