VIX and Trend-Following, the Killer Combo?
Some things in life are naturally made for each other. Some examples include the following: Peanut Butter and Jelly Starsky & Hutch Value and Momentum [...]
Machine Learning for Investors: A Primer
If you are out to describe the truth, leave elegance to the tailor. — Albert Einstein Machine learning is everywhere now, from self-driving cars to [...]
Factor Timing Investigation: Interest Rates, Value Spreads, and Factor Premiums
Now that the Federal Reserve has begun the process of raising interest rates, and has announced their intention to begin to unwind their policy of [...]
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 [...]
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 [...]
My “Repackaging” Pet Peeve: Do Other Advisors See This As Well?
Like many advisors, I often find myself reviewing accounts and historical performance for clients and prospects with investments at other firms. Of course I see [...]
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.
Elisabetta and Tommi Are Helping us Empower Investors Through Education
Our mission is to empower investors through education. This mission is our passion and what drives us to go to work everyday. But we can't fulfill our [...]
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.
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 [...]
“Passive” Investing: Theory and Practice in a Global Market
Purely passive investing is theoretically plausible but practically impossible. That said, the practical implementations can often be "good enough." As a theoretical index investor, you deploy [...]
Trust, but Verify: The Potential Problems of Blind Investing
Nobody can predict the future, but there is a chance the blind purchase of broad-index portfolios will come to an abrupt and potentially chaotic end when the [...]
Swedroe Spotlight: Enhancing Momentum Strategies Via Idiosyncratic Momentum
Momentum is the tendency for assets that have performed well (poorly) in the recent past to continue to perform well (poorly) in the future, at [...]
Tactical Asset Allocation and the US 60/40 Benchmark
Our firm Allocate Smartly provides independent analysis of Tactical Asset Allocation (TAA) strategies. TAA strategies dynamically allocate to broad asset classes like stock indices, bond indices or gold. Unlike [...]
Visualizing IRA Rules Using Flowcharts
The rules around IRAs are really complicated and Wes asked if we could share our flow charts on the subject so others could potentially benefit [...]
Swedroe Spotlight: Does Market Sentiment Help Explain Momentum?
David Smith, Na Wang, Ying Wang and Edward Zychowicz contribute to the literature on momentum with their paper, “Sentiment and the Effectiveness of Technical Analysis: Evidence from the Hedge Fund Industry,” which was published in the December 2016 issue of the Journal of Financial and Quantitative Analysis. Their work examines how investor sentiment affects the effectiveness of technical analysis strategies (which include the use of moving averages as well as momentum) used by hedge funds (which are considered sophisticated investors). The study was motivated by prior research that has focused on “investor sentiment,” which is the propensity of individuals to trade on noise and emotions rather than facts. Sentiment causes investors to have beliefs about future cash flows and investment risks that aren’t justified. Two researchers, Malcolm Baker and Jeffrey Wurgler, constructed an investor sentiment index based on six measures: trading volume as measured by NYSE turnover; the dividend premium (the difference between the average market-to-book ratio of dividend-payers and non-payers); the closed-end fund discount; the number and first-day returns of IPOs; and the equity share in new issues. Data is available at through Wurgler and New York University.
The (Un-)Importance of Returns
In my last job with a large investment bank I built two global research teams and worked with high-profile clients around the globe. Having left [...]
How Asset Managers Are Adapting to Exchange-Traded-Funds
The ETF industry has been around for over 20 years at this point, but over the past 5 years the ETF industry has captivated the [...]
Rebalance Your Portfolio? You are a Market Timer and Here’s What to Consider
In this piece I examine various way in which an investor can think about their active market timing decisions, often labeled with the innocuous term [...]