Market timing

At the moment, there is a lot of attention surrounding overnight anomalies in various types of financial markets. While such effects have been well documented in research, especially in US equities and derivatives, there are other asset classes that are not as well addressed. A recent (2022) paper from Jiang, Luo, and Ye contributed appealing evidence in favor of validating these phenomena in the Chinese market. We highlight the finding that the market MKT factor beta premium is earned exclusively overnight and tend to reverse intraday (and in smaller potency also value HML and profitability RMW), which is the same finding as for the US equities. In contrast, the size SMB factor exhibit significantly opposite pattern: positive intraday premium and negative overnight premium (and the same for investment CMA factor).

The summer is slowly approaching; therefore, our new article will be on a little lighter tone. We will examine a research paper on a periodic event with sentiment implications. The authors (Abudy, Mugerman, Shust) focused on a specific song competition – the Eurovision Song Contest, an international song competition organized annually. They examined a positive swing in investor mood in the winning country the day after the Eurovision Song Contest and documented an average abnormal return of 0.381%. On the contrary, they did not find any negative sentiment in other participating countries.

Diversification is one way of minimizing the risk of a portfolio. A well-diversified portfolio contains numerous assets from various sectors, each having a small weight so that a crash of any individual security does not hit the entire portfolio. The authors behind this paper came up with a new idea for diversifying stock portfolios. They examined new emerging asset, carbon futures.

This second article offers a different look at high inflation periods, which we already analyzed in What’s the Best Factor for High Inflation Periods? – Part I. The second part looks at factor performance during two 10-year periods of high inflation. What’s our main takeaway? The best hedge for a high inflation period is the value or momentum factor. Other promising factors (energy sector, small-cap stocks, or long-run reversal) don’t perform as consistently as value and momentum.