Objective research to aid investing decisions

Value Investing Strategy (Strategy Overview)

Allocations for May 2020 (Preliminary)
Cash TLT LQD SPY

Momentum Investing Strategy (Strategy Overview)

Allocations for May 2020 (Final)
1st ETF 2nd ETF 3rd ETF

Exploiting Chicago Fed ANFCI Predictive Power

| | Posted in: Economic Indicators

"Chicago Fed ANFCI as U.S. Stock Market Predictor" suggests that weekly change in the Federal Reserve Bank of Chicago's Adjusted National Financial Conditions Index (ANFCI) may be a useful indicator of future U.S. stock market returns. We test its practical value via two strategies that are each week in SPDR S&P 500 (SPY) when prior change in ANFCI is favorable and in cash (U.S. Treasury bills, T-bills) when prior change in ANFCI is unfavorable, as follows:

  1. Change in ANFCI < Mean [aggressive]: hold SPY (cash) when prior-week change in ANFCI is below (above) its mean since the beginning of 1973, providing an initial 20-year calculation interval.
  2. Change in ANFCI < Mean+SD [conservative]: hold SPY (cash) when prior-week change in ANFCI is below (above) its mean plus one standard deviation of weekly changes in ANFCI since the beginning of 1973.

The return week is Wednesday open to Wednesday open (Thursday open when the market is not open on Wednesday) per the ANFCI release schedule. We assume SPY-cash switching frictions are a constant 0.1% over the sample period. We use buying and holding SPY as the benchmark. Using weekly levels of ANFCI since January 1973 and weekly dividend-adjusted opens of SPY and T-bills since February 1993 (limited by SPY), all through April 2020, we find that:

Please or subscribe to continue reading...
Gain access to hundreds of premium articles, our momentum strategy, full RSS feeds, and more!  Learn more

Login
Daily Email Updates
Filter Research
  • Research Categories (select one or more)