Screen Backtest during the 2008 debacle

/Screen Backtest during the 2008 debacle

Screen Backtest during the 2008 debacle

By | 2017-08-18T16:57:12+00:00 October 4th, 2011|Research Insights|0 Comments


Turnkey Analyst showed me a very interesting article from ZeroHedge this morning:

http://www.zerohedge.com/news/some-fun-analogies-rhyming-history-and-repeating-futures

The main point of the article? History almost repeated itself!

Oct 3, 2008: SPX=1099.23; VIX=45.14

Oct 3, 2011: SPX=1099.23; VIX=45.45

Since the stock market seems to be on track with 2008, I went ahead and used our new backtesting tool in Turnkey Analyst to assess how our screens performed.

First, a screen shot of what the Shiller model predicts for the next 10 year real return on equity–a dismal 35bp/year.

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

But at the same time, the real spread between stock earnings yield and bond yields is almost 7%–what’s an investor to do? Ugg, the Fed has us all in a pickle!

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

When we look at how our screens performed from August 1, 2008 through December 31, 2009, we find some interesting results:

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

We find that ALL of our screens end up outperforming the broad-based Russell 2000 index, however, profit and value and goodwill gone bad stand out as the best performers (here we focus on long-only, long/short systems also did well over this chaotic time period).

Lesson: If you believe we are in the midst of another September 2008 time period, focus on the profit and value and goodwill gone bad screens to find some potential winners.

Best of luck and try out our new backtesting tool if you are interested in exploring deeper.

 


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About the Author:

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.

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