Stock Price Overreaction to ESG Controversies

23.November 2020

Nobody can doubt that in the recent period, ESG investing has significantly grown and is a staple part of the financial markets. The academic literature has also grown with the popularity of ESG investing. The negative, mixed and positive results for ESG scores in portfolios have evolved, and generally, there is a consent that ESG scoring can be a vital part of the portfolio management process. It can be observed that in the past, the ESG scores were not priced in the equity market and still, the ESG is not priced in the corporate bond market (apart from Europe). Nowadays, the investors react to the ESG scores, but the research paper of Cui and Docherty (2020) has novel insights that investors may react too much to the ESG. Their research shows that investors overreact to the negative ESG events and stocks connected with negative ESG events sharply fall, but the prices have mean-reverting properties. As a result, there is a reversal after bad ESG events. Stocks firstly sharply fall, but then their prices are reverted to the previous values. Therefore, this paper is interesting from the market pricing or efficiency point, but it also can be utilized by a reversal investor.

Continue reading

Novel Market Structure Insights From Intraday Data

19.November 2020

In recent years, financial markets have experienced a boom in passive and index-based strategies, which could have caused a change in the trading volume, volatility, beta or correlations. The reason is straightforward: the index investing causes a lot of stocks to move in the same direction. A novel research Shen and Shi (2020), using high-frequency data, suggests that over the last two decades, the patterns mentioned above have changed and the index investing is the cause. Both the trading volume and stock correlations are increased at the end of trading sessions. Betas are firstly dispersed, but in general, converge to one during the rest of the day. Trading volume has high dispersion at the market open, but low dispersion at the market close. Overall, the paper has many important implications for portfolio managers, risk managers and traders as well since it is closely related to the transaction costs, intraday price fluctuations, correlations or liquidity. Moreover, it is full of exciting charts that are worth seeing.

Continue reading

Can Analysts Predict Performance of the US and International Stocks?

12.November 2020

Analysts recommendations are quite puzzling topic among both practitioners and academics as well. The most important question related to the analysts is straightforward: what is the value of their recommendations? The research paper of Azvedo and Müller (2020) brings light on this topic, but also explores the relation of analysts recommendations and market anomalies. In line with other literature, it seems that the recommendations are significantly more valuable in international markets compared to the US market. While the prediction ability of analysts is not present in the US market, less developed markets and markets with higher limits-to-arbitrage are connected with valuable recommendations. Secondly, using around 200 cross-sectional anomalies, authors show that analysts are more lined up with anomaly-based composite mispricing measures in international markets. Therefore, there is not a bias from analysts to recommend overvalued stocks in global markets compared to the well-developed US market. We highlight several results and tables, but the paper is full of impressive results, ideas and tables. Therefore, we invite you to read this blog post as well as the source research paper.

Continue reading

ESG Investing in Fixed Income

5.November 2020

Corporate bonds and equities of the same firm should share the same fundamentals, but does this preposition hold for the ESG scores and their implications? In the equity market, there is convincing literature that states that ESG scores lower risks or even can improve the performance of portfolios. However, it was shown that the ESG implications could not be universally applied to all countries and their markets. Novel research by Slimane et al. (2020) examines the role of the ESG in the fixed market. The paper shows that the fixed income market is probably some years behind the equity market, but the ESG is also emerging in the fixed income. The performance of ESG outperformers compared to underperformers is continually rising. In Europe, the difference is already economically significant; the rest of the world seems to lag a little. Therefore, the ESG might have a bright future also in the corporate bond market. So far, the results are promising…

Continue reading

Quantpedia in October 2020

1.November 2020

We have listened to our audience and have prepared a new filtering field which you can use to screen strategies by regional focus.

Plus we continue to re-run some of our codes on a monthly basis systematically, 100 codes are at the moment part of this activity.

Thirteen new Quantpedia Premium strategies have been added into our database, and eleven new related research papers have been included in existing Premium strategies during last month.

Additionally, we have produced 12 new backtests written in QuantConnect code. Our database currently contains nearly 370 strategies with out-of-sample backtests/codes.

Also, five new blog posts, that you may find interesting, have been published on our Quantpedia blog:

Continue reading

Implied Volatility Indexes for European Government Bond Markets

28.October 2020

Volatility indexes are essential parts of the financial markets. They offer investable opportunities and exposure to the volatility, but most importantly, those indexes offer forward-looking measures of option-implied uncertainty. Therefore, such indexes are often used as indicators of risk or sentiment in the markets. For example, the well-known VIX index is often called the fear-index. The volatility indexes are not exclusive to the equity market. There are fixed-income option-implied volatility indexes for US Treasury futures, but the European fixed income market lacks such index. This novel research paper by Jaroslav Baran and Jan Voříšek fills this gap and proposes volatility indexes, connected to the euro bond futures using the Cboe TYVIX (US Treasury implied volatility index) (2018) methodology. As a result, the TYVIX and euro bond futures volatility indexes are directly comparable.

Authors: Jaroslav Baran and Jan Voříšek

Title: Volatility indices and implied uncertainty measures of European government bond futures

Continue reading

Subscribe for Newsletter

Be first to know, when we publish new content

    The Encyclopedia of Quantitative Trading Strategies

    Log in