Practical academic paper related to #100 - Trading WTI/BRENT Spread Monday, 6 July, 2015

#100 - Trading WTI/BRENT Spread

Authors: Donninger

Title: The Poverty of Academic Finance Research: Spread Trading Strategies in the Crude Oil Futures Market

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2617585

Abstract:
Harvey, Liu and Zhu argue that probably most of the Cross-Section of Returns literature is garbage. One can always try an additional factor and will find a significant Cross-Sectional result with enough trial and error. Lopez de Prado argues in a series of articles in a similar vein. Theoretically scientific results are falsifiable. Practically previous results and publications are checked only in rare occasions. Growth in a Time of Depth by Reinhart-Rogoff was the most influential economic paper in recent years. It was published in a top journal. Although the paper contained even trivial Excel-Bugs it took 3 years till the wrong results and the poor methodology was fully revealed. The reviewers did not check the simple spreadsheets. This paper analyzes a less prominent example about spread trading in the crude oil futures market by Thorben Lubnau. The author reports for his very simple strategy a long term Sharpe-Ratios above 3. It is shown that – like for Reinhart-Rogoff – one needs no sophisticated test statistics to falsify the results. The explanation is much simpler: The author has no clue of trading. He used the wrong data.

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New related paper to #118 - Time Series Momentum Effect Monday, 29 June, 2015

#118 - Time Series Momentum Effect

Authors: Georgopoulou, Wang

Title: The Trend is Your Friend: Time-Series Momentum Strategies Across Equity and Commodity Markets

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2618243

Abstract:
Using a dataset of 67 equity and commodity indices from 1969 to 2013, this study documents a significant time-series momentum effect across international equity and commodity markets. This paper further documents that international mutual funds have a tendency to buy instruments that have been performing well in recent months, but they do not systematically sell those that have been performing poorly in the same periods. We also find that a diversified long-short momentum portfolio realizes its largest profits in extreme market conditions, but the market interventions by central banks in recent years seem to challenge the performance of such portfolios.

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New related paper to #8 - FX Momentum Wednesday, 24 June, 2015

#8 - FX Momentum

Authors: Grobis, Heinonen

Title: Is Momentum in Currency Markets Driven by Global Economic Risk?

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2619146

Abstract:

This article documents a robust link between the returns of the momentum anomaly implemented in currency markets and global economic risk, measured by the currency return dispersion (RD). We find the spread of the zero-cost momentum strategy to be significantly larger in high RD states compared to low RD states. The relation between momentum payoffs and global economic risk appears to increase linearly in risk. Notably, the results provide strong evidence that the same global economic risk component is present in equity markets.

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One more practical research paper related to #20 - Volatility Risk Premium Effect Thursday, 18 June, 2015

#20 - Volatility Risk Premium Effect

Authors: Donninger

Title: Hedging Adaptive Put Writing with VIX Futures : The Affenpinscher Strategy

Link: http://www.godotfinance.com/pdf/AffenPinscherStrategy_Rev1.pdf

Abstract:

In a previous working paper I analyzed the Austrian and Doberman Pinscher strategy. The Austrian is an adaptive Put Writing strategy. One hedges the short position with a long Put with a lower strike. The Doberman is more aggressive. The long hedge is omitted. The risk is in both cases reduced by entry and exit conditions. The Affenpinscher uses the same general framework. But the hedging is done with long VIX Futures. There are several VIX Futures available. One selects the VIX Future with the lowest roll-value. The overall performance of the Affenpinscher is between the Austrian and Doberman Pinscher. The Pinscher strategies have generally an attractive performance. The best choice within the family is a matter of risk appetite. Revision 1 extends the historic simulation for the SPX Options till 2014-06-13.  As the original parameters are not changed we perform an out of sample test. The attractive properties of the strategy  are confirmed. Revision 1 is added before the Conclusion of the original paper. A similar update has been done for the other Pinscher strategies.

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Two practical related papers to #198 - Exploiting Term Structure of VIX Futures Monday, 15 June, 2015

#198 - Exploiting Term Structure of VIX Futures

Authors: Donninger

Title: Selling Volatility Insurance: The Sidre- and Most-Strategy

Link: http://www.godotfinance.com/pdf/VIXFuturesTrading_Rev1.pdf

Abstract:
This working-paper examines and improves a VIX-Futures calendar-spread strategy proposed in the literature. The strategy relies on the typical term-structure of VIX-futures. Additionally a naked short-selling strategy is considered. The strategies have similar  characteristics to selling Puts on the S&P-500. There is some risk, but also a lot of fun.  The strategies are  an interesting alternative investment-vehicle to boost the performance of a fund.

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Authors: Donninger

Title: VIX Futures Basis Trading: The Calvados-Strategy 2.0

Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2379985

Abstract:

I developed in a previous working paper the Sidre and Most-Strategy. The strategy relies on the typical termstructure of VIX futures. The Calvados is a refined and condensed version of these strategies. The starting point was a paper of Simon and Campasano. The authors demonstrate that the VIX futures basis does not have significant forecast power for the change in the VIX spot index, but does have forecast power for subsequent VIX futures returns. It is especially profitable to short VIX futures contracts when the basis is in contango. The original Calvados working paper presented improved metrics and parameter settings of the Simon&Campasano approach. The current working paper improves the original work in several points and extends the historic backtest. The overall patterns of the original results are reassured and improved upon. The Calvados is traded in the Sybil-Fund. It is so far the pick of the bunch. One gets a lot of fun for a medium dose of risk.

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