Objective research to aid investing decisions
Menu
Value Allocations for August 2019 (Final)
Cash TLT LQD SPY
Momentum Allocations for August 2019 (Final)
1st ETF 2nd ETF 3rd ETF

Investing Research Articles

Day Trading a Bust?

Can individual investors make a living by day trading? In their July 2019 paper entitled “Day Trading for a Living?”, Fernando Chague, Rodrigo De-Losso and Bruno Giovannetti analyze performances of all Brazilian retail investors who begin trading futures on the main Brazilian stock index during 2013 through 2015 and persist in this trading for at least 300 sessions. They use data for 2012 to identify beginners, and they use data for 2016-2017 to extend performance evaluations for at least two years of trading. They consider performance both gross and net of exchange and brokerage fees, but they ignore income taxes and expenses such as courses and trading platforms. They employ subsamples and regressions to measure learning while trading. Using trading records for the specified index futures by all Brazilian investors during 2012 through 2017, they find that: Keep Reading

Weekly Summary of Research Findings: 8/12/19 – 8/16/19

Below is a weekly summary of our research findings for 8/12/19 through 8/16/19. 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

Are Stock Quality ETFs Working?

Are stock quality strategies, as implemented by exchange-traded funds (ETF), attractive? To investigate, we consider four ETFs, all currently available (from oldest to youngest):

  • Invesco S&P 500 Quality ETF (SPHQ) – seeks to track performance of S&P 500 stocks with the highest quality scores based on firm return on equity, accruals ratio and financial leverage ratio, reformed semi-annually.
  • iShares Edge MSCI USA Quality Factor ETF (QUAL) – seeks to track performance of U.S. large-capitalization and mid-capitalization stocks selected based return on firm equity, earnings variability and debt-to-equity.
  • Fidelity Quality Factor ETF (FQAL) – seeks to track performance of U.S. large-capitalization and mid-capitalization stocks with a higher firm quality profile than the broader market.
  • Vanguard U.S. Quality Factor ETF (VFQY) – applies a rules-based quantitative model to select U.S. common stocks with strong fundamentals (strong profitability and healthy balance sheets) across market capitalizations, sectors and industry groups.

Because some available sample periods are very short, we focus on daily return statistics, along with cumulative returns and maximum drawdowns. We use three benchmarks according to fund descriptions: SPDR S&P 500 (SPY), Vanguard Russell 1000 Index Fund ETF (VONE) and iShares Russell 3000 ETF (IWV). Using daily returns for the four stock quality ETFs and benchmarks as available through most of July 2019, we find that: Keep Reading

Small Business Owner Sentiment and the U.S. Stock Market

Throughout each month, the National Federation of Independent Businesses surveys members on ten components of business conditions they anticipate six months hence. They issue findings on the second Tuesday of the following month in “Small Business Economic Trends”, including a Small Business Optimism Index (SBOI). Are the expectations of responding small business owners a “grass roots” predictor of U.S. stock market behavior? To check, we relate changes in SBOI to U.S. stock market returns. Using monthly levels of SBOI, the S&P 500 Index (a proxy for the U.S. stock market) and the Russell 2000 Index (representing smaller stocks) during January 2003 through June 2019 (198 months), we find that: Keep Reading

Equity Factor Time Series Momentum

In their July 2019 paper entitled “Momentum-Managed Equity Factors”, Volker Flögel, Christian Schlag and Claudia Zunft test exploitation of positive first-order autocorrelation (time series, absolute or intrinsic momentum) in monthly excess returns of seven equity factor portfolios:

  1. Market (MKT).
  2. Size – small minus big market capitalizations (SMB).
  3. Value – high minus low book-to-market ratios (HML).
  4. Momentum – winners minus losers (WML)
  5. Investment – conservative minus aggressive (CMA).
  6. Operating profitability – robust minus weak (RMW).
  7. Volatility – stable minus volatile (SMV).

For factors 2-7, monthly returns derive from portfolios that are long (short) the value-weighted fifth of stocks with the highest (lowest) expected returns. In general, factor momentum timing means each month scaling investment in a factor from 0 to 1 according its how high its last-month excess return is relative to an inception-to-date window of past levels. They consider also two variations that smooth the simple timing signal to suppress the incremental trading that it drives. In assessing costs of this incremental trading, they assume (based on other papers) that realistic one-way trading frictions are in the range 0.1% to 0.5%. Using monthly data for a broad sample of U.S. common stocks during July 1963 through November 2014, they find that: Keep Reading

Inflation Forecast Update

The Inflation Forecast now incorporates actual total and core Consumer Price Index (CPI) data for July 2019. The actual total (core) inflation rate for July is higher than (higher than) forecasted.

SACEVS Input Risk Premiums and EFFR

The “Simple Asset Class ETF Value Strategy” (SACEVS) seeks diversification across a small set of asset class exchanged-traded funds (ETF), plus a monthly tactical edge from potential undervaluation of three risk premiums:

  1. Term – monthly difference between the 10-year Constant Maturity U.S. Treasury note (T-note) yield and the 3-month Constant Maturity U.S. Treasury bill (T-bill) yield.
  2. Credit – monthly difference between the Moody’s Seasoned Baa Corporate Bonds yield and the T-note yield.
  3. Equity – monthly difference between S&P 500 operating earnings yield and the T-note yield.

Premium valuations are relative to historical averages. How might this strategy react to changes in the Effective Federal Funds Rate (EFFR)? Using end-of-month values of the three risk premiums, EFFRtotal 12-month U.S. inflation and core 12-month U.S. inflation during March 1989 (limited by availability of operating earnings data) through June 2019, we find that: Keep Reading

Federal Reserve Treasuries Holdings and Asset Returns

Is the level, or changes in the level, of Federal Reserve (Fed) holdings of U.S. Treasuries (bills, notes, bonds and TIPS, measured weekly as of Wednesday) an indicator of future stock market and/or Treasuries returns? To investigate, we take dividend-adjusted SPDR S&P 500 (SPY) and iShares Barclays 20+ Year Treasury Bond (TLT) as tradable proxies for the U.S. stock and Treasuries markets, respectively. Using weekly Fed holdings of Treasuries, SPY and TLT during mid-December 2002 through mid-July 2019, we find that: Keep Reading

Weekly Summary of Research Findings: 8/5/19 – 8/9/19

Below is a weekly summary of our research findings for 8/5/19 through 8/9/19. 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

Are Equity Index Covered Call ETFs Working?

Is systematically selling covered call options on equity indexes, as implemented by exchange-traded funds (ETF), attractive? To investigate, we consider four equity covered call ETFs:

  1. Invesco S&P 500 BuyWrite ETF (PBP) – seeks to track the CBOE S&P 500 BuyWrite Index (BXM).
  2. Global X S&P 500 Covered Call ETF (HSPX) – seeks to track the CBOE S&P 500 2% OTM BuyWrite Index (BXY).
  3. Global X NASDAQ 100 Covered Call ETF (QYLD) – seeks to track the CBOE NASDAQ-100 BuyWrite Index (BXN).
  4. First Trust BuyWrite Income ETF (FTHI) – sells at-the-money to slightly out-of-the-money covered calls on the S&P 500 Index, laddered with expirations of less than one year (we use BXM as a benchmark).

We focus on average monthly return, standard deviation of monthly returns, sample period cumulative return and maximum drawdown (MaxDD) based on monthly data. We consider SPDR S&P 500 (SPY) and Invesco QQQ Trust (QQQ) as underlying stock indexes. Using monthly dividend-adjusted returns for the four covered call ETFs since inceptions and for all benchmarks/underlying indexes through June 2019, we find that: Keep Reading

Daily Email Updates
Login
Research Categories
Recent Research
Popular Posts