#55 – Pairs Trading with Country ETFs
Miika Sipila: Algorithmic Pairs Trading: Empirical Investigation of Exchange Traded Funds
http://epub.lib.aalto.fi/en/ethesis/pdf/13232/hse_ethesis_13232.pdf
Abstract:
The objective of this thesis is to study whether the algorithmic pairs trading with Exchange Traded Funds (ETFs) generates abnormal return. Particularly, I firstly study whether the trading strategy used in this thesis generates higher return than the benchmark index MSCI World and secondly even higher return than stocks. The dataset includes over 66,000 possible pairs of ETFs worldwide from 2004 to 2012. In addition, I use the empirical results from the relevant papers in comparison. To test the hypothesis, I first apply cointegration tests to identify ETFs to be used in pairs trading strategies. Subsequently, I select ETF pairs to compose a pairs trading portfolio based on profitability and finally compare the results to the benchmark index and the empirical results of the relevant papers. The empirical results of this thesis show that pairs trading with ETFs generate significant abnormal return with low volatility from the eight year trading period compared to the benchmark index as well as stocks traded with pairs trading strategy. The cumulate net profit is 105.43% and an annual abnormal return of 27.29% and with volatility of 10.57%. Furthermore, the results confirmed market neutrality with no significant correlation with MSCI World index.
#21 – Momentum Effect in Commodities
#22 – Term Structure Effect in Commodities
#23 – Momentum Effect Combined with Term Structure in Commodities
#135 – Volatility Effect in Commodities
Blitz, De Groot – Strategic Allocation to Commodity Factor Premiums
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2265901
Abstract:
In this study we confirm the existence of sizable momentum, carry and low-volatility factor premiums in the commodity market, and argue that investors should consider these commodity factor premiums when determining their strategic asset allocation. We find that diversified portfolios of commodity factor premiums exhibits a significantly better risk-adjusted performance than the commodity market portfolio and adds significant value to a conventional stock/bond portfolio. The traditional commodity market portfolio, on the other hand, appears to deserve little or no role at all in the strategic asset mix. Investors should therefore not postpone the consideration of alternative commodity factor premiums to a later stage of the investment process.
#77 – Beta Factor in Stocks
Bianchi: Looking Under the Hood: What Does Quantile Regression Tell Us About the Low-Beta Anomaly?
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2424929
Abstract:
In a CAPM world, the expected return of every portfolio is linearly related to its market beta. Further, the market portfolio attains the maximum Sharpe ratio among all portfolios of risky assets. Consequently, low-beta portfolios are predicted to earn a lower rate of return and to have Sharpe ratios no greater than the market portfolio. A low-beta portfolio of risky assets with beta B is predicted to earn the same rate of return as a portfolio that invests B in the market portfolio and 1 – B in the risk-free asset. Empirically, neither of these predictions has been realized. Low-beta (B < 1) portfolios have earned higher returns than their market portfolio plus risk-free asset counterparts, and they have achieved higher Sharpe ratios than the market portfolio. In the literature, this is referred to as the low-beta anomaly. This paper uses quantile regression to examine other dimensions of risk beyond beta and volatility, and finds that low-beta stocks and portfolios bear additional compensated risk in the form of excess kurtosis.
#31 – Market Seasonality Effect in World Equity Indexes
Dichtl, Drobetz: Sell in May and Go Away: Still Good Advice for Investors?
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2439280
Abstract:
The “Sell in May and Go Away” (or Halloween) strategy continues to enjoy great popularity in practice. We explore whether this simple trading rule still offers an opportunity to earn abnormal returns. In contrast to prior studies, we consider sample periods during which adequate investment instruments were available for an effective implementation of the Halloween strategy. In addition, we account for when the first study confirming the Halloween effect was published in a top academic journal. To use the limited data in the most efficient way, and to avoid possible data-snooping biases, we implement a bootstrap simulation approach. We find that the Halloween effect strongly weakened or even diminished in recent years. Our results are robust across different countries and against various parameter variations. Overall, our findings support the theory of efficient capital markets.
#33 – Post-Earnings Announcement Effect
Alwathnani, Dubofsky: It's All Overreaction: The Post Earnings Announcement Drift
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2420799
Abstract:
In this paper, we test whether the well-documented post-earnings-announcement drift is a manifestation of an investor overreaction to extremely good or bad earnings news rather than a market underreaction, as it is commonly interpreted. Using the market reaction to the extreme earnings surprises (i.e. SUE) in quarter Qt as a reference point, we show that firms reporting SUE in quarter Qt+1 that confirms their initial SUE rankings in the highest or lowest SUE quintiles for the second consecutive quarter generate an incremental price run that moves in the same direction as that of the initial SUE. However, the price impact of the confirming SUE signal is weaker than that of its initial SUE counterpart. On the other hand, firms reporting disconfirming SUE that fails these firms to keep (move out of) their positions in the top (bottom) SUE quintile experience a strong price reversal. Our findings are robust to the Fama-French three-factor daily regression extended by the momentum factor and a number of robustness tests. Evidence reported in this study is not consistent with prevailing view that investors underreact to earnings news. To the contrary, our finding suggests an investor overreaction to extreme SUE signals.
#5 – FX Carry Trade
#8 – FX Momentum
#9 – FX Value – PPP Strategy
Amen: Beta'em Up: What is Market Beta in FX?
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2439854
Abstract:
In asset classes such as equities, the market beta is fairly clear. However, this question is more difficult to answer within FX, where there is no obvious beta. To help answer the question, we discuss generic FX styles that can be used as a proxy for the returns of a typical FX investor. We also look at the properties of a portfolio of these generic styles. This FX styles portfolio has an information ratio of 0.64 since 1976. Unlike its individual components, the FX styles portfolio returns are relatively stable with respect to underlying regimes in S&P500. Later we replicate FX fund returns using a combination of these generic FX styles. We show that a combination of FX trend and carry, can be used as a beta for the FX market. Later, we examine the relationship between bank indices and these generic FX styles. We find that there is a significant correlation in most instances, with some exceptions.
