Trend-Following with Valeriy Zakamulin: Anatomy of Trading Rules (Part 4)
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 [...]
TREND-FOLLOWING WITH VALERIY ZAKAMULIN: TECHNICAL TRADING RULES (PART 3)
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, [...]
Diversification Benefits of Time Series Momentum
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.
Volatility Premium, Covered Call Selling, and Knowing What You Own
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 [...]
Academic Research Insight: Diagonal Models versus 1/N Diversification
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 [...]
Academic Research Insight: Digging into ETF Trading Spreads
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 [...]
Trick Question: How is the Momentum Factor Performing YTD?
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 [...]
Academic Research Insight: When Does International Investing Make Sense?
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 [...]
Trend-Following with Valeriy Zakamulin: Types of Moving Averages (Part 2)
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.
Academic Research Insights: Does the Scope of the Sell-Side Analyst Industry Matter?
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 [...]
Trend-Following with Valeriy Zakamulin: Moving Average Basics (Part 1)
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.
Avoiding Overpriced Winners: A Better Way to Capture the Momentum Premium?
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 [...]
Academic Research Insight: Facts about Factors
Title: FACTS ABOUT FACTORS Authors: PAULA COCOMA, MEGAN CZASONIS, MARK KRITZMAN, DAVID TURKINGTON Publication: THE JOURNAL OF PORTFOLIO MANAGEMENT, SPRING 2017 (version here) [...]
Do Security Analyst Recommendations Bet on or Against Academic Findings?
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 [...]
Tactical Asset Allocation: Does the Day of the Month Matter?
Most long-term approaches to investing, like tactical asset allocation or factor investing, are designed to trade infrequently, generally once a month or once a quarter. [...]
Academic Research Insight: The Value of Crowsourced Earnings Forecasts
Title: THE VALUE OF CROWDSOURCED EARNINGS FORECASTS Authors: RUSSELL JAME, RICK JOHNSTON, STANIMIR MARKOV, AND MICHAEL C. WOLFE Publication: JOURNAL OF ACCOUNTING RESEARCH, SEPTEMBER 2016 (version here) What [...]
Factor Investing: Evidence Based Insights
I will be talking on the Factor Investing panel at the upcoming Evidence-Based Investing Conference in Dana Point, CA next Sunday –Tuesday. I am excited [...]
1042 Exchange: Navigating Between a Rock and a Hard Place
This particular Greek dilemma is what came to mind when I first encountered an ESOP. I observed that business owners who sold shares to an ESOP seemed, like Odysseus, to find themselves between a rock and a hard place. They could elect to pursue a 1042 exchange and bypass the Scylla of capital gains taxes, but in doing so they had to roll their sale proceeds into qualified replacement property. That path would likely lead to the Charybdis of Floating Rate Notes. These special ESOP bonds are the predominant 1042 exchange asset in the marketplace, a fact that belies their relative shortcomings as an investment asset. Just how unattractive floating rate notes are, and why they became the default 1042 rollover strategy among financial advisors, is the subject of this article. However, unlike Odysseus, business owners seeking to implement 1042 exchanges have more affordable and transparent paths to navigate between a rock and a hard place.
Academic Research Insight: The Strategic Timing of Earnings News
Title: FURTHER EVIDENCE ON THE STRATEGIC TIMING OF EARNINGS NEWS: JOINT ANALYSIS OF WEEKDAYS AND TIMES OF DAY Authors: RONI MICHAEY, AMIR RUBIN, [...]
Active Share: Does it Predict Fund Performance?
The Holy Grail for mutual fund investors is the ability to identify in advance, which of the active mutual funds (or ETFs nowadays) will outperform [...]