#3 – Sector Momentum – Rotational System

Authors: Du Plessis, Hallerbach

Title: Volatility Weighting Applied to Momentum Strategies

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2599635

Abstract:

We consider two forms of volatility weighting (own volatility and underlying volatility) applied to cross-sectional and time-series momentum strategies. We present some simple theoretical results for the Sharpe ratios of weighted strategies and show empirical results for momentum strategies applied to US industry portfolios. We find that both the timing effect and the stabilizing effect of volatility weighting are relevant. We also introduce a dispersion weighting scheme which treats cross-sectional dispersion as (partially) forecastable volatility. Although dispersion weighting improves the Sharpe ratio, it seems to be less effective than volatility weighting.

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#12 – Pairs Trading with Stocks

Authors: Almeida

Title: Improving Pairs Trading

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2432061

Abstract:

This paper tests the Pairs Trading strategy as proposed by Gatev, Goetzmann and Rouwenhorts (2006). It investigates if the profitability of pairs opening after an above average volume day in one of the assets are distinct in returns characteristics and if the introduction of a limit on the days the pair is open can improve the strategy returns. Results suggest that indeed pairs opening after a single sided shock are less profitable and that a limitation on the numbers of days a pair is open can significantly improve the profitability by as much as 30 basis points per month.

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#20 – Volatility Risk Premium Effect

Authors: Israelov, Nielsen

Title: Still Not Cheap: Portfolio Protection in Calm Markets

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2579232

Abstract:

Recent equity volatility is near all-time lows. Option prices are also low. Many analysts suggest this represents a good opportunity to purchase put options for portfolio insurance. It is well-known that portfolio insurance is expensive on average, but what about in calm markets? History suggests it still is. We investigate the relationship between option richness and volatility across ten global equity indices. Option prices may be low, but their expected values tend to be even lower.

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#21 – Momentum Effect in Commodities
#22 – Term Structure Effect in Commodities

Authors: Bakshi, Bakshi, Rossi

Title: Understanding the Sources of Risk Underlying the Cross-Section of Commodity Returns

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2589057

Abstract:

We show that a model featuring an average commodity factor, a carry factor, and a momentum factor is capable of describing the cross-sectional variation of commodity returns. More parsimonious one- and two-factor models that feature only the average and/or carry factors are rejected. To provide an economic interpretation, we show that innovations in equity volatility can price portfolios formed on carry with a negative risk premium, while innovations in our measure of speculative activity can price portfolios formed on momentum with a positive risk premium. Furthermore, we characterize the relation of the factors with the investment opportunity set.

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#5 – FX Carry Trade

Authors: Maurer, To, Tran

Title: Pricing Risks Across Currency Denominations

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2589545

Abstract:

Investors based in different countries earn different returns on same strategies because the same risks covary differently with countries' stochastic discount factors (SDFs). We document that investors in low-interest-rate countries earn more than those in high-interest-rate countries on identical carry trade strategies. We propose a novel econometric procedure to estimate country-specific SDFs from foreign exchange market data. We provide out-of-sample evidence that (i) a country's interest rate is inversely related to its SDF volatility, (ii) output gap fluctuations across countries strongly correlate with estimated SDFs, and (iii) our estimated SDFs explain half of the risk in equity markets as measured by priced equity premia.

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