Quant Geek Weekend Finance Homework

/Quant Geek Weekend Finance Homework

Quant Geek Weekend Finance Homework

By | 2017-08-18T16:58:42+00:00 April 4th, 2015|Uncategorized|1 Comment

Recently Discovered Research You Might Have Missed:

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Wes Gray
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.
  • RT1C

    Interesting research. The paper by Zakamulin did a nice job of highlighting the probability of time-series momentum outperforming over 5-10 year time horizons (only a little over 50%). I do have a suggestion. Look at his discussion around p. 33ff and especially Fig. 3. The episodic nature of events leading to MOM outperformance, and its association with bear market conditions, led me to wonder about secular trends. Zakamulin does not discuss this–in fact, he chose a 20 year lookback period since that is long enough to contain several bull and bear markets, whereas that may be as long as a single secular bull or secular bear. I realize ‘secular’ trends are debated, but consider the definition of secular bull vs. bear as defined by P/E cycles in Ed Easterling’s work (books, website). For example, look at http://www.crestmontresearch.com/docs/Stock-Secular-Annotation.pdf and http://www.crestmontresearch.com/docs/Stock-Secular-Explained.pdf). Compare those to Fig. 3 of the paper. It seems to me that if MOM underperforms during bull markets, then maybe it would be best to use passive strategies during secular bulls (when cyclical bulls are more likely to dominate) and MOM during secular bears (when bear markets are more frequent and/or severe). Thus, for example, there seems to be a correlation between the 1942-1965 and 1982-1999 secular bulls and periods of MOM underperformance in Fig. 3.
    Any thoughts?