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Latest Market Research Articles

Simple Fidelity Bond Mutual Fund Momentum Strategy

A subscriber requested corroboration of the findings in “Simple Debt Class Mutual Fund Momentum Strategy” with a universe restricted to a family of bond funds (such as Fidelity) to enable low-cost fund switching. We therefore apply the strategy to the following ten Fidelity mutual funds:

Investment Grade Bond (FBNDX)
Intermediate Bond (FTHRX)
Government Income (FGOVX)
Mortgage Securities (FMSFX)
GNMA (FGMNX)
Short-Term Bond (FSHBX)
Limited Term Government (FFXSX)
Convertible Securities (FCVSX)
Intermediate Government Income (FSTGX)
Fidelity New Markets Income (FNMIX)

Per the prior test, we allocate all funds at the end of each month to the fund with the highest total return over the past three months (3-1). We determine the first winner in May 1994 to accommodate momentum measurement interval sensitivity testing. Using monthly dividend-adjusted closing prices for the ten funds during May 1993 (as limited by FNMIX) through January 2015 (261 months), we find that: Keep Reading

Interaction of Sentiment and Liquidity with Stock Return Anomalies

Are stock return anomalies strongest when investor sentiment is highest or liquidity lowest? In the January 2015 draft version of his paper entitled “What Explains the Dynamics of 100 Anomalies?”, Heiko Jacobs  addresses these questions. He first identifies, categorizes and replicates 100 well-known or recently discovered long-short stock return anomalies related to: violations of the law of one price, momentum, technical analysis, short-term and long-term reversal, calendar effects, lead-lag effects among economically linked firms, pairs trading, beta, financial distress, skewness, differences of opinion, industry effects, fundamental analysis, net stock issuance, capital investment and firm growth,
innovation, accruals, dividend payments and earnings surprises. He measures the gross magnitude and direction of these anomalies via long-short extreme decile (stocks in top and bottom tenths as ranked by a specific variable) portfolios. He then examines how gross three-factor (market, size, book-to-market) alphas for these anomalies vary with:

Using monthly data as available for a broad sample of U.S. stocks, excluding those that are relatively small and illiquid, as available during August 1965 through December 2011 (many tests start much later and end January 2011), he finds that: Keep Reading

Gas Prices and Future Stock Market Returns

Some experts argue that high (low) gasoline prices mean that consumers must allocate more (less) spending power to fuel, and therefore less (more) to other industries and stocks. Do data support this argument? To check, we relate U.S. stock market returns to changes in U.S. gasoline price changes. Using weekly average retail prices for regular gasoline in the U.S. and contemporaneous levels of the S&P 500 Index from late August 1990 through early February 2015 (1,279 weeks, with a six-week gap in gas prices at the turn of 1990 and a one-week gap in the S&P 500 Index in 2001), we find that: Keep Reading

Best Currency Value Strategy?

Which method of relative currency valuation works best for currency trading? In their February 2015 paper entitled “Currency Value Strategies”, Ahmad Raza, Ben Marshall and  Nuttawat Visaltanachoti run a horse race of four currency value strategies:

  1. Real Exchange Rate: nominal spot exchange rate with the U.S. dollar times the ratio of local consumer prices in local currency to U.S. consumer prices in U.S. dollars.
  2. Real Exchange Rate Change: one minus the ratio of the average real exchange rate between 5.5 and 4.5 years ago to the real exchange rate three months ago.
  3. Purchasing Power Parity: from the Organization for Economic Co-operation and Development (OECD).
  4. Big Mac Index: raw version from the Economist.

Their approach is to calculate excess returns in U.S. dollars from a portfolio that is iteratively long (short) the fifth of currencies that are most undervalued (overvalued) per each of these four metrics and hold the positions over periods ranging from one week to 12 months. Using weekly and monthly spot and forward foreign exchange rate data for 39 developed and emerging market currencies versus the U,S, dollar during January 1972 through July 2013, they find that: Keep Reading

Models, Trading Calendar and Momentum Strategy Updates

We have updated the S&P 500 Market Models summary as follows:

  • Extended Market Models regressions/rolled projections by one month based on data available through February 2015.
  • Updated Market Models backtest charts and the market valuation metrics map based on data available through February 2015.

We have updated the Trading Calendar to incorporate data for February 2015.

We have updated the the monthly asset class momentum winners and associated performance data at Momentum Strategy.

Weekly Summary of Research Findings: 2/23/15 – 2/27/15

Below is a weekly summary of our research findings for 2/23/15 through 2/27/15. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs.

Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list. Keep Reading

Preliminary Momentum Strategy Update

The home page and “Momentum Strategy” now show preliminary asset class momentum strategy positions for March 2015. Differences in past returns among the top places are large enough that they are unlikely to change order by the close.

Exploiting Interaction of Hedge Fund Holdings and Short Interest

Do changes in hedge fund holdings and short interest in a stock together predict its returns? In their January 2015 paper entitled “Short Selling Meets Hedge Fund 13F: An Anatomy of Informed Demand”, Yawen Jiao, Massimo Massa and Hong Zhang test whether joint changes in aggregate hedge fund holdings and short interest of a stock relate to its future returns. They define a contemporaneous increase (decrease) in aggregate hedge fund holdings and decrease (increase) in short interest as indicative of informed long (short) demand for a stock. They relate informed demand to abnormal return, the return of the stock relative to that of its style benchmark based on size, book-to-market and prior-period return. Using size/value characteristics, monthly returns, quarterly short interest and holdings from quarterly SEC Form 13F filings of 1,397 hedge funds for 5,357 U.S. stocks during 2000 through 2012, they find that: Keep Reading

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Editor Archive Picks

Purified Short-term Stock Reversal

As described in “Monthly Stock Return Reversal Update”, evidence for a conventional monthly stock return reversal effect since 1990 is weak. Is there a way to enhance the effect? In their August 2011 paper entitled “Short-Term Residual Reversal”, David Blitz, Joop Huij, Simon Lansdorp and Marno Verbeek present a short-term reversal strategy based on deviations of individual stock returns from a rolling 36-month Fama-Frenc…

Short-term Reversal by Industry

Various studies find that returns on individual stocks exhibit tendencies for short-term (one month) reversal, medium-term (3-12 months) momentum and long-term (2-5 years) reversal. The short-term reversal is the basis for the skip-month included in some medium-term momentum strategies. Is there a way to concentrate the short-term reversal? In the March 2010 update of their draft paper entitled “Industries and Stock Retu…

Combining Return Reversal and Industry Momentum

Does a strategy of combining monthly individual stock return reversal with monthly industry momentum enhance results compared to the separate strategies. In their August 2011 paper entitled “One-month Individual Stock Return Reversals and Industry Return Momentum”, Marc Simpson, Emiliano Giudici and John Emery examine the relationship between individual stock return reversals and industry momentum by considering three strategies: (1)…

Monthly Stock Return Reversal Update

Is the monthly stock return reversal effect currently exploitable? In the August 2011 version of their paper entitled “New Evidence on Short-Term Reversals in Monthly Stock Returns: Overreaction or Illiquidity?”, Chris Stivers and Licheng Sun investigate the persistence, size-sensitivity and seasonality of monthly stock return reversal in the context of three competing explanations: (1) investor overreaction to news (exploitable); (2…

Parsing Reversal and Momentum Effects

Generalizations from the body of equity price trend research are: (1) stocks tend to exhibit short-term reversal, intermediate-term momentum and long-term reversion; and, (2) small capitalization and high-volatility stocks tend to exhibit the strongest momentum. What about the combination of size and volatility? In the September 2010 version of his paper entitled “Do Momentum and Reversals Coexist?”, Jason Wei investigates how moment…

Popular Articles

    Models, Trading Calendar and Momentum Strategy Updates

    We have updated the S&P 500 Market Models summary as follows: Extended Market Models regressions/rolled projections by one month based on data available through February 2015. Updated Market Models backtest charts and the market valuation metrics map based on data available through February 2015. We have updated the Trading Calendar to incorporate data for February 2015. We have More

    Preliminary Momentum Strategy Update

    The home page and “Momentum Strategy” now show preliminary asset class momentum strategy positions for March 2015. Differences in past returns among the top places are large enough that they are unlikely to change order by the close.

    Inflation Forecast Update

    The Inflation Forecast now incorporates actual total and core Consumer Price Index (CPI) data for January 2015. The actual total (core) inflation rate for January is lower than (the same as) forecasted. The new actual and forecasted inflation rates will flow into Real Earnings Yield Model projections at the end of the month.

    A Few Notes on A Random Walk Down Wall Street

    In the preface to the eleventh (2015) edition of his book entitled A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, author Burton Malkiel states: “The message of the original edition was a very simple one: Investors would be far better off buying and holding an index fund than attempting to buy and sell individual securities More

    Sector Performance by Calendar Month

    The Trading Calendar presents full-year and monthly cumulative performance profiles for the overall stock market (S&P 500 Index) based on its average daily behavior since 1950. How much do the corresponding monthly behaviors of the various stock market sectors deviate from an overall market profile? To investigate, we consider the nine sectors defined by the More

    Stock Market Valuation Ratio Trends

    To determine whether the stock market is expensive or cheap, some experts use aggregate valuation ratios, either trailing or forward-looking, such as earnings-price ratio (E/P) and dividend yield. Operating under a belief that such ratios are mean-reverting, most imminently due to movement of stock prices, these experts expect high (low) future stock market returns when More

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Current Momentum Winners

ETF Momentum Signal
for March 2015 (Final)

Momentum ETF Winner

Second Place ETF

Third Place ETF

Gross Compound Annual Growth Rates
(Since August 2006)
Top 1 ETF Top 2 ETFs
15.0% 15.8%
Top 3 ETFs SPY
15.2% 8.0%
Strategy Overview
Stock Market Projection

Projected change in S&P 500 Index as of market close on 3/5/15…

3-5-15

For elaboration, go to Market Models or the detailed descriptions of the Real Earnings Yield (REY) Model and the Reversion-to-Value (RTV) Model.

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