New strategies:
#251 – Intraday Momentum in Equities
Period of rebalancing: intraday
Markets traded: equities
Instruments used for trading: futures, ETFs, CFDs
Complexity: Simple strategy
Bactest period: 1999 – 2012
Indicative performance: 4.52%
Estimated volatility: 4.52%
Source paper:
Gao, Han, Zhou: Intraday Momentum: The First Half-Hour Return Predicts the Last Half-Hour Return
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2440866
Abstract:
In this paper, using intra data from January 4, 1999 to December 31, 2012, we document an intraday momentum pattern that the first half-hour return on the market predicts the market return in the last half-hour. The predictability is both statistically and economically significant, and is stronger on high volatile days, recession days and some macroeconomic news release days. We interpret the trading behavior of daytraders and informed traders as the economic driving forces behind the intraday momentum.
New research papers related to existing strategies:
#45 – Short Interest Effect – Long-Short Version
#46 – Short Interest Effect – Long Only Version
Callen, Fang: Short Interest and Stock Price Crash Risk
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2426490
Abstract:
Using a large sample of U.S. public firms, we find robust evidence that short interest is positively related to one-year ahead stock price crash risk. The evidence is consistent with the view that short sellers are able to ferret out bad news hoarding by managers. Additional findings show that the positive relation between short interest and future crash risk is more salient for firms with weak governance mechanisms, excessive risk-taking behavior, and high information asymmetry between managers and shareholders. Empirical support is provided showing that the relation between short interest and crash risk is driven by bad news hoarding.
#6 – Volatility Effect in Stocks – Long-Short Version
#7 – Volatility Effect in Stocks – Long-Only Version
#45 – Short Interest Effect – Long-Short Version
#46 – Short Interest Effect – Long Only Version
Jordan, Riley: The Long and Short of the Vol Anomaly
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2442902
Abstract:
On average, stocks with high prior-period volatility underperform those with low prior-period volatility, but that comparison is misleading. As we show, high volatility is an indicator of both positive and negative future abnormal performance. Among high volatility stocks, those with low short interest actually experience extraordinary positive returns, while those with high short interest experience equally extraordinary negative returns. The fact that publicly available information on aggregate short selling can be used to predict positive and negative abnormal returns of great magnitude points to a large-scale market inefficiency. Further, based on the evidence in this study, the current “low vol” investing fad has little or no real foundation.
#5 – FX Carry Trade
#8 – FX Momentum
#9 – FX Value – PPP Strategy
Accominotti, Chambers: Out-of-Sample Evidence on the Returns to Currency Trading
https://research.mbs.ac.uk/accounting-finance/Portals/0/docs/Out-of-Sample%20Evidence%20on%20the%20Returns.pdf
Abstract:
We document the existence of excess returns to naïve currency trading strategies during the emergence of the modern foreign exchange market in the 1920s and 1930s. This era of active currency speculation constitutes a natural out-of-sample test of the performance of carry, momentum and value strategies well documented in the modern era. We find that the positive carry and momentum returns in currencies over the last thirty years are also present in this earlier period. In contrast, the returns to a simple value strategy are negative. In addition, we benchmark the rules-based carry and momentum strategies against the discretionary strategy of an informed currency trader: John Maynard Keynes. The fact that the strategies outperformed a superior trader such as Keynes underscores the outsized nature of their returns. Our findings are robust to controlling for transaction costs and, similar to today, are in part explained by the limits to arbitrage experienced by contemporary currency traders.
