A Few Reads

I gave a talk in Seattle on Friday, and one of my slides is the Keynes quote “When the facts change I change my mind, what do you do sir?”.  The quote is referring to people still holding onto the belief that selecting stocks based on dividends is the best way to form a portfolio.  Anyways, summary of a Q&A with Jeff Bezos and 37 Signals (Which is the opposite of all of the political debating you hear out of Washington tonite.)

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If you receive The Idea Farm emails you should know we added a blog page to archive the old emails (eventually will go behind a login).  One of my favorites this weekend is from AQR, check it out here:

20% Returns for 100 Years

and for another point of view…

In the same ballpark, here is a paper from Baltas and Kosowski: Momentum Strategies in Futures Markets and Trend-following Funds.  (My bolding.)

Abstract

In this paper we study time-series momentum strategies in futures markets and their relationship to commodity trading advisors (CTAs). First, we construct one of the most comprehensive sets of time-series momentum portfolios by extending existing studies in three dimensions: time-series (1974-2012), cross-section (71 contracts) and frequency domain (monthly, weekly, daily). Our time- series momentum strategies achieve Sharpe ratios of above 1.20 and provide important diversification benefits due to their counter-cyclical behaviour. We find that monthly, weekly and daily strategies exhibit low cross-correlation, which indicates that they capture distinct return continuation phenomena. Second, we provide evidence that CTAs follow time-series momentum strategies, by showing that time-series momentum strategies have high explanatory power in the time-series of CTA returns. Third, based on this result, we investigate whether there exist capacity constraints in time-series momentum strategies, by running predictive regressions of momentum strategy performance on lagged capital flows into the CTA industry. Consistent with the view that futures markets are relatively liquid, we do not find evidence of capacity constraints and this result is robust to different asset classes. Our results have important implications for hedge fund studies and investors.