November 28, 2011 - Equity Premium
Are the least developed markets also the least efficient, and therefore the best places to look for alpha? Two recent papers address this question for large, sophisticated investors (institutional funds). In the October 2011 version of their paper entitled “Does Active Management Pay? New International Evidence”, Alexander Dyck, Karl Lins and Lukasz Pomorski examine the performance… Keep Reading
November 25, 2011 - Fundamental Valuation, Momentum Investing, Value Premium
James O’Shaughnessy (Chairman and CEO of O’Shaughnessy Asset Management) introduces his 2011 book, What Works on Wall Street (Fourth Edition): the Classic Guide to the Best-Performing Investment Strategies of All Time, by stating: “…investors seem programmed by nature to fail at investing, forever chasing the asset class that has turned in the best performance recently and heavily… Keep Reading
November 23, 2011 - Currency Trading, Technical Trading
Is there a reliable way to improve the performance of conventional moving average signals? In the October 2011 and November 2011 versions of their papers entitled “An Improved Moving Average Technical Trading Rule” and “An Improved Moving Average Technical Trading Rule II”, Fotis Papailias and Dimitrios Thomakos investigate a modification of the conventional moving average crossover trading strategy that… Keep Reading
November 22, 2011 - Animal Spirits
Are firm earnings announcements bound to confound stock traders? In their November 2011 paper entitled “Systematic Noise and News-Driven Return Reversals”, Eric So and Sean Wang examine trading behavior around quarterly earnings announcements. They define pre-announcement return as the market-adjusted return over a three-day window from five days before through three days before earnings announcement… Keep Reading
November 21, 2011 - Calendar Effects, Commodity Futures
Do calendar effects found in stock markets also appear in broad stock index futures? In their November 2011 paper entitled “Calendar Anomalies in Stock Index Futures”, Oscar Carchano and Angel Pardo investigate 188 possible cyclical anomalies in S&P 500, DAX and Nikkei index futures contracts (derived from day-of-the-week, month-of-the-year, weekday-of-the-month, week-of-the-month, semi-month, turn-of-the-month, end-of-year, holidays, semi-month-of-the-year,… Keep Reading
November 18, 2011 - Big Ideas, Strategic Allocation
How can long-term investors maximize their edge of strategic patience? In their November 2011 paper entitled “Investing for the Long Run”, Andrew Ang and Knut Kjaer offer advice on successful long-term investing (such as by pension funds). They define a long-term investor as one having no material short-term liabilities or liquidity demands. Using the California Public Employee’s Retirement System and other large institutions as examples,… Keep Reading
November 16, 2011 - Sentiment Indicators
Is information technology moving in on qualitative event trading just as it has high-frequency quantitative algorithm trading? In the October 2011 version of their paper entitled “Event Driven Trading and the ‘New News’”, David Leinweber and Jacob Sisk examine the trading acumen of a model (set of filters) trained to exploit Thomson Reuters News Analytics metadata… Keep Reading
November 14, 2011 - Economic Indicators, Size Effect
Does the size effect vary in an usefully predictable way? In the October 2011 revision of his paper entitled “Predicting the Small Stock Premium Over Different Horizons: What Do We Learn About Its Source?”, Valeriy Zakamulin examines whether eight U.S. market/economic variables exploitably predict the small stock premium at monthly, quarterly, semiannual and annual horizons. The eight… Keep Reading
November 10, 2011 - Commodity Futures, Currency Trading, Gold, Volatility Effects
An array of leveraged exchange-traded funds (ETF) track short-term (daily) changes in commodity and currency exchange indexes. Over longer holding periods, these ETFs tend to veer off track. The cumulative veer can be large. How do leveraged ETFs perform over a multi-year period? What factors contribute to their failure to track underlying indexes? To investigate,… Keep Reading
November 8, 2011 - Momentum Investing
Do asset classes consistently exhibit momentum over the same time frame as stocks? In his January 2006 investing policy entitled “Class OutPerformance (COP) Strategy”, Mal Williams describes a dynamic asset allocation strategy based on intermediate-term total return momentum of fund proxies (a complex calculation spanning the past 12 months, but not simply the 12-month return) for… Keep Reading