Factor investing

Pre-Election Drift in the Stock Market

23.January 2020

There are many calendar / seasonal anomalies by which we can enhance our strategies to gain more return. One of the least frequent but still very interesting anomalies is for sure the Pre-Election Drift in the stock market in the United States. This year is the election year, and public discussion is getting more heated. The current president of the United States and candidate for re-election, Donald Trump, is a peculiar figure who split the population of the United States into two parts, ones who hate him and those who love him. We can probably expect volatile market moves as we will move closer to this year’s presidential election. But this post will not be about politics but about trading. In this post, we will try to uncover a pattern in historical data that shows significant market moves a few days before elections…

Authors:Vojtko, Cisar

Title:Pre-Election Drift in the Stock Market

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Top Ten Blog Posts on Quantpedia in 2019

29.December 2019

The end of the year is a good time for a short recapitulation. Apart from other things we do (which we will summarize in our next blog in a few days), we have published around 50 short blog posts / recherches of academic papers on this blog during the last year. We want to use this opportunity to summarize 10 of them, which were the most popular (based on Google Analytics tool). Maybe you will be able to find something you have not read yet …

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Quant’s Look on ESG Investing Strategies

13.December 2019

ESG Investing (sometimes called Socially Responsible Investing) is becoming a current trend, and its proponents characterize it as a modern, sustainable, and responsible way of investing. Some people love it, others see it as just another fad that will soon be forgotten. We at Quantpedia have decided to immerse in academic research related to this trend to understand it better. How are ESG scores measured? What are the common problems in ESG data? Are there any systematic ESG factor strategies that offer outperformance? These are some of the areas we wanted to explore, and we invite you on this journey with us …

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Popularity Asset Pricing Model

19.November 2019

Professor Roger Ibbotson is one of the most respected and influential researchers of the current era. His book “Stocks, Bonds, Bills, and Inflation” is a classic and often serves as a reference for information about capital market returns. Therefore we always pay attention to his publications. His actual work, “Popularity – A Bridge between Classical and Behavioral Finance”, which is written with Thomas M. Idzorek, Paul D. Kaplan, and James X. Xiong, is now available on SSRN.

In their work, authors explain the term “Popularity” from an asset pricing point and show how “Popularity” can be a broad umbrella under which nearly all market premiums and anomalies (including the traditional value and small-cap) can fall. They develop a formal asset pricing model that incorporates the central idea of “Popularity”, which they call the “popularity asset pricing model” (PAPM). Based on this model, they predict characteristics as a company’s brand, reputation, and perceived competitive advantage to be new equity factors.

It’s a long read, but we at Quantpedia really recommended it for all equity portfolio managers …

Authors: Ibbotson, Idzorek, Kaplan, Xiong

Title: Popularity: A Bridge between Classical and Behavioral Finance

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Three Methods to Fix Momentum Crashes

12.November 2019

Everyone who lived during the 2007 and 2009 crisis knows what the biggest weakness of the equity momentum strategy was. It was right during the spring of 2009 when the financial markets were on its inflection point when the momentum strategy crashed. Right after that inflection point, stocks which were the biggest losers during the previous year performed exceptionally well and caused strong under-performance of classical long-short momentum strategy. How can we prevent this situation from happening again? That’s the topic of our favorite new recent study written by Matthias Hanauer and Steffen Windmueller. They analyze three momentum risk management techniques – idiosyncratic momentum, constant volatility-scaling, and dynamic scaling, to find the remedy for momentum crashes. It’s our recommended read for this week for equity long-short managers …

Authors: Matthias Hanauer and Steffen Windmueller

Title: Enhanced Momentum Strategies

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Commodity Futures Risk Premium – Historical Analysis

17.October 2019

We at Quantpedia absolutely love long-term studies, and academic research paper written by Bhardwaj, Janardanan, and Rouwenhorst is really exceptional. There are a lot of studies covering a long history of equity and bond markets. But futures markets are not covered so well, and that’s the reason why is this paper so valuable. An additional plus is that study covers also delisted contracts, which makes the study’s data quality even better. Quantpedia’s recommended read to anyone interested in asset allocation into commodities …

Authors: Bhardwaj, Janardanan and Rouwenhorst

Title: The Commodity Futures Risk Premium: 1871–2018

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