New strategies:
#239 – Large Price Changes combined with Analyst Revisions
Period of rebalancing: Monthly
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 1982 – 2011
Indicative performance: 12.68%
Estimated volatility: 8.24%
Source paper:
Govindaraj, Livnat, Savor, Zhao: Large Price Changes and Subsequent Returns
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2200605
Abstract:
We investigate whether large stock price changes are associated with short-term reversals or momentum, conditional on the issuance of analyst price target or earnings forecast revisions immediately following these price changes. Our study provides evidence that when analyst revisions occur immediately after large price shocks, stock prices exhibit momentum, suggesting the initial price change was based on new information. In contrast, when price changes are not followed by immediate analyst revisions, we document short-term reversals, indicating that the initial price shocks were probably caused by liquidity or noise traders. A trading strategy that is based on the direction of the price change and the existence of immediate analyst revisions in the same direction earns significant abnormal monthly calendar-time returns.
New research papers related to existing strategies:
#45 – Short Interest Effect – Long-Short Version
#46 – Short Interest Effect – Long Only Version
Akbas, Boehmer, Erturk, Sorescu: Short Interest, Returns, and Fundamentals
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2216919
Abstract:
We show that short interest predicts stock returns because short sellers are able to anticipate bad news, negative earnings surprises, and downward revisions in analyst earnings forecasts. They appear to have information about these events several months before they become public. Most importantly, the cross-sectional relation between short interest and future stock returns vanishes when controlling for short sellers’ information about future fundamental news. Thus, short sellers contribute, in a significant manner, to price discovery about firm fundamentals, but the source of their information remains an open question.
#65 – Enhanced Value Premium
#81 – Combining Value Stocks with Momentum and Volume Factors
#82 – Combining Growth Stocks with Momentum and Volume Factors
Aspris, Finch, Foley, Meyer: Fundamental Based Market Strategies
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2231809
Abstract:
A pronounced body of literature has raised the possibility that portfolio outperformance based on a simple accounting-based investment strategy can persist through time because markets may ignore and potentially misinterpret financial market signals. Employing a fundamental based strategy, we show that superior performance can be earned consistently through time by identifying and investing in firms with more favourable performance and credit signals. The strength of the portfolios are additionally characterised by the ability of the strategies to avoid firms with poor future prospects. These findings are robust across varying time periods after both transaction costs and related market constraints are considered.
