February 27, 2014 - Technical Trading
Pairs traders often use a normalized price gap threshold of two standard deviations to generate signals for opening trades. Is there a better metric for generating these signals? In the January 2014 version of their paper entitled “Pairs Trading with Copulas”, Wenjun Xie, Qi Rong Liew, Yuan Wu and Xi Zou compare the performances of… Keep Reading
February 26, 2014 - Bonds, Economic Indicators
Do economic indicators usefully predict government bond returns? In the January 2014 version of their paper entitled “What Drives the International Bond Risk Premia?”, Guofu Zhou and Xiaoneng Zhu examine whether OECD-issued leading economic indicators predict government bond returns at a one-month horizon. They focus on a four-country (U.S., UK, Japan and Germany) aggregate leading economic… Keep Reading
February 25, 2014 - Fundamental Valuation
Is the conventional wisdom that traders can scalp part of cash dividends by buying stocks just before ex-dividend day and selling just after reliable across exchanges? In their January 2014 paper entitled “Ex-Dividend Day Stock Price Behavior – the NASDAQ Evidence”, Shishir Paudel and Sabatino Silveri investigate whether dividend-paying NASDAQ stocks exhibit ex-dividend day price… Keep Reading
February 21, 2014 - Strategic Allocation, Volatility Effects
Under what conditions is periodic rebalancing a successful “volatility harvesting” strategy? In his February 2014 paper entitled “Disentangling Rebalancing Return”, Winfried Hallerbach analyzes the return from periodic portfolio rebalancing by decomposing its effects into a volatility return and a dispersion discount. He defines: Rebalancing return as the difference in (geometric) growth rates between periodically rebalanced… Keep Reading
February 19, 2014 - Commodity Futures, Economic Indicators
Has easy access to commodity allocations via exchange-traded instruments (financialization) changed the way commodity prices interact with the economy? In his February 2014 paper entitled “Macroeconomic Determinants of Commodity Returns in Financialized Markets”, Adam Zaremba investigates relationships between commodity returns and economic conditions in pre-financialization (before 2004) and post-financialization (2004 and after) environments. He defines… Keep Reading
February 18, 2014 - Short Selling
Does the cost of borrowing shares of a stock for shorting predict its future returns? In their January 2014 paper entitled “The Shorting Premium and Asset Pricing Anomalies”, Itamar Drechsler and Qingyi (Freda) Drechsler investigate shorting fees as a predictor of stock returns. For analysis, they sort stocks at the end of each month into… Keep Reading
February 14, 2014 - Strategic Allocation, Volatility Effects
What drives the performance of risk parity asset allocation, and on what asset classes does it therefore work best? In their January 2014 paper entitled “Inter-Temporal Risk Parity: A Constant Volatility Framework for Equities and Other Asset Classes”, Romain Perchet, Raul Leote de Carvalho, Thomas Heckel and Pierre Moulin employ simulations and backtests to explore the… Keep Reading
February 12, 2014 - Momentum Investing, Volatility Effects
Is it possible to predict serial correlation (autocorrelation) of stock returns, and thereby enhance reversal and momentum strategies. In the January 2014 version of his paper entitled “The Information Content of Option Prices Regarding Future Stock Return Serial Correlation”, Scott Murray investigates the relationship between the variance ratio (the ratio of realized to implied stock return… Keep Reading
February 10, 2014 - Animal Spirits, Gold
Are gold price movements predictable? In his December 2013 paper entitled “Gold. The Bursting of a Bubble?”, Tim Verheyden assesses gold price predictability in two ways. First, he applies an autoregressive integrated moving average (ARIMA) model to assess the value of gold price technical analysis (whether past price behavior predicts future price behavior). Second, he examines interaction of… Keep Reading
February 7, 2014 - Animal Spirits, Individual Investing
What individual investment behaviors are worst? In their January 2014 paper entitled “Which Investment Behaviors Really Matter for Individual Investors?”, Joachim Weber, Steffen Meyer, Benjamin Loos and Andreas Hackethal investigate relationships between the following ten tendencies of individual investors and portfolio performance: Portfolio turnover: unprogrammed trading volume scaled by portfolio value. Trade clustering: clustering of investor… Keep Reading