Title: OVERREACTION AND THE CROSS-SECTION OF RETURNS: INTERNATIONAL EVIDENCE Authors: Douglas W. Blackburn, Nusret Cakici Publication: Journal of Empirical Finance 42 (2017) 1-14 https://ssrn.com/abstract=2800188 What [...]
The difficulty in testing the profitability of trend-following rules stems from the fact that the procedure of testing involves either a single- or multi-variable optimization. [...]
A common question asked in the factor investing field is the following -- "how much of the model's performance is driven by sector allocations, and how much is driven by security selection?" Our answer is to simply buy Value stocks or Momentum stocks, regardless of sector constraints. Why? Well a nice anecdote (but not data) is that investing in "cheap" technology stocks was not a great idea in the internet bubble crash.
Title: ABUSING ETFs Authors: UTPAL BHATTACHARYA, BENJAMIN LOOS, STEFFEN MEYER, ANDREAS HACKETAL Publication: REVIEW OF FINANCE, VOL.21, 2017 (version here) What are the research questions? [...]
We consider an investor and a financial market that consists of only two assets: one risky asset and one safe (or risk-fee) asset. An example [...]
Title: Factor Investing in the Bond Market Authors: Patrick Houweling and Jeroen van Zundert Publication: Financial Analysts Journal, Vol. 3 No. 2, 2017 (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2516322) What [...]
In our context, a technical trading indicator can be considered as a combination of a specific technical trading rule with a particular moving average of [...]
A trend following strategy is based on switching between a financial asset and cash depending on whether the asset prices trend upward or downward. Specifically, [...]
Similar to some better-known factors like size and value, time-series momentum is a factor that historically has demonstrated above average excess returns. Time-series momentum, also called trend-momentum or absolute momentum, is measured by a portfolio long assets that have had recent positive returns and short assets that have had recent negative returns. Compare this to the traditional (cross-sectional) momentum factor that considers recent asset performance only relative to other assets. The academic evidence suggests that inclusion of a strategy targeting time-series momentum in a portfolio improves the portfolio’s risk-adjusted returns.
The folks at AQR are top-notch researchers and have written a ton of great papers. Some of their more famous papers are the following: Value [...]
Title: MITIGATING ESTIMATION RISK IN ASSET ALLOCATION: DIAGONAL MODELS VERSUS 1/N DIVERSIFICATION Authors: CHRIS STIVERS, LICHENG SUN Publication: THE FINANCIAL REVIEW, 2016 (version here) What are [...]
In this article we discuss what the academic research says about ETF trading spreads and premiums. INEFFICIENCIES IN THE PRICING OF EXCHANGE TRADED FUNDS ANTTI [...]
If you ask your typical long-only investor (or financial advisor) how momentum is doing this year they'll likely say, "Amazing!" This statement will almost surely [...]
Title: MONONATIONALS: THE DIVERSIFICATION BENEFITS OF INVESTING IN COMPANIES WITH NO FOREIGN SALES Authors: CORMAC MULLEN AND JENNY BERRILL Publication: FINANCIAL ANALYST JOURNAL, II Q 2017 (version here) What [...]
In this post we aim to give an overview of some specific types of moving averages. Specifically, we cover "ordinary" moving averages and mention some examples of exotic moving averages.
Title: DOES THE SCOPE OF THE SELL-SIDE ANALYST INDUSTRY MATTER? AN EXAMINATION OF BIAS, AND INFORMATION CONTENT OF ANALYST REPORTS Authors: KENNETH MERKELEY, RONI [...]
One of the basic principles of technical analysis is that ``prices move in trends". Traders firmly believe that these trends can be identified in a timely manner and used to generate profits and limit losses. Consequently, trend following is the most widespread market timing strategy; it tries to jump on a trend and ride it. Specifically, when stock prices are trending upward (downward), it's time to buy (sell) the stock. Even though trend following is very simple in concept, its practical realization is complicated. One of the major difficulties is that stock prices fluctuate wildly due to imbalances between supply and demand and due to constant arrival of new information about company fundamentals. These up-and-down fluctuations make it hard to identify turning points in a trend. Moving averages are used to ``smooth" the stock price in order to highlight the underlying trend.
Any frequent reader of our blog knows we are fans of momentum investing. At this point, investment professionals should know that momentum historically works, that momentum [...]
Title: FACTS ABOUT FACTORS Authors: PAULA COCOMA, MEGAN CZASONIS, MARK KRITZMAN, DAVID TURKINGTON Publication: THE JOURNAL OF PORTFOLIO MANAGEMENT, SPRING 2017 (version here) [...]
As my co-author Andrew Berkin, the director of research for Bridgeway Capital Management, and I explain in our new book, “Your Complete Guide to Factor-Based [...]
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