Objective research and reviews to aid investing decisions | Saturday, February 4, 2012 | S&P 500 (SPY) 134.54 +1.86 | Gold (GLD) 167.64 -3.41

Blog - Investing Notes

Combining Realized Volatility and Simple Moving Averages

Does the effectiveness of simple moving average (SMA) crossing signals vary with stock volatility? In the August 2011 update of their paper entitled “A New Anomaly: The Cross-Sectional Profitability of Technical Analysis”, Yufeng Han, Ke Yang and Guofu Zhou investigate the application of SMAs to portfolios of stocks sorted sorted based on realized volatility. Specifically, each year they sort stocks into deciles by volatility (standard deviation of daily returns over the past year). For each decile, they calculate a price index, an SMA for the index and daily returns based on initial equal weighting. When a decile portfolio is above (below) its SMA, they hold the portfolio (30-day Treasury bills), with a one-day delay for switches. They compare the returns for this timing strategy to buy-and-hold by decile. They focus on a 10-day SMA, but also test 20-day, 50-day, 100-day and 200-day SMAs. Using daily returns for a broad sample of U.S. stocks spanning 1963 through 2009, they find that: More…

Bond Market-Aggregate Earnings Interactions

Do aggregate corporate earnings predict bond market returns? In his January 2012 paper entitled “Aggregate Earnings and Corporate Bond Markets”, Xanthi Gkougkousi investigates the relationship between aggregate earnings and corporate bond market returns. Using quarterly aggregate earnings for a broad sample of U.S. stocks with fiscal years ending in March, June, September and December and total quarterly returns for ten U.S. corporate bond indexes during January 1973 through December 2010 (360,614 firm-quarter observations), he finds that: More…

Stock Market and the Super Bowl

Investor mood may affect financial markets. Sports may affect investor mood. The biggest mood-mover among sporting events in the U.S. is likely the National Football League’s Super Bowl. Is the week before the Super Bowl especially distracting and anxiety-producing? Is the week after the Super Bowl focusing and anxiety-relieving? Presumably, post-game elation and depression cancel between respective fan bases. Using past Super Bowl dates since inception and daily/weekly S&P 500 Index data for 1967-2011 (45 events), we find that: More…

Buyback Size Effect?

Do companies reliably repurchase their stocks at bargain prices, thus providing signals for investors to tag along? In the January 2012 update of their paper entitled “Do Firms Buy Their Stock at Bargain Prices? Evidence from Actual Stock Repurchase Disclosures”, Azi Ben-Rephael, Jacob Oded and Avi Wohl use detailed repurchase data from SEC filings since the beginning of 2004 (effective date for amendments requiring detailed reporting) to examine the timeliness of open market repurchases. Unlike much prior research, they focus on repurchase executions and not announcements. Using information from 10-Q and 10-K filings about actual monthly stock repurchases by S&P 500 firms (as of January 2004) and contemporaneous share price data for 2004 through 2006 (14,669 monthly observations for 416 firms with at least one repurchase), they find that: More…

Momentum Winners and Trading Calendar Updates

We have updated the Market Models summary as follows:

  • Extended the Earnings Forecast through the end of 2012 based on an estimate of actual earnings for the fourth quarter of 2011.
  • Extended regressions/rolled projections by one month based on data available through January 2012.
  • Updated backtest charts and the market valuation metrics map based on data available through January 2012.

We have updated the six-month lagged momentum asset class, sector and style ETF winners for January 2012 on the home page.

We have updated the Trading Calendar to incorporate data for January 2012.

Commercial and Industrial Credit as a Stock Market Driver

Does commercial and industrial (C&I) credit drive the stock market? To investigate, we relate changes in credit standards from the Federal Reserve Board’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices to future U.S. stock market returns. The Federal Reserve publishes survey results about the end of the first month of each quarter. Using the ”Net Percentage of Domestic Respondents Tightening Standards for C&I Loans” from the Senior Loan Officer Opinion Survey on Bank Lending Practices Chart Data for the second quarter of 1990 through the fourth quarter of 2011 (87 surveys), and contemporaneous S&P 500 Index quarterly returns, we find that: More…

Gold Seasonality Drivers

Does seasonal fear of stock market weakness or demand for jewelry drive gold prices? In his January 2012 paper entitled “The Seasonality of Gold – Jewelery Demand and Investor Behavior”, Dirk Baur examines calendar month seasonality of the price of gold. Using daily gold bullion spot prices (London fixing) and COMEX gold futures prices during 1981 through 2010 (30 years), along with contemporaneous stock market index and gold jewelry demand data, he finds that: More…

Doug Kass: Lyrical Oracle?

As suggested by readers, we evaluate here Douglas Kass’ outlooks for the U.S. stock market since mid-2006 as extracted from his Seabreeze Partners blog. Douglas Kass is founder and President of Seabreeze Partners Management, Inc., which “specializes in the management of alternative investment products.” He writes regularly for TheStreet.com (apparently the source of blog articles) and appears frequently on CNBC. The table below quotes forecast highlights from the cited source and shows the performance of the S&P 500 Index over various numbers of trading days after the publication date for each item. Grading takes into account more detailed market behavior when appropriate. Red plus (minus) signs to the right of specific forecasts indicate those graded right (wrong) based on subsequent market behavior, while red zeros denote any complex forecasts graded both right and wrong. We conclude that: More…

Value Premium Concentration in January

Is the value premium seasonal? In their 2012 paper entitled “Is the Value Effect Seasonal? Evidence from Global Equity Markets”, Praveen Kumar Das and Uma Rao investigate the intersection of the January effect and the value premium in stock market indexes around the world. They consider market capitalization-weighted value and growth stock portfolios for the following indexes: Asia Pacific; Europe, Australasia and Far East (EAFE); Europe, with and without UK; Scandinavian countries; UK; U.S.; and, Japan. They define value (growth) stocks as the 30% with the highest (lowest) book-to-market ratios within their respective market indexes. Using monthly stock prices and lagged annual book-to-market ratios for stocks in these markets during 1975 (or inception if unavailable that early) through 2007, they find that: More…

Hedge Fund Risk and Return

Do hedge funds trade on market risk, idiosyncratic risk or tail risk? In their November 2011 paper entitled “Systematic Risk and the Cross-Section of Hedge Fund Returns”, Turan Bali, Stephen Brown and Mustafa Caglayan explore the predictability of hedge fund returns based on distinct market-related (systematic), idiosyncratic (residual) and tail risk measures. They alternatively consider four-factor (equity market, size, book-to-market and momentum), six-factor (adding two bond factors) and nine-factor (adding currency, bond and commodity momentum) models of market risk. They employ both three-year rolling regressions and equally weighted quintile portfolios formed from monthly sorts to relate hedge fund risks and returns. They ignore funds with less than 24 months history and avoid a measured 1.87% annual backfill bias (only funds with good first years volunteer performance) by ignoring the first 12 months of returns for each fund. Using monthly net returns and characteristics for a sample of 14,228 hedge funds (8,201 dead and 6,027 live) during January 1994 through June 2010, they find that: More…

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Current Momentum Winners

Among nine asset class ETFs/Cash through January 2012, the six-month momentum winner is…

TLT

See “Simple Asset Class ETF Momentum Strategy


Among nine sector ETFs through January 2012, the six-month momentum winner is…

XLU

See “Simple Sector ETF Momentum Strategy


Among six style ETFs through  January 2012, the six-month momentum winner is…

IWF

See “Doing Momentum with Style (ETFs)

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