New strategies:
#202 – Dividend Announcement Effect
Period of rebalancing: Monthly
Markets traded: equities
Instruments used for trading: stocks, futures
Complexity: Moderately complex strategy
Bactest period: 1927 – 1998
Indicative performance: 9.27%
Estimated volatility: 6.74%
Source paper:
Boehme, Sorescu: Seven Decades of Long Term Abnormal Return Persistence: The Case of Dividend Initiations and Resumptions
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=204437
Abstract:
We analyze the one- to five-year post-announcement stock performance of firms that either initiate cash dividends or resume the payment of cash dividends after a hiatus in payments. Both the event-window and long-run abnormal stock returns are significantly positive, suggesting that the market initially underreacts to the typical firm's dividend announcement. This result also holds for subsets of the 1927 to 1998 time period, suggesting that the observed anomaly is persistent across time and is neither merely a result of data mining nor driven by an ephemeral phenomenon that is confined to a particular time period. Firms that have positive abnormal returns during the announcement period are shown to have the highest post-announcement abnormal returns. A naive investment strategy of establishing long and short positions on firms that experience positive and negative announcement period abnormal returns, respectively, produces persistent positive abnormal returns across the entire 1927-1998 sample period.
#203 – Value Premium in Large Cap Stocks
Period of rebalancing: Monthly
Markets traded: equities
Instruments used for trading: stocks
Complexity: Complex strategy
Bactest period: 1990 – 2012
Indicative performance: 10.95%
Estimated volatility: 15.41%
Source paper:
Andrade, Chhaochharia: Adding Value to Value: Is There a Value Premium Among Large Stocks?
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2096310
Abstract:
We propose a novel long-short value strategy that earns 87 basis points per month among large stocks in developed markets, compared to 14 basis per month of Fama and French's (2012) global HML. Our strategy departs from theirs along three dimensions. We use earnings forecasts rather than book-value of equity to scale stock prices, sort stocks every month with timely information rather once a year with stale information, and create global as opposed to regional value breakpoints. Our value strategy outperforms standard HML not only globally but also within each of four geographical regions across the world. Contrary to what Fama and French's (2012) results may indicate, the value premium among large developed market stocks is alive and strong.
New research paper related to existing strategies:
#14 – Momentum Effect in Stocks
Li, Brooks, Miffre: Low-Cost Momentum Strategies
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1006165
Abstract:
The article analyses the impact of trading costs on the profitability of momentum strategies in the UK and concludes that losers are more expensive to trade than winners. The observed asymmetry in the costs of trading winners and losers crucially relates to the high cost of selling loser stocks with small size and low trading volume. Since transaction costs severely impact net momentum profits, the paper defines a new low-cost relative-strength strategy by shortlisting from all winner and loser stocks those with the lowest total transaction costs. While the study severely questions the profitability of standard momentum strategies, it concludes that there is still room for momentum-based return enhancement, should asset managers decide to adopt low-cost relative-strength strategies.
