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Timing Stock Factor/Smart Beta Strategies

Is stock factor timing attractive? In their September 2016 paper entitled “Timing ‘Smart Beta’ Strategies? Of Course! Buy Low, Sell High!”, Robert Arnott, Noah Beck and Vitali Kalesnik investigate whether timing of stock factor (long-short) and smart beta (long-only) strategies is attractive. They consider eight widely used factors and eight smart beta strategies. Each factor portfolio is long (short) the 30% of large-capitalization stocks with the highest (lowest) expected returns for that factor. They test both past returns and relative valuation (average valuation of factor long side divided by average valuation of factor short side) as timing signals. Their stock valuation metric is an aggregate of price-to-five-year-earnings, price-to-five-year-sales, price-to-five-year-dividends and price-to-book ratio, each measured relative to that of the capitalization-weighted universe of stocks. They standardize relative valuations across factors by dividing the difference between a current relative valuation and its past average relative valuation by the standard deviation of its past relative valuations. For factor timing portfolios, their benchmark is the equally weighted average of factor portfolio returns. For smart beta strategies, their benchmark is the capitalization weighted stock universe. They ignore frictions and shorting costs involved in portfolio maintenance. Using inputs as specified in factor and smart beta definitions during January 1977 through August 2016, they find that: Keep Reading

2016 Wagner Award Call for Papers

The submission deadlines for the 2016 Wagner Award, presented by the National Association for Active Investment Management (NAAIM) are December 15, 2015 for an Intent to Submit and February 29, 2016 for a final paper. Per the “Call for Papers”:

“The competition is open to all investment practitioners, academic faculty and doctoral candidates in the field. …Papers must be of practical significance to practitioners of active investing. The prize will be awarded to a paper resulting from research into active investment management, which NAAIM broadly defines as investment strategies and techniques that improve upon the risk-adjusted return obtainable from a passive, buy-and-hold, investment strategy. …All submitted papers should be recent, unpublished and of a quality appropriate for publication in a peer-reviewed academic journal. …Three prizes will be awarded. The best paper will receive the NAAIM Wagner Award valued at $10,000; second place will receive $2,000 and third will receive $1,000. …the grand prizewinner will be invited to present his / her paper at the NAAIM annual conference: “Uncommon Knowledge 2016,” May 1-4 at the Westin Beach Resort and Spa in Fort Lauderdale, Florida. Free conference attendance, U.S. air travel and lodging will be provided.”

See “Lumber-Gold Interaction as Stocks and Bonds Indicator” for a summary of the 2015 Wagner Award first place paper.

See “Generating Parameter Sensitivity Distributions to Mitigate Snooping Bias”, “Exploitation of Stock Deviations from Statistical Equilibrium” and “Relative Strength of 10-year and 30-year Treasuries as Regime Indicator” for summaries of the 2014 Wagner Award first, second and third place papers, respectively.

See “Equity Sector Selection Based on Credit Risk”, “Volatility Trading Strategies” and “Taking the Noise Out of Technical Trading” for summaries of the 2013 Wagner Award first, second and third place papers, respectively.

See “Melding Momentum, Diversification and Absolute Return”“Mutual Fund Alpha Momentum” and “Active Asset Allocation via Drawdown Control” for summaries of the 2012 Wagner Award first, second and third place papers, respectively.

See “Capital Management with Clustered Signals”“Which Kind of (ETF) Momentum Is Best?” and “Enhancing/Streamlining Asset Rotation” for summaries of the 2011 Wagner Award first, second and third place papers, respectively.

See “Exploiting the Predictability of Volatility” and “Selling Calls or Puts According to Trend” for summaries of the 2010 Wagner Award first and second place papers, respectively.

The editor of CXOadvisory.com will be a judge for the 2016 Wagner Award. CXOadvisory.com has no other affiliation with NAAIM.

“What Works Best?” Update

We’ve updated “What Works Best?” to incorporate some recent research summaries and adjust interpretation of the body of research.

Site Changes re “Real Earnings Yield” and “Reversion to Value” Models

We have made the following changes to CXOadvisory.com:

We added a new Value Strategy to the main menu to track the performance of the strategy described in “Simple Asset Class ETF Value Strategy”. We intend this new strategy to complement Momentum Strategy.

We retired the Real Earnings Yield (REY) and the Reversion to Value (RTV) models of the U.S. stock market. The new Value Strategy, to a degree, subsumes these models. Archived pages for these models remain available via these links and via Market Models. With these retirements, we will no longer present a daily “Stock Market Projection” on the home page.

Since its only purpose is to feed the REY and RTV models, we also retired Earnings Forecast. An archived page for this forecast remains available via the link.

The overall intent of the changes is to nudge content toward greater concrete applicability.


Correction to Momentum Strategy Winners

We have corrected the Momentum Strategy winners list for January 2015 (to be held during February 2015). The third place winner was incorrect due to omission of a dividend.

2015 Charles H. Dow Award Competition

The deadline for submission of papers for the 2015 Charles H. Dow Award, presented by the Market Technicians Association (MTA), is January 5, 2015. MTA established this award in 1994 to recognize outstanding research in technical analysis. The Award carries a prize of $5,000 and the opportunity to present the winning paper at the April 2015 MTA Gala Awards Dinner in New York City.

Competition for the award is open to all practitioners and academics. Per the Guidelines for Submissions, the MTA judging panel evaluates each submission based on its enhancement of the understanding of market action and the concepts of technical analysis, and its thoroughness.

CXOadvisory.com has no affiliation with MTA or the Charles H. Dow Award.

“What Works Best?” Update

An update to the “What Works Best?” page makes the discussion more expansive (to address strategic asset allocation), shifts emphasis and adds references.

Investing Demons Update

An updated Investing Demons now includes relevant research summary statements from the past year. This section provides a broad perspective on the content of CXOadvisory.com.

Strategies for Exploiting Index Rebalancing?

A reader suggested: “With the annual Russell rebalancing coming later this month, maybe you could post some profitable trading strategies.” A search of the Social Science Research Network (SSRN) for “index rebalancing” and “index reconstitution” and “Russell rebalancing” and “Russell reconstitution” locates the following research (in reverse posting chronology): Keep Reading

How About Spinoffs?

A reader asked: “Have you done a review on spinoffs?” Keep Reading

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