Objective research to aid investing decisions

Value Investing Strategy (Strategy Overview)

Allocations for December 2021 (Final)
Cash TLT LQD SPY

Momentum Investing Strategy (Strategy Overview)

Allocations for December 2021 (Final)
1st ETF 2nd ETF 3rd ETF

Calendar Effects

The time of year affects human activities and moods, both through natural variations in the environment and through artificial customs and laws. Do such calendar effects systematically and significantly influence investor/trader attention and mood, and thereby equity prices? These blog entries relate to calendar effects in the stock market.

SACEMS, SACEVS and Trading Calendar Updates

We have updated monthly allocations and performance data for the Simple Asset Class ETF Momentum Strategy (SACEMS) and the Simple Asset Class ETF Value Strategy (SACEVS). We have also updated performance data for the Combined Value-Momentum Strategy.

We have updated the Trading Calendar to incorporate data for November 2021.

SACEVS with Quarterly Allocation Updates

Do quarterly allocation updates for the Best Value and Weighted versions of the “Simple Asset Class ETF Value Strategy” (SACEVS) work as well as monthly updates? These strategies allocate funds to the following asset class exchange-traded funds (ETF) according to valuations of term, credit and equity risk premiums, or to cash if no premiums are undervalued:

3-month Treasury bills (Cash)
iShares 20+ Year Treasury Bond (TLT)
iShares iBoxx $ Investment Grade Corporate Bond (LQD)
SPDR S&P 500 (SPY)

Changing from monthly to quarterly allocation updates does not sacrifice information about lagged quarterly S&P 500 Index earnings, but it does sacrifice currency of term and credit premiums. To assess alternatives, we compare cumulative performances and the following key metrics for quarterly and monthly allocation updates: gross compound annual growth rate (CAGR), gross maximum drawdown (MaxDD), annual gross returns and volatilities and annual gross Sharpe ratios. Using monthly dividend-adjusted closes for the above ETFs during September 2002 (earliest alignment of months and quarters) through September 2021, we find that:

Keep Reading

U.S. Stock Market Returns Around Thanksgiving

Does the Thanksgiving holiday, a time of families celebrating plenty, give U.S. stock investors a sense of optimism that translates into stock returns? To investigate, we analyze the historical behavior of the S&P 500 Index during the three trading days before and the three trading days after the holiday. Using daily closing levels of the S&P 500 Index for 1950-2020 (71 events), we find that: Keep Reading

Turn of the Year and Size in U.S. Equities

Is there a reliable and material market capitalization (size) effect among U.S. stocks around the turn-of-the-year (TOTY)? To check, we track cumulative returns from 20 trading days before through 20 trading days after the end of the calendar year for the Russell 2000 Index, the S&P 500 Index and the Dow Jones Industrial Average (DJIA) since the inception of the Russell 2000 Index. We also look at full-month December and January returns for these indexes. Using daily and monthly levels of all three indexes during December 1987 through January 2021 (34 December and 34 January observations), we find that: Keep Reading

Monthly Returns During Presidential and Congressional Election Years

Do hopes and fears of U.S. election outcomes, associated political machinations, alter the “normal” seasonal variation in monthly stock market returns? To check, we compare average returns and variabilities (standard deviations of returns) by calendar month for the S&P 500 Index during years with and without quadrennial U.S. presidential elections and biennial congressional elections. Using monthly S&P 500 Index closes over the period December 1927 through September 2021 (nearly 94 years), we find that: Keep Reading

Simple Tests of Sy Harding’s Seasonal Timing Strategy

Does the technically adjusted Seasonal Timing Strategy popularized some years ago in Sy Harding’s Street Smart Report Online (now unavailable due to Mr. Harding’s death) generate attractive performance? This strategy combines “the market’s best average calendar entry [October 16] and exit [April 20] days with a technical indicator, the Moving Average Convergence Divergence (MACD).” According to Street Smart Report Online, applying this strategy to a Dow Jones Industrial Average (DJIA) index fund generated a cumulative return of 213% during 1999 through 2012, compared to 93% for the DJIA itself. To check over a longer sample period with an alternative market proxy, we apply the strategy to SPDR S&P 500 (SPY) since its inception and consider several alternatives, as follows:

  1. SPY – buy and hold SPY.
  2. Seasonal-MACD – seasonal timing per specified dates with MACD refinement, holding cash when not in SPY.
  3. Seasonal Only – seasonal timing per the same dates without MACD refinement, again holding cash when not in SPY.
  4. SMA200 – hold SPY (cash) when the S&P 500 Index is above (below) its 200-day simple moving average at the prior daily close. 

For all strategies, we use the yield on short-term U.S. Treasury bills (T-bills) as the return on cash. Using daily closes for the S&P 500 Index, dividend-adjusted closes for SPY and T-bill yield during 1/29/93 (SPY inception) through 10/1/21, we find that: Keep Reading

Bitcoin Day-of-the-Week Effects?

Unlike publicly traded assets generally, investors/speculators can buy and sell bitcoin any day of the week. Do bitcoin returns exhibit anomalies by day of the week, perhaps especially because of weekend trading? To investigate, we calculate (1) average returns and return variabilities for each day of the week; and, (2) gross cumulative returns for holding bitcoin only one specific day of the week. Using daily bitcoin prices from Coindesk during 11/3/2014 (the earliest offered) through September 6, 2021, we find that: Keep Reading

Asset Class ETF Seasonalities?

Do exchange-traded funds (ETF) that track asset classes, such as those used in the Simple Asset Class ETF Momentum Strategy (SACEMS) and the Simple Asset Class ETF Value Strategy (SACEVS), exhibit reliable seasonalities? To check, we look at average return by calendar month for the following nine ETFs:

  • SPDR S&P 500 (SPY)
  • iShares Russell 2000 Index (IWM)
  • iShares MSCI EAFE Index (EFA)
  • iShares MSCI Emerging Markets Index (EEM)
  • iShares Barclays 20+ Year Treasury Bond (TLT)
  • iShares iBoxx $ Investment Grade Corporate Bond (LQD)
  • Vanguard REIT (VNQ)
  • SPDR Gold Shares (GLD)
  • PowerShares DB Commodity Index Tracking (DBC)

Using monthly dividend-adjusted returns for these ETFs over a common sample period during March 2006 (limited by DBC) through August 2021, we find that: Keep Reading

Testing a QQQ Swing Trade Strategy

A subscriber requested review of a swing trade strategy that buys and sells Invesco QQQ Trust (QQQ) according to the following rules:

  • Buy at the close when it is either Monday or Tuesday and QQQ (Close-Low)/(High-Low) is 0.15 or less.
  • Subsequently sell at the close when it is higher than the prior-day high.

To investigate, to simplify portfolio cash management, we assume that there are no overlapping trades (if a position opens on Monday, another position does not open on Tuesday). We further assume that cash earns the 3-month U.S. Treasury bills (T-bill) yield when not in QQQ and that frictions for switching between T-bills and QQQ are 0.10% of trade value. Using daily high, low, close and dividend-adjusted close (to calculate returns) for QQQ and daily T-bill close during March 10, 1999 (QQQ inception) through August 5, 2021, we find that:

U.S. Stock Market Returns Around Scheduled FOMC Meetings

A subscriber requested testing of a strategy that buys SPDR S&P 500 (SPY) at the open on the day before each scheduled Federal Open Market Committee (FOMC) meeting and sells at the close. Using daily dividend-adjusted SPY open and close prices and dates of FOMC meetings during January 2016 through June 2021 (43 meetings), we find that: Keep Reading

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