New strategies:
#206 – Trendfollowing Combined with Momentum in Commodity Futures
Period of rebalancing: Monthly
Markets traded: commodities
Instruments used for trading: futures
Complexity: Simple strategy
Bactest period: 1992 – 2011
Indicative performance: 14.70%
Estimated volatility: 19.33%
Source paper:
Thomas, Clare, Seaton, Smith: Trend Following, Risk Parity and Momentum in Commodity Futures
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2126813
Abstract:
We show that combining momentum and trend following strategies for individual commodity futures can lead to portfolios which offer attractive risk adjusted returns which are superior to simple momentum strategies; when we expose these returns to a wide array of sources of systematic risk we find that robust alpha survives. Experimenting with risk parity portfolio weightings has limited impact on our results though in particular is beneficial to long-short strategies; the marginal impact of applying trend following methods far outweighs momentum and risk parity adjustments in terms of risk-adjusted returns and limiting downside risk.Overall this leads to an attractive strategy for investing in commodity futures and emphasises the importance of trend following as an investment strategy in the commodity futures context.
#207 – Value Effect within Countries
Period of rebalancing: Yearly
Markets traded: equities
Instruments used for trading: ETFs
Complexity: Moderately complex strategy
Bactest period: 1980 – 2011
Indicative performance: 14.70%
Estimated volatility: 26.10%
Source paper:
Faber: Global Value: Building Trading Models with the 10 Year CAPE
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2129474
Abstract:
Over seventy years ago Benjamin Graham and David Dodd proposed valuing securities with earnings smoothed across multiple years. Robert Shiller popularized this method with his version of this cyclically adjusted price-to-earnings ratio (CAPE) in the late 1990s, and issued a timely warning of poor stock returns to follow in the coming years. We apply this valuation metric across over thirty foreign markets and find it both practical and useful, and indeed witness even greater examples of bubbles and busts abroad than in the United States. We then create a trading system to build global stock portfolios based on valuation, and find significant outperformance by selecting markets based on relative and absolute valuation.
New research paper related to existing strategies:
#6 – Volatility Effect in Stocks – Long-Short Version
#7 – Volatility Effect in Stocks – Long-Short Version
Soe: THE LOW-VOLATILITY EFFECT: A COMPREHENSIVE LOOK
http://www.top1000funds.com/wp-content/uploads/2012/08/120817-low-vol-research.pdf
Abstract:
Among the long-standing anomalies in modern investment theory, perhaps none are as puzzling and compelling as the low-volatility effect. It challenges the traditional equilibrium asset pricing theory that an asset’s expected return is directly proportional to its beta or systematic risk, or, in other words, higher-risk securities should be rewarded with higher expected returns while lower-risk assets receive lower expected returns.
