Technical Trading

Does adding a position take-profit (stop-gain) rule improve the performance of the “Simple Asset Class ETF Momentum Strategy” (SACEMS) by harvesting some upside volatility? SACEMS each months picks winners from among the a set of eight asset class exchange-traded fund (ETF) proxies plus cash based on past returns over a specified interval. To investigate the value of stop-gains, we augment SACEMS with a simple rule that: (1) exits to Cash from any current winner ETF when its intra-month return rises above a specified threshold; and, (2) re-sets positions per winners at the end of the month. We focus on gross compound annual growth rate (CAGR) and gross maximum drawdown (MaxDD) as key performance statistics for the Top 1, equally weighted (EW) Top 2 and EW Top 3 portfolios of monthly winners. Using monthly total (dividend-adjusted) returns and intra-month maximum returns for the specified assets during February 2006 through January 2026, we find that: Keep Reading

Does adding a position stop-loss rule improve the performance of the “Simple Asset Class ETF Momentum Strategy” (SACEMS) by avoiding some downside volatility? SACEMS each months picks winners from among the a set of eight asset class exchange-traded fund (ETF) proxies plus cash based on past returns over a specified interval. To investigate the value of stop-losses, we augment SACEMS with a simple rule that: (1) exits to Cash from any current winner ETF when its intra-month return falls below a specified threshold; and, (2) re-sets positions per winners at the end of the month. We focus on gross compound annual growth rate (CAGR) and gross maximum drawdown (MaxDD) as key performance statistics for the Top 1, equally weighted (EW) Top 2 and EW Top 3 portfolios of monthly winners. Using monthly total (dividend-adjusted) returns and intra-month drawdowns for the specified assets during February 2006 through January 2026, we find that: Keep Reading

Is there a way to amplify the MAX overpricing anomaly (measured as the average of the five highest daily returns for a stock over the past month), which is driven by the desire of some investors for a lottery-like payoff? In their January 2026 paper entitled “MAX on Steroids: A New Measure of Investor Attraction to Lottery Stocks”, Baris Ince, Turan Bali and Han Ozsoylev introduce MAXᵝ as a variable that distills lottery-seeking behavior by removing the systematic return component from MAX. Specifically, they each month:

1. Sort stocks into tenths (deciles) based on their market betas as measured by a rolling window of 252 daily returns.
2. Within each beta-sorted decile, sort stocks based on MAX.

They then focus on excess returns (relative to U.S. Treasury bills) and factor model alphas of the value-weighted extreme deciles of MAX aggregated across beta deciles, plus a hedge portfolio that is long (short) the stocks in the highest (lowest) decile. Using daily returns and ownership data for U.S. listed common stocks, excluding utility/financial stocks and stocks priced under $5, during January 1968 through December 2022, they find that:

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Do recent daily returns for a stock reliably predict its near-term performance? In their January 2026 paper entitled “A Unified Framework for Anomalies based on Daily Returns”, Nusret Cakici, Christian Fieberg, Gabor Neszveda, Robert Bianchi and Adam Zaremba relate the distribution of last-month (21 trading days) daily returns to next-month return without imposing functional forms, via elastic-net regression. They re-estimate the relationship annually using inception-to-date training data. Their approach considers two aspects of past returns:

1. A chronological component that captures the sequence of returns, typically associated with short-term price pressure and liquidity effects.
2. A rank-based component that captures how extreme returns are, commonly linked to behavioral distortions.

They combine these two components into a single Daily Return Information (DRI) signal and compute returns for its corresponding long-short factor, the Daily Return Information Factor (DRIF). The DRIF portfolio is each month long (short) the tenth, or decile, of stocks with the strongest (weakest) expected returns based on DRI. Using monthly firm characteristics and associated daily returns for a broad sample of U.S. stocks, excluding those priced under $5 at end of month and those in the bottom 1% of NYSE market capitalizations, during January 1937 through December 2024, they find that:

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A reader requested a test of the following hypothesis from the article “Gold’s Bluff – Is a 30 Percent Drop Next?” [no longer available]: “Ironically, gold is more than just a hedge against market turmoil. Gold is actually one of the most accurate indicators of the stock market’s long-term direction. The Dow Jones measured in gold is a forward looking indicator.” To test this assertion, we examine relationships between the spot price of gold and the level of the Dow Jones Industrial Average (DJIA). Using monthly data for the spot price of gold in dollars per ounce and DJIA over the period January 1971 through September 2025, we find that: Keep Reading

Can machine learning exploit many stock similarity factors to produce exceptional statistical arbitrage (pairs trading) performance? In their August 2025 paper entitled “Attention Factors for Statistical Arbitrage”, Elliot Epstein, Rose Wang, Jaewon Choi and Markus Pelger present the Attention Factor Model, which employs machine learning to:

1. Identify similar stocks based on both past returns and firm fundamentals (similarity factors).
2. Generate signals for temporary price divergences between similar stocks.
3. Set weighting/trading rules to exploit such price divergences.

Their model considers many similarity factors and the time series behaviors of these factors to maximize portfolio Sharpe ratio after transaction costs. They retrain the model each year on a rolling window of eight years of data, using the last two years of the first set of training data to select tuning parameters. We consider model variations that identify 1, 3, 5, 8, 10, 15, 30 or 100 similarity factors. They assume total costs of 0.05% one-way trading frictions and 0.01% shorting costs. They consider results of prior research as a benchmark. Using daily returns and 39 firm characteristics for the 500 largest U.S. stocks by month during January 1990 through December 2021, with model testing during January 1998 through December 2022, they find that: Keep Reading

What are optimal intrinsic/absolute/time series momentum (IM) and simple moving average (SMA) lookback intervals for different asset class proxies? To investigate, we use data for the following ten asset class exchange-traded funds (ETF), plus Cash:

• Invesco DB Commodity Index Tracking (DBC)
• iShares MSCI Emerging Markets Index (EEM)
• iShares JPMorgan Emerging Markets Bond Fund (EMB)
• iShares MSCI EAFE Index (EFA)
• SPDR Gold Shares (GLD)
• iShares Russell 2000 Index (IWM)
• iShares iBoxx $ Investment Grade Corporate Bond (LQD)
• SPDR S&P 500 (SPY)
• iShares Barclays 20+ Year Treasury Bond (TLT)
• Vanguard REIT ETF (VNQ)
• 3-month Treasury bills (Cash)

For IM tests, we invest in each ETF (Cash) when its return over the past one to 12 months is positive (negative). For SMA tests, we invest in each ETF (Cash) when its price is above (below) its average monthly price at the ends of the last two to 12 months. We focus on compound annual growth rate (CAGR) and maximum drawdown (MaxDD) as key metrics for comparing different IM and SMA lookback intervals since earliest ETF data availabilities based on the longest IM lookback interval. Using monthly dividend-adjusted closing prices for the asset class proxies and the yield for Cash over the period July 2002 (or inception if not available by then) through September 2025, we find that:

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“Compendium of Live ETF Factor/Niche Premium Capture Tests” summarizes results for its eponymous title. Here we add a live test of the short-term reversal effect among U.S. stocks. Specifically, we examine the performance of the now dead Vesper U.S. Large Cap Short-Term Reversal Strategy ETF (UTRN), designed to track the performance of a portfolio of 25 of the 500 largest U.S.-listed stocks most likely benefit from the short-term reversal effect. We use SPDR S&P 500 ETF Trust (SPY) as the benchmark. We focus on monthly return statistics, along with compound annual growth rates (CAGR) and maximum drawdowns (MaxDD). Using monthly total returns for UTRN and SPY during September 2018 (UTRN inception) through March 2025 (UTRN death), we find that:

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How do hedge fund managers think about fundamental analysis versus technical analysis in managing their stock portfolios? In his July 2025 paper entitled “Portfolio Construction: Blending Fundamental and Technical Analysis”, Gregory Blotnick describes the interplay between fundamental and technical analyses in long/short equity portfolio construction from the perspective of a hedge fund with a high velocity of ideas. He includes case studies and technical screening exercises to illustrate the roles of momentum, valuation metrics and relative strength in idea generation, risk management and capital allocation. Based on his experience and examples, he concludes that: Keep Reading

Do the trading activities of especially informed equity and equity option traders predict stock returns? In the June 2025 revision of their paper entitled “An Information Factor: What Are Skilled Investors Buying and Selling?”, Matthew Ma, Xiumin Martin, Matthew Ringgenberg and Guofu Zhou construct an information factor (INFO) using the trades of corporate insiders, short sellers and option traders. Specifically, they each month for each stock calculate:

• To inform the long side of the INFO factor portfolio, net insider purchases (purchases minus sales).
• To inform the short side of the INFO factor portfolio:
  • Short interest (number of shares shorted divided by shares outstanding).
  • Option trading (total option volume divided by total stock volume).
• For each of these three metrics, assign a rank from 1 to 100, with higher rank indicating higher level of positive private information.
• Average the three ranks to compute an information score.
• Reform 10 equal-weighted (decile) portfolios of stocks sorted by information score, with the INFO factor portfolio long the top decile and short the bottom.
• Hold the portfolios for one month.

They assess the impact of stock trading frictions by assuming costs equal to half the respective effective bid-ask spreads. Using insider trading, short interest and option/stock trading volumes during January 1996 through December 2019, they find that: Keep Reading