One new strategy has been added:
#260 – Trend Following in Commodity Calendar Spreads
Six new related research paper have been included into existing strategy reviews. And four additional related research paper have been included into existing free strategy reviews during last 2 weeks.
Authors: Schizas, Thomakos
Title: Market timing using asset rotation on exchange traded funds: a meta-analysis on trading performance
Link: http://businessperspectives.org/journals_free/imfi/2013/imfi_en_2013_02cont_Schizas.pdf
Abstract:
The ultimate goal of any “paper” investment strategy is to achieve real-life profitability. This paper measures the performance of a trading rule based on the relative pricing and relative volatility of a rotation strategy between two assets, using data from passive ETFs. To avoid problems of pair selection we work with meta-data obtained after the evaluation of a large number of 351 pairs of ETFs. In this way the authors analyze the performance of the proposed strategy on the cross-section of different ETFs. The results show that rotation trading, as applied in this paper, offers advantages even when the simplest model is used in generating trading signals. Furthermore, the authors find that the differences in the actual mean returns (over the evaluation period), the correlation of the pair components and to (a lesser extend) the volatilities of the ETFs can explain the success of the rotation strategies.
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Related research paper has been included into existing free strategy review.
#100 – Trading WTI/BRENT Spread
Authors: Lubnau
Title: Spread trading strategies in the crude oil futures market
Link: http://econstor.eu/bitstream/10419/96520/1/783913591.pdf
Abstract:
This article explores whether common technical trading strategies used in equity markets can be employed profitably in the markets for WTI and Brent crude oil. The strategies tested are Bollinger Bands, based on a mean-reverting hedge portfolio of WTI and Brent. The trading systems are tested with historical data from 1992 to 2013, representing 22 years of data and for various specifications. The hedge ratio for the crude oil portfolio is derived by using the Johansen procedure and a dynamic linear model with Kalman filtering. The significance of the results is evaluated with a bootstrap test in which randomly generated orders are employed. Results show that some setups of the system are able to be profitable over every five-year period tested. Furthermore they generate profits and Sharpe ratios that are significantly higher than those of randomly generated orders of approximately the same holding time. The best results with some Sharpe ratios in excess of three, are obtained when a dynamic linear model with Kalman filtering and maximum likelihood estimates of the unknown variance of the state equation is employed to constantly update the hedge ratio of the portfolio. The results indicate that the crude oil market may not be weak-form efficient.
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Related research paper has been included into existing free strategy review.
#33 – Post-Earnings Announcement Effect
Authors: Kwon, Kim
Title: Investment Horizon of Shareholders and Post-Earnings-Announcement Drift
Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2545189
Abstract:
We hypothesize that post-earnings-announcement drift (PEAD) is caused by underreaction of long-term investors since they do not pay much attention to short-term events. Consistent with the hypothesis, empirical observations show that stocks mostly held by long-term investors exhibit strong PEAD, while stocks mostly held by short-term investors does not. The results are still robust even after transaction costs, investor recognition, temporal inattention, and reversal in earnings surprises are controlled for.
Notable quotations from the paper:
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Related research paper has been included into existing free strategy reviews.
#5 – FX Carry Trade
#8 – FX Momentum
#9 – FX Value – PPP Strategy
Authors: Pojarliev, Levich
Title: A New Look at Currency Investing
Link: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2571391
Abstract:
The authors of this book examine the rationale for investing in currency. They highlight several features of currency returns that make currency an attractive asset class for institutional investors. Using style factors to model currency returns provides a natural way to decompose returns into alpha and beta components. They find that several established currency trading strategies (variants of carry, trend-following, and value strategies) produce consistent returns that can be proxied as style or risk factors and have the nature of beta returns. Then, using two datasets of returns of actual currency hedge funds, they find that some currency managers produce true alpha. Finally, they find that adding to an institutional investor’s portfolio even a small amount of currency exposure — particularly to alpha generators — can make a meaningful positive impact on the portfolio’s performance.
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Quantpedia Update
Two new strategies have been added:
#258 – FX Value v2 – Real Exchange Rate Changes
#259 – FX Value v3 – Real Exchange Rate Levels
Three new related research paper have been included into existing premium strategy reviews.
And three new related research paper have been included into existing free strategy reviews.
