Quant Mashup - Quantpedia
What is the Capacity of Smart Beta Strategies? [Quantpedia]
Using a transaction cost model, and an assumption for the smart beta premium observed in data, we estimate the capacity of momentum, quality, value, size, minimum volatility, and a multi-factor combination of the first four strategies. Flows into these factor strategies incur transaction costs. For
- 8 years ago, 16 Nov 2016, 06:37pm -
A Reversal-Based Trading Strategy Around Earnings Announcements [Quantpedia]
This study documents that earnings announcements serve as a reality check on short-term, fear and greed driven price development: stocks with extreme abnormal returns in the week before an earnings announcement experience strong price reversal around the announcement. A trading strategy that
- 8 years ago, 3 Nov 2016, 10:19am -
Tail Protection of Trend-Following Strategies [Quantpedia]
The performance of trend following strategies can be ascribed to the difference between long-term and short-term realized variance. We revisit this general result and show that it holds for various definitions of trend strategies. This explains the positive convexity of the aggregate performance of
- 8 years ago, 22 Oct 2016, 06:00pm -
Zero-Crossing Variant of Pairs Trading Strategy [Quantpedia]
Pairs trading is a venerable trading strategy. There is agreement that it worked fine in the far past. But it is less clear if it still profitable today. In this working paper the universe of eligible pairs is defined by the holdings of a given ETF. It is shown that the stocks must be from ETFs
- 8 years ago, 14 Oct 2016, 01:45pm -
Cointegration and Pairs Trading in Stocks [Quantpedia]
We examine a new method for identifying close economic substitutes in the context of relative value arbitrage. We show that close economic substitutes correspond to a special case of cointegration whereby individual prices have approximately the same exposure to a common nonstationary factor. A
- 8 years ago, 7 Oct 2016, 01:40pm -
Option Pricing Methods in the Late 19th Century [Quantpedia]
This paper examines option pricing methods used by investors in the late 19th century. Based on the book called “PUT-AND-CALL” written by Leonard R. Higgins in 1896 and published in 1906 it is shown that investors in that period used routinely the put-call parity for option conversion and static
- 8 years ago, 30 Sep 2016, 10:03am -
Does Interest Rate Exposure Explain the Low Volatility Anomaly? [Quantpedia]
We show that part of the outperformance of low volatility stocks can be explained by a premium for interest rate exposure. Low volatile portfolios have a positive exposure to interest rates, whereas the more volatile stocks have a negative exposure. Incorporating an interest rate premium explains
- 8 years ago, 25 Sep 2016, 07:01pm -
Carry Trade Returns and Political Risks [Quantpedia]
This paper elucidates the channels through which sovereign risk, exchange rates and currency risk premia are related. I show that the channels are different depending on whether a country is classified as emerging or an advanced economy. Generally, for emerging market economies, local sovereign risk
- 8 years ago, 13 Sep 2016, 11:39am -
Quantopian Trading Strategy Series: Reversal during Earnings Announcements [Quantpedia]
We are really excited that Quantopian & Quantpedia Trading Strategy Series continues with a second article focused on Reversal Effect during Earning Announcements (Strategy #307). Click on a "View Notebook" button to read a complete analysis:
- 8 years ago, 9 Sep 2016, 12:52pm -
Effect of Maturity Structure of Roll Yields in Commodity Futures Strategies [Quantpedia]
We investigate the maturity-structure of roll strategy returns in the energy futures markets. Our innovation is to report and analyze the risk/return profile, the Sharpe ratio, and the asset pricing loadings of rollover strategies based on futures contracts of the same underlying commodity but with
- 8 years ago, 5 Sep 2016, 04:44am -
Equity Anomalies Persist in International Markets [Quantpedia]
Motivated by McLean and Pontiff (2016), we study the pre- and post-publication return predictability of 138 anomalies in 39 stock markets. Based on more than a million anomaly country-months, we find that the United States is the only country with a statistically significant and economically
- 8 years ago, 24 Aug 2016, 12:33am -
Two Recent Papers Related to FX Carry Strategy [Quantpedia]
In this paper, we analyse the relationship between the currency carry return and volatility and liquidity risk factors. We find that both categories of risk factors are relevant to understanding and explaining carry return, with an outperformance for volatility ones especially the global FX
- 8 years ago, 15 Aug 2016, 10:54am -
Using Fundamentals to Improve Pairs Trading Strategy [Quantpedia]
Pairs trading strategy’s return depends on the divergence/convergence movements of a selected pair of stocks’ prices. However, if the stable long term relationship of the stocks changes, price will not converge and the trade opened after divergence will close with losses. We propose a new model
- 8 years ago, 8 Aug 2016, 03:19am -
Asset Class Risk Premiums Explained by Skewness [Quantpedia]
We present extensive evidence that "risk premium" is strongly correlated with tail-risk skewness but very little with volatility. We introduce a new, intuitive definition of skewness and elicit an approximately linear relation between the Sharpe ratio of various risk premium strategies
- 8 years ago, 28 Jul 2016, 11:08am -
Impact of 1987 Black Monday on Trading Behavior of Stock Investors [Quantpedia]
Using a simple sign test, we report new empirical evidence, taken from both the US and the German stock markets, showing that trading behavior substantially changed around Black Monday in 1987. It turned out that before Black Monday investors behaved more as in the momentum strategy; and after Black
- 8 years ago, 20 Jul 2016, 10:59am -
Quantpedia Trading Strategy Series at Quantopian [Quantpedia]
We are really excited that we can announce, that Quantopian started to publish series of articles where they will really deeply analyze some of Quantpedia's suggested strategies. We think, that Soeng Lee from Quantopian did a really good job with a first article, so we just wanted to point that
- 8 years ago, 15 Jul 2016, 11:46am -
Has Momentum Lost Its Momentum? [Quantpedia]
We evaluate the robustness of momentum returns in the US stock market over the period 1965 to 2012. We find that momentum profits have become insignificant since the late 1990s partially driven by pronounced increase in the volatility of momentum profits in the last 14 years. Investigations of
- 8 years ago, 11 Jul 2016, 11:09am -
Taxonomy of CTAs [Quantpedia]
Recently a range of alternative risk premia products have been developed promising investors hedge fund/CTA like returns with higher liquidity, transparency and relatively low fees. The attractiveness of these products rests on the assumption that they can deliver similar returns. Using a novel
- 8 years ago, 1 Jul 2016, 11:53am -
Momentum Anomaly and Baseball Cards [Quantpedia]
We show that the market for baseball cards exhibits anomalies that are analogous to those that have been documented in financial markets, namely, momentum, price drift in the direction of past fundamental performance, and IPO under performance. Momentum profits are higher among active players than
- 8 years ago, 26 Jun 2016, 02:30am -
Information Ratio Analysis of Time-Series Momentum Strategy [Quantpedia]
In the past 20 years, momentum or trend following strategies have become an established part of the investor toolbox. We introduce a new way of analyzing momentum strategies by looking at the information ratio (IR, average return divided by standard deviation). We calculate the theoretical IR of a
- 8 years ago, 17 Jun 2016, 10:00am -
Trend Model via Difference Between Long and Short-Term Variance [Quantpedia]
We relate the performance of trend following strategy to the difference between a long-term and a short-term variance. We show that this result is rather general, and holds for various definitions of the trend. We use this result to explain the positive convexity property of CTA performance and show
- 8 years ago, 8 Jun 2016, 09:29am -
Factor Attribution of Jim Cramer's Mad Money Charitable Trust [Quantpedia]
This study analyzes the complete historical performance of Jim Cramer’s Action Alerts PLUS portfolio from 2001 to 2016 which includes many of the stock recommendations made on Cramer’s TV show “Mad Money”. Both since inception of the portfolio and since the start of “Mad Money” in 2005
- 8 years ago, 3 Jun 2016, 09:31am -
Forecasting the VIX to Improve VIX-Derivatives Trading [Quantpedia]
Konstantinidi et. al. state in their broad survey of Volatility-Index forecasting: "The question whether the dynamics of implied volatility indices can be predicted has received little attention". The overall result of this and the quoted papers is: The VIX is too a very limited extend (R2
- 8 years ago, 25 May 2016, 10:57am -
Cliff Asness's (AQR) View on Factor Timing [Quantpedia]
Everyone seems to want to time factors. Often the first question after an initial discussion of factors is “ok, what’s the current outlook?” And the common answer, “the same as usual,” is often unsatisfying. There is powerful incentive to oversell timing ability. Factor investing is often
- 8 years ago, 11 May 2016, 11:10am -
Quantopian Paper About In vs Out-of-Sample Performance of Trading Algorithms [Quantpedia]
When automated trading strategies are developed and evaluated using backtests on historical pricing data, there exists a tendency to overfit to the past. Using a unique dataset of 888 algorithmic trading strategies developed and backtested on the Quantopian platform with at least 6 months of
- 8 years ago, 4 May 2016, 11:22am -
A New Analysis of Commodity Momentum Strategy [Quantpedia]
Conventional momentum strategies rely on 12 months of past returns for portfolio formation. Novy-Marx (2012) shows that the intermediate return momentum strategy formed using only twelve to seven months of returns prior to portfolio formation significantly outperforms the recent return momentum
- 8 years ago, 26 Apr 2016, 05:33pm -
Analysis of US Dollar Carry Trades in the Era of 'Cheap Money' [Quantpedia]
In this paper, we employ a unique dataset of actual US dollar (USD) forward positions against a number of currencies taken by so-called Commodity Trading Advisors (CTAs). We investigate to what extent these positions exhibit a pattern of USD carry trading or other patterns of currency trading over
- 8 years ago, 20 Apr 2016, 11:02am -
How to Select the Best Commodity CTAs [Quantpedia]
This study documents persistent, net-of-fees, alpha-generating commodity trading advisor funds focused on commodity investment ("Commodity Funds"). The baseline for performance measurement is a new benchmark model that includes factors established in the literature. A nonparametric
- 8 years ago, 7 Apr 2016, 03:23pm -
Benchmarking Commodity CTAs [Quantpedia]
While much is known about the financialization of commodities, less is known about how to profitably invest in commodities. Existing studies of Commodity Trading Advisors (CTAs) do not adequately address this question because only 19% of CTAs invest solely in commodities, despite their name. We
- 9 years ago, 31 Mar 2016, 01:53pm -
Smart Beta Strategies in Australia [Quantpedia]
"Smart beta" investing is an alternative to the traditional active and passive approaches to funds management, whereby investors adopt a systematic method that provides exposure to factors that are argued to be related with expected returns at low cost. Therefore, the question of how smart
- 9 years ago, 24 Mar 2016, 12:50pm -
Covered Calls Uncovered [Quantpedia]
Equity index covered calls have historically provided attractive risk-adjusted returns largely because they collect equity and volatility risk premia from their long equity and short volatility exposures. However, they also embed exposure to an uncompensated risk, a naïve equity market reversal
- 9 years ago, 17 Mar 2016, 04:07pm -
A Closer Look At Ben Graham’s "Net Current Asset Value" (NCAV) Rule [Quantpedia]
Following Ben Graham’s “net current asset value” (NCAV) rule for stock selection (“net net” strategy), we provide evidence that buying stocks in companies with per share NCAV greater than the current share price produced superior risk-adjusted returns over the 1975- 2010 period. The risk
- 9 years ago, 9 Mar 2016, 01:38pm -
Do the Size, Value, and Momentum Factors Exist in Emerging Markets? [Quantpedia]
This paper investigates the size, value and momentum effects in 18 emerging stock markets during the period 1990−2013.We find that size and momentum strategies generally fail to generate superior returns in emerging markets. The value effect exists in all markets except Brazil, and it is robust to
- 9 years ago, 2 Mar 2016, 11:25am -
Sell in May and Go Away in the Equity Index Futures Markets [Quantpedia]
The period May 1 to the turn of the month of November (last five trading days October) has historically produced negligible returns. The rest of the year (late October to the end of April) has essentially all the year's gains. In this paper we show that there is a statistically significant
- 9 years ago, 25 Feb 2016, 12:03pm -
An Interesting Cross-Asset Class Analysis of Risk Premiums [Quantpedia]
The existence of risk premia has been widely documented in the academic literature over the past decades. Until now they have typically been handled as separate phenomena for specific markets or asset classes and thus examined independently. This study analyses risk premia across a variety of asset
- 9 years ago, 19 Feb 2016, 12:42pm -
An Examination of The Turn-of-the-Month-Effect [Quantpedia]
The current study examines the turn of the month effect on stock returns in 20 countries. This will allow us to explore whether the seasonal patterns usually found in global data; America, Australia, Europe and Asia. Ordinary Least Squares (OLS) is problematic as it leads to unreliable estimations;
- 9 years ago, 12 Feb 2016, 10:42am -
Replicating Private Equity [Quantpedia]
Private equity funds tend to select relatively small firms with low EBITDA multiples. Publicly traded equities with these characteristics have high risk-adjusted returns after controlling for common factors typically associated with value stocks. Hold-to-maturity accounting of portfolio net asset
- 9 years ago, 5 Feb 2016, 10:32pm -
FX Liquidity Risk and Carry Trade Returns [Quantpedia]
We study the effects of FX liquidity risk on carry trade returns using a low-frequency market-wide liquidity measure. We show that a liquidity-based ranking of currency pairs can be used to construct a mimicking liquidity risk factor, which helps in explaining the variation of carry trade returns
- 9 years ago, 29 Jan 2016, 12:21am -
The Betting Against Beta Anomaly: Fact or Fiction? [Quantpedia]
This paper suggests an alternative explanation for the recently documented betting against beta anomaly. Given that the equity of a levered firm is equivalent to a call option on firm assets and option returns are non-linearly related to underlying stock returns, linear CAPM-type regressions are
- 9 years ago, 20 Jan 2016, 12:21pm -
A Multiples-Based Decomposition of the Value Premium [Quantpedia]
We use industry multiples-based market-to-book decomposition of Rhodes-Kropf, Robinson and Viswanathan (2005) to study the value premium. The market-to-value component drives all of the value strategy return, while the value-to-book component exhibits no return predictability in both portfolio sorts
- 9 years ago, 14 Jan 2016, 10:40am -
Are Size and Book-Value Factors Really Significant? [Quantpedia]
The Fama and French (F&F) factors do not reliably estimate the size and book-to-market effects. Our paper shows that the former has been underestimated in the US market while the latter overestimated. We do so by replacing F&F's independent rankings by the conditional ones introduced by
- 9 years ago, 5 Jan 2016, 09:58pm -
Upside and Downside Risks in Momentum Returns [Quantpedia]
I provide a novel risk-based explanation for the profitability of momentum strategies. I show that the past winners and the past losers are differently exposed to the upside and downside market risks. Winners systematically have higher relative downside market betas and lower relative upside market
- 9 years ago, 29 Dec 2015, 10:30pm -
Time-Series vs. Cross-Sectional Implementation of Momentum, Value and Carry Strategies [Quantpedia]
We contrast the time-series and cross-sectional performance of three popular investment strategies: carry, momentum and value. While considerable research has examined the performance of these strategies in either a directional or cross-asset settings, we offer some insights on the market conditions
- 9 years ago, 17 Dec 2015, 07:41am -
An Analysis of Expected Returns of Trend-Following Strategies [Quantpedia]
This paper describes how to create ex-ante expectation for generalized trend-following rules. This report first study the effect of trend-following rules applied to random data with varying degrees of drift and autocorrelation. There is a positive relationship between drift, autocorrelation and the
- 9 years ago, 11 Dec 2015, 08:00am -
Is Momentum Effect Result of Over- of Under-reaction? [Quantpedia]
Several studies have attributed the high excess returns of the momentum strategy in the equity market to investor behavioral biases. However, whether momentum effects occur because of investor underreaction or because of investor overreaction remains a question. Using a simple model to illustrate
- 9 years ago, 26 Nov 2015, 03:32pm -
Time-Varying Conditional Market Exposures of the Value Premium [Quantpedia]
Value strategies exhibit a large positive beta if contemporaneous market excess returns are positive, and a small beta if contemporaneous market excess returns are negative. Value also has a large positive beta after bear markets, but a small beta after bull markets. These facts hold for
- 9 years ago, 19 Nov 2015, 11:14am -
Deconstructing the Time-Series Momentum Strategy [Quantpedia]
Moskowitz, Ooi, and Pedersen (2012) show that time series momentum delivers a large and significant alpha for a diversified portfolio of various international futures contracts over the 1985 to 2009 period. Although we confirm these results with similar data, we find that their results are driven by
- 9 years ago, 11 Nov 2015, 10:58am -
Deconstructing the Low-Volatility Anomaly [Quantpedia]
We study several aspects of the so-called low-vol and low-beta anomalies, some already documented (such as the universality of the effect over different geographical zones), others hitherto not clearly discussed in the literature. Our most significant message is that the low-vol anomaly is the
- 9 years ago, 5 Nov 2015, 02:44pm -
Influence of Correlations on Time-Series Momentum Strategies [Quantpedia]
Trend-following strategies take long positions in assets with positive past returns and short positions in assets with negative past returns. They are typically constructed using futures contracts across all asset classes, with weights that are inversely proportional to volatility, and have
- 9 years ago, 28 Oct 2015, 01:48pm -
Optimization of Equity Momentum [Quantpedia]
Standard mean-variance optimized momentum outperforms the traditional equally weighted momentum strategy if the expected return vector used reflects momentum's top and bottom only characteristic. This top and bottom only characteristic is the phenomenon that only the stocks in the top decile of
- 9 years ago, 7 Oct 2015, 09:56pm -