New strategies:
#283 – Market Neutral Strategy Based on Share Buybacks
Period of rebalancing: daily
Markets traded: equities
Instruments used for trading: stocks, ETFs
Complexity: Complex strategy
Bactest period: 1998 – 2014
Indicative performance: 9.66%
Estimated volatility: 7.21%
Source paper:
Uekoetter, Evgeniou: Share Buybacks and Abnormal Returns
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2664098
Abstract:
We examine the behavior of stock returns after share buyback announcements. In line with the existing literature, we find evidence of abnormal returns after buyback announcements. A market neutral portfolio that is long equally weighted (with daily rebalancing) all companies that announced within the most recent month and short the IWM ETF/market using a rolling β estimated from the recent 250 days has average annual "abnormal" returns of 11.6% with a Sharpe ratio of 1.3 over the period from 2000-01-20 to 2014-12-31. Moreover, small value-stocks that under performed pre buyback announcement date outperform large growth-stocks that over performed pre buyback announcement date. A portfolio of the first type of companies, in which we hold stocks for one month after buyback announcement, shows annual "abnormal" returns relative to the IWM market index of 16.3% with a Sharpe ratio of 0.8 over the same period. A portfolio of the second type of companies has returns and a Sharpe ratio of 7.6% and 0.4, respectively, over the same period. Finally, we provide evidence that buybacks could potentially provide a signal for timing/predicting the overall market.
#284 – Timing the Small Cap Effect ver. 2
Period of rebalancing: monthly
Markets traded: equities
Instruments used for trading: stocks
Complexity: Simple strategy
Bactest period: 2000 – 2014
Indicative performance: 9.00%
Estimated volatility: 12.33%
Source paper:
Lof, Suominen: Slow Trading and Stock Return Predictability
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2671237
Abstract:
Market returns predict the future abnormal returns on small and illiquid stocks, implying attractive dynamic investment strategies for investors investing in the size premium or in small and illiquid stocks either directly or through exchange traded funds. We provide evidence that this return predictability is due to institutional investors’ trading patterns: When rebalancing their portfolios the institutional investors initially buy (sell) relatively more the large and liquid stocks. In the case of illiquid stocks they split their orders over several days to avoid excessive price impact, thus inducing predictability in stocks returns. We provide evidence that some hedge funds exploit this return predictability.
New research papers related to existing strategies:
#20 – Volatility Risk Premium Effect
Shulte, Stamos: The Performance of Equity Index Option Strategy Returns During the Financial Crisis
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2669999
Abstract:
This is the first study to offer comparable results for the profitability of different equity index option strategies based on the S&P 500, DAX, and EuroStoxx50 during the financial crisis of 2008. Controlling for the asymmetric risk-return profile of option strategies and incorporating transaction costs, writing straddles delivered positive performance, even when considering the adverse conditions caused by market turmoil during the financial crisis.
#41 – Turn of the Month in Equity Indexes
McConnell, Xu: Equity Returns at the Turn of the Month
http://www.cfapubs.org/doi/pdf/10.2469/faj.v64.n2.11
Abstract:
The turn-of-the-month effect in U.S. equities is found to be so powerful in the 1926–2005 period that, on average, investors received no reward for bearing market risk except at turns of the month. The effect is not confined to small-capitalization or low-price stocks, to calendar year-ends or quarter-ends, or to the United States: This study finds that it occurs in 31 of the 35 countries examined. Furthermore, it is not caused by month-end buying pressure as measured by trading volume or net flows to equity funds. This persistent peculiarity in returns remains a puzzle in search of an answer
Two additional related research paper have been included into existing free strategy reviews during last 2 week:
#6- Volatility Effect in Stocks – Long-Short Version
#7- Volatility Effect in Stocks – Long-Only Version
Stefano, Lamperiere, Bevaratos, Simon, Laloux, Potters, Bouchaud: Deconstructing the Low-Vol Anomaly
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2670076
Abstract:
We study several aspects of the so-called low-vol and low-beta anomalies, some already documented (such as the universality of the effect over different geographical zones), others hitherto not clearly discussed in the literature. Our most significant message is that the low-vol anomaly is the result of two independent effects. One is the striking negative correlation between past realized volatility and dividend yield. Second is the fact that ex-dividend returns themselves are weakly dependent on the volatility level, leading to better risk-adjusted returns for low-vol stocks. This effect is further amplified by compounding. We find that the low-vol strategy is not associated to short term reversals, nor does it qualify as a Risk-Premium strategy, since its overall skewness is slightly positive. For practical purposes, the strong dividend bias and the resulting correlation with other valuation metrics (such as Earnings to Price or Book to Price) does make the low-vol strategies to some extent redundant, at least for equities.
#118 – Time-Series Momentum
Baltas: Trend-Following, Risk-Parity and the Influence of Correlations
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2673124
Abstract:
Trend-following strategies take long positions in assets with positive past returns and short positions in assets with negative past returns. They are typically constructed using futures contracts across all asset classes, with weights that are inversely proportional to volatility, and have historically exhibited great diversification features especially during dramatic market downturns. However, following an impressive performance in 2008, the trend-following strategy has failed to generate strong returns in the post-crisis period, 2009-2013. This period has been characterised by a large degree of co-movement even across asset classes, with the investable universe being roughly split into the so-called Risk-On and Risk-Off subclasses. We examine whether the inverse-volatility weighting scheme, which effectively ignores pairwise correlations, can turn out to be suboptimal in an environment of increasing correlations. By extending the conventionally long-only risk-parity (equal risk contribution) allocation, we construct a long-short trend-following strategy that makes use of risk-parity principles. Not only do we significantly enhance the performance of the strategy, but we also show that this enhancement is mainly driven by the performance of the more sophisticated weighting scheme in extreme average correlation regimes.
