New strategies:
#212 – Scheduled Economic Announcements Effect
Period of rebalancing: Daily
Markets traded: equities
Instruments used for trading: futures, CFDs, ETFs
Complexity: Simple strategy
Bactest period: 1958 – 2009
Indicative performance: 7.20%
Estimated volatility: not stated
Source paper:
Savor, Wison: How Much Do Investors Care About Macroeconomic Risk? Evidence from Scheduled Economic Announcements
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1312091
Abstract:
Stock market average returns and Sharpe ratios are significantly higher on days when important macroeconomic news about inflation, unemployment, or interest rates is scheduled for announcement. The average announcement day excess return from 1958 to 2009 is 11.4 basis points versus 1.1 basis points for all the other days, suggesting that over 60% of the cumulative annual equity risk premium is earned on announcement days. The Sharpe ratio is ten times higher. In contrast, the risk-free rate is detectably lower on announcement days, consistent with a precautionary saving motive. Our results demonstrate a trade-off between macroeconomic risk and asset returns, and provide an estimate of the premium investors demand to bear this risk.
#213 – Long-Term Reversal Combined with a Momentum Effect
Period of rebalancing: Monthly
Markets traded: equities
Instruments used for trading: ETFs
Complexity: Simple strategy
Bactest period: 1958 – 2009
Indicative performance: 15.94%
Estimated volatility: 28.89%
Source paper:
Malin, Bornholt: Long-Term Return Reversal: Evidence from International Market Indices
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2121150
Abstract:
This paper documents evidence of reversals in the long-term returns of international equity markets. We use recent short-term performance to better select contrarian securities that appear ready to reverse. Our late-stage contrarian strategy consistently provides stronger evidence of long-term return reversal than does the traditional pure contrarian strategy when applied to developed and emerging market indices. Despite an absence of cross-sectional contrarian profits for developed markets in our post-1989 subsample, longitudinal analysis provides strong evidence of reversals during this period. Overall, our results suggest that the reversal of long-term returns may be stronger and more pervasive than is generally understood.
New research papers related to existing strategies:
#118 – Time Series Momentum Effect
Baltas, Kosowski: MOMENTUM STRATEGIES IN FUTURES MARKETS AND TREND-FOLLOWING FUNDS
https://workspace.imperial.ac.uk/business-school/Public/RiskLab/wp11.pdf
Abstract:
In this paper we study time-series momentum strategies in futures markets and their relationship to commodity trading advisors (CTAs). First, we construct one of the most comprehensive sets of time-series momentum portfolios by extending existing studies in three dimensions: time-series (1974-2002), cross-section (71 contracts) and frequency domain (monthly, weekly, daily). Our timeseries momentum strategies achieve Sharpe ratios of above 1.20 and provide important diversification benefits due to their counter-cyclical behaviour. We find that monthly, weekly and daily strategies exhibit low cross-correlation, which indicates that they capture distinct return continuation phenomena. Second, we provide evidence that CTAs follow time-series momentum strategies, by showing that time-series momentum strategies have high explanatory power in the time-series of CTA returns. Third, based on this result, we investigate whether there exist capacity constraints in time-series momentum strategies, by running predictive regressions of momentum strategy performance on lagged capital flows into the CTA industry. Consistent with the view that futures markets are relatively liquid, we do not find evidence of capacity constraints and this result is robust to different asset classes. Our results have important implications for hedge fund studies and investors.
#159 – Value Effect in REITs
Kerrigan: Modern Portfolio Theory as Applied to REITs
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2128374
Abstract:
In the 1960s the legislative framework for REITs was established to allow the investing public to benefit from investments in large-scale real estate enterprises. REITs typically offer superior dividend income along with the potential for capital gains to investors. There is also a great deal of work that describes the diversification benefits provided by REITs to an investor’s portfolio. Our paper highlights the prospects for value added and portfolio construction within REITs themselves. In this endeavor we discuss a framework to review any investment strategy, review an investment strategy for selecting among REITs, and finally illustrate the principal impediment to such a strategy.
