November 8, 2011 - Momentum Investing
Do asset classes consistently exhibit momentum over the same time frame as stocks? In his January 2006 investing policy entitled “Class OutPerformance (COP) Strategy”, Mal Williams describes a dynamic asset allocation strategy based on intermediate-term total return momentum of fund proxies (a complex calculation spanning the past 12 months, but not simply the 12-month return) for… Keep Reading
November 4, 2011 - Strategic Allocation
Do somewhat abstract risk-based portfolio strategies translate to familiar stock/firm characteristic tilts? In their September 2011 paper entitled “Demystifying Equity Risk-Based Strategies: A Simple Alpha plus Beta Description”, Raul Leote de Carvalho, Xiao Lu and Pierre Moulin investigate how the following five risk-based equity allocation strategies relate to four common portfolio factors. Equal Weight – long… Keep Reading
November 2, 2011 - Momentum Investing
Is momentum on a losing streak? Or, has proliferation of momentum strategies extinguished the anomaly? In the October 2010 revision of his paper entitled “Are Momentum Strategies Still Profitable for U.S. Equity?”, Scott Wilson examines the recent performance of a momentum hedge strategy that each month buys (sells) the tenth of stocks with the highest… Keep Reading
November 1, 2011 - Volatility Effects
Does the S&P 500 Implied Volatility Index (VIX) measured at a monthly interval usefully predict stock market returns? To check, we consider four relationships: S&P 500 Depository Receipts (SPY) next-month return versus VIX monthly close. SPY next-month return versus VIX monthly range, a measure of the volatility of implied volatility. SPY next-month return versus product of VIX monthly change and SPY monthly return (to explore implications of VIX… Keep Reading
October 31, 2011 - Momentum Investing, Size Effect, Strategic Allocation, Value Premium, Volatility Effects
Should investors strategically diversify across widely known equity market anomalies? In the October 2011 version of his paper entitled “Strategic Allocation to Premiums in the Equity Market”, David Blitz investigates whether investors should treat anomaly portfolios (size, value, momentum and low-volatility) as diversifying asset classes and how they can implement such a strategy. To ensure implementation is… Keep Reading
October 28, 2011 - Momentum Investing, Size Effect, Value Premium
Do the size effect, value premium and momentum effect derive from common firm/stock characteristics other than size, book-to-market ratio and past return? In the October 2011 version of their paper entitled “Which Firms Are Responsible for Characteristic Anomalies? A Statistical Leverage Analysis”, Kevin Aretz and Marc Aretz statistically isolate and analyze the small minority of firms… Keep Reading
October 27, 2011 - Big Ideas
How long does it take stock markets to revert to their long-run means? In their April 2010 paper entitled “Mean Reversion in International Stock Markets: An Empirical Analysis of the 20 th Century”, Laura Spierdijk, Jacob Bikker and Pieter van den Hoek analyze mean reversion in 17 developed countries (Australia, Belgium, Canada, Denmark, France, Germany, Ireland, Italy,… Keep Reading
October 26, 2011 - Equity Options, Volatility Effects
An upward (downward) trend in implied volatilities with option maturity indicates that investors expect volatility to increase (decrease) over time. Do such expectations reliably predict future stock options prices? In his October 2011 paper entitled “Volatility Term Structure and the Cross-Section of Option Returns”, Aurelio Vasquez investigates whether the implied volatility term structure (measured as slope of… Keep Reading
October 25, 2011 - Volatility Effects
Is selling insurance against stock market volatility reliably profitable? In the December 2010 version of his paper entitled “Variance Trading and Market Price of Variance Risk”, Oleg Bondarenko examines payoffs from synthesized variance swap contracts, derived from the difference between realized and contract-specified variances over a given interval, during a 20-years period. He constructs the hypothetical swap contracts… Keep Reading
October 24, 2011 - Equity Premium
Do relatively high trading frictions in the least developed equity markets offset associated diversification benefits? In the October 2011 version of their paper entitled “Frontier Market Diversification and Transaction Costs”, Ben Marshall, Nhut Nguyen and Nuttawat Visaltanachoti examine this trade-off in 19 frontier stock markets (Argentina, Bahrain, Bulgaria, Croatia, Estonia, Jordan, Kuwait, Lebanon, Lithuania, Oman, Pakistan,… Keep Reading