New strategies:
#274 – Post-Earnings Announcement Drift Based on Price Signal Alone
Period of rebalancing: daily
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 2003 – 2015
Indicative performance: 5.64%
Estimated volatility: 4.03%
Source paper:
Messias: Post Earnings Announcement Drift, a Price Signal?
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2612459
Abstract:
This paper investigates the robustness of post-earnings-announcement-drift (PEAD) on a price signal perspective, unlike the traditional literature that focuses on fundamental signal. The studied period is 2003-2015, for four main US indices. The results suggest that some economic agents are too slow to integrate the information, although they still have a major market impact. We find a strong empirical evidence of the preeminence of this bias for Momentum stocks rather than blue-chips or non-Momentum small-caps. Even by challenging the strategy, the conclusion remains strong with abnormal returns linked to such market inefficiency, with better returns for positive signals than negative ones. We choose Nasdaq Composite as the backbone of our development as it is the closest index to Uncia’s field of expertise. For indices known as Momentum, we find strong predictability of the systematic net exposure, the latter being a consequence of the long and short positions implied by the earnings signals.
#275 – Post-Earnings Announcement Drift for Friday Evening Announcers
Period of rebalancing: daily
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 1999 – 2013
Indicative performance: 20.27%
Estimated volatility: not stated
Source paper:
Michaely, Rubin, Vedrashko: When is the Best Time to Hide Earnings News?
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2634875
Abstract:
We analyze combinations of weekdays and times of day (before, during, and after trading hours) of earnings announcements and provide an answer to the debate in the literature about whether managers attempt to strategically time these announcements. We document that the worst earnings news is announced on Friday evening and find robust evidence that only Friday evening announcements represent managers’ rational opportunistic behavior that can benefit them at both the firm and individual level. After Friday evening announcements, there is a significant post-earnings announcement drift for both good and bad news, insiders trade in the direction of earnings news, and major firm restructuring events are relatively more likely to occur.
New research papers related to existing strategies:
#15 – Momentum Effect in Country Equity Indexes
#16 – Mean Reversion Effect in Country Equity Indexes
#247 – Value Effect within Countries v2
#266 – Skewness Effect in Country Equity Indexes
Zaremba: Combining Equity Country Selection Strategies
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2616056
Abstract:
The recent rise of passive investment products granted investors easy access to international markets. The basic motivations of this paper is to offer investors new tools to allocate assets across countries. The study investigates the performance of equity country selection strategies based on combinations of theoretically and empirically motivated variables. Thus, we form portfolios and assess their performance with asset pricing models. The empirical examination is based on data from 78 within the period from 1999 to 2015. The strategies based on earnings-to-price ratio, turnover ratio and skewness prove useful tools for international investors. Furthermore, portfolios from sorts on blended rankings of skewness combined with earnings-to-price ratio or turnover ratio are also characterized by attractive risk-return relation. However, the joint strategies do not outperform the strategies based on single metrics. As a result, we argue that given the low correlations among the returns on single-variable strategies investors would be better off building a diversified portfolio of them than combining them into one strategy.
Two additional related research paper have been included into existing free strategy reviews during last 2 week:
Related to multiple strategies:
Engelberg, McLean, Pontiff: Anomalies and News
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2631228
Abstract:
Using a sample of 97 stock return anomalies documented in published studies, we find that anomaly returns are 7 times higher on earnings announcement days and 2 times higher on corporate news days. The effects are similar on both the long and short sides, and they survive adjustments for risk exposure and data mining. We also find that anomaly signals predict analyst forecast errors of earnings announcements. Taken together, our results support the view that anomaly returns are the result of mispricing, which is at least partially corrected upon news arrival.
#12 – Pairs Trading with Stocks
Cartea, Jaimungal: Algorithmic Trading of Co-Integrated Assets
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2637883
Abstract:
We assume that the drift in the returns of asset prices consists of an idiosyncratic component and a common component given by a co-integration factor. We analyze the optimal investment strategy for an agent who maximizes expected utility of wealth by dynamically trading in these assets. The optimal solution is constructed explicitly in closed-form and is shown to be affine in the co-integration factor. We calibrate the model to three assets traded on the Nasdaq exchange (Google, Facebook, and Amazon) and employ simulations to showcase the strategy's performance.
