New strategies:
#278 – Trading Commodity ETFs versus Equity ETF
Period of rebalancing: daily
Markets traded: equities, commodities
Instruments used for trading: ETFs
Complexity: Complex strategy
Bactest period: 2004 – 2011
Indicative performance: 31.10%
Estimated volatility: not stated
Source paper:
Chen: Cross-Market Investor Sentiment in Commodity Exchange-Traded Funds
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2658852
Abstract:
This study shows how the investor sentiment in the stock market affects prices of commodity exchange-traded funds (ETFs). The study provides quantitative evidence that the tracking errors of commodity ETFs differ in the bullish versus the bearish stock market, and the aggregate tracking error of commodity ETFs is sensitive to the well-known sentiment measures. The study exploits a profitable trading strategy based on investor sentiment in the stock market and commodity market. The sentiment-driven demand for commodity ETFs could exist even after consideration of trading costs, and it is a short-term phenomenon. This unique evidence indicates investor sentiment affects asset valuation across markets.
#279 – Long-Term Reversal Combined with a Momentum Effect in Industry Portfolios
Period of rebalancing: quarterly
Markets traded: equities
Instruments used for trading: ETFs
Complexity: Simple strategy
Bactest period: 1963 – 2013
Indicative performance: 9.90%
Estimated volatility: 19.49%
Source paper:
Bornholt, Gharaibeh, Malin: Industry Long-Term Return Reversal
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2620085
Abstract:
Given that extreme industry returns may herald long-term structural changes in the industries involved that may eventually lead to reversals in industry fortunes, we investigate the evidence for long-term return reversal in industry returns. Our study employs both pure contrarian strategies and late-stage contrarian strategies, and includes extra-long strategy formation periods (up to 132 months) to allow sufficient time for structural changes to begin. We find strong evidence of reversals in the long-term returns of industries. These reversals continue for many years (with valuation effects observed up to ten years after commencement) and are difficult to reconcile with overreaction.
New research papers related to existing strategies:
#23 – Momentum Effect Combined with Term Structure in Commodities
#260 – Trend Following in Commodity Calendar Spreads
#261 – Trading Commodity Calendar Spreads
Donninger: Chrilly's Toolbox of Energy Futures Trading
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2651103
Abstract:
In a previous working paper I analyzed the performance of several rolling strategies for the 5 most important Energy Futures in the last 10 years. It was assumed that one is always long the Futures. The task was to minimize the harm of rolling. Due to the weak performance of this sector there was in absolute terms (almost) nothing to gain. This working paper analyzes several strategies which try to exploit all aspects – rolling, the term structure, mean reversion, seasonal-patterns and trends – of the Energy Futures market. Anything goes as long as it is profitable. Some of the strategies perform considerable better then the long-only portfolios. But the times they are A Changin' in the Energy-Futures market. It is difficult to find a consistent strategy which handles the different market-regimes successfully. Some of the winners proposed in the literature performed fine once upon a time. But they are the losers now.
Two additional related research paper have been included into existing free strategy reviews during last 2 week:
#5 – FX Carry Trade
Breedon, Rime, Vitale: Carry Trades, Order Flow and the Forward Bias Puzzle
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2643531
Abstract:
We investigate the relation between foreign exchange (FX) order flow and the forward bias. We outline a decomposition of the forward bias according to which a negative correlation between interest rate differentials and order flow creates a time-varying risk premium consistent with that bias. Using ten years of data on FX order flow we find that more than half of the forward bias is accounted for by order flow — with the rest being explained by expectational errors. We also find that carry trading increases currency-crash risk in that order flow generates negative skewness in FX returns.
#38 – Accrual Anomaly
Patatoukas: Asymmetrically Timely Loss Recognition and the Accrual Anomaly
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2653979
Abstract:
Conditionally conservative accounting practices mandate the more timely recognition of losses relative to gains through transitory negative accrual items. A direct implication of asymmetrically timely loss recognition is asymmetry in the persistence of accruals depending on whether the firm experiences a gain or a loss in the current year: accruals should be less persistent for loss years relative to profit years. If investors naively fixate on total earnings, however, conditional conservatism would imply that investors will tend to overestimate the persistence of accruals especially in loss years. Consistent with naïve earnings fixation, I find that Sloan’s (1996) accrual anomaly, i.e., the negative association between accruals and future abnormal stock returns, is more pronounced for loss firms relative to profit firms. The evidence is relevant for understanding the origins of the accrual anomaly and highlights that inferences with respect to the pricing of accruals can be affected by pooling loss firms with profit firms.
