January 23, 2012 - Currency Trading, Momentum Investing
Does momentum investing work for currencies as it does for equities? In the December 2011 version of their paper entitled “Currency Momentum Strategies”, Lukas Menkhoff, Lucio Sarno, Maik Schmeling and Andreas Schrimpf investigate momentum strategies in foreign exchange (FX) markets. FX markets are generally more liquid than equity markets, with huge transaction volumes, low trading… Keep Reading
January 18, 2012 - Volatility Effects
Can investors earn a reliable premium from stocks with high downside risk? In their January 2012 paper entitle “Sorting Out Downside Beta”, Thierry Post, Pim Van Vliet and Simon Lansdorp measure in four ways (including regular beta) the premium associated with stock sensitivity to market movements. They estimate excess market returns based on total returns of… Keep Reading
January 17, 2012 - Momentum Investing
In the brief August 2011 paper entitled “Paired-switching for Tactical Portfolio Allocation”, flagged by a subscriber, Akhilesh Maewal and Joel Bock investigate the efficiency of a simple momentum strategy applied to pairs of exchange-traded funds (ETF) with negative return correlations. Every 13 weeks (four times per year), they rank the performances of the two funds over… Keep Reading
January 13, 2012 - Momentum Investing
Over the past few days, in the background, we have updated and rationalized “Simple Sector ETF Momentum Strategy” (update pending) and “Doing Momentum with Style (ETFs)” (update just published). Updated means adding data for December 2011. Rationalized means making the two analyses more similar in data processing and presentation approaches. We have also put together, and will soon… Keep Reading
January 13, 2012 - Animal Spirits, Individual Investing
How do individual investors adjust trading behaviors during bull and bear markets? Are any such adjustments advantageous? In their December 2011 paper entitled “Don’t Confuse Brains with a Bull Market: Attribution Bias, Market Condition, and Trading Behavior of Individual Investors”, Zhen Shi and Na Wang examine the trading behaviors of individual investors during different market conditions…. Keep Reading
January 12, 2012 - Calendar Effects
…evidence from simple tests does not support a belief that investors/traders tend to exit the market before three-day weekends and re-enter after. There may be some tendency toward extra bullishness (bearishness) before (after) three-day weekends, but this tendency is not very consistent.
January 9, 2012 - Equity Options, Fundamental Valuation, Volatility Effects
Are realized (actual historical) and implied volatilities the whole story for equity option valuation? In their December 2011 paper entitled “Fundamental Analysis and Option Returns”, Theodore Goodman, Monica Neamtiu and Frank Zhang investigate the extent to which the equity options market fails to recognize volatility of firm operations (accounting data) and whether any such failure is… Keep Reading
January 5, 2012 - Commodity Futures, Momentum Investing, Volatility Effects
Can investors exploit idiosyncratic volatility exhibited by commodity futures? In their December 2011 paper entitled “Idiosyncratic Volatility Strategies in Commodity Futures Markets”, Adrian Fernancez-Perez, Ana-Maria Fuertes and Joelle Miffre investigate the usefulness of idiosyncratic volatility as a predictor of commodity futures returns. They define idiosyncratic volatility of commodity futures as return volatility not explained by contemporaneous variation in… Keep Reading
January 3, 2012 - Strategic Allocation, Volatility Effects
Are the relatively placid financial markets of the American Century evolving to a high-volatility regime in a more evenly competitive world? In his December 2011 paper entitled “Adaptive Markets and the New World Order”, Andrew Lo examines the implications of the Adaptive Markets Hypothesis (AMH), wherein “markets are not always efficient, but they are usually highly competitive… Keep Reading
December 30, 2011 - Momentum Investing, Volatility Effects
A subscriber suggested applying a simple momentum trading strategy to a set of leveraged equity style (size, value-growth) exchanged-traded funds (ETF), including leveraged long and leveraged short counterparts to exploit both positive and negative markets. It seems plausible that leverage may make funds react quickly and strongly to business cycle shifts that affect style performance. However, the costs… Keep Reading