A Quant Approach to Bracketology

An article in the New York Times, "Don't Always Follow the Crowds", gives some advice on how to pick your bracket. Lots of positive implications in the professor's research for my alma mater, a #4 seed. . .And an interesting study in predictive markets is PicksPal. Predictive markets fascinate me, but I always assumed that since the users had...

Hedge Funds Levering Betas

In a previous post, we examined how a simple passive asset allocation and a more active strategy could perform in-line with the hedge fund indices. In their Daily Observations from January, Bridgewater examines the AUM at hedge funds and their leverage ratios (which have increased by 70% in the past few years). Great read.And, another Faber talks about "A...

Managed Futures. . . .Finally

I made a list a few years ago of ETFs/CEFs I would like to see hit the marketplace. Most of the products were simple alternative strategies that could be replicated with a systematic process. Bridgewater ("Hedge Funds Selling Beta as Alpha") and the Partners Group ("Factor Modelling of Hedge Funds") have some good research on the subject.Managed...

Biotech Stock Performance Around Critical Events

In her 2001 book "From Alchemy to IPO" Cynthia Robbins Roth cites a Hambrecht & Quist study of biotech stock movement surrounding clinical trial results (Phases I-III) and FDA approvals. The study examined the 12 months prior to and following the "event".Is anyone aware of such a study performed elsewhere that is more recent and/or comprehensive (I remember the...

Cross-Market Momentum Follow Up

Kudos to CXO who summarized the paper "Class OutPerformance (COP) Strategy". The author studied the effects of 1 year rolling cross-market momentum strategy updated monthly with 50 asset classes. Similar to my findings, the portfolio consisting of the top 20% of the asset classes outperformed the S&P500 with less risk. You can read the paper here.

Mean Reversion Follow-Up (Or, the Political Uncertainty Portfolio)

In a previous study, I examined the results of investing in equity markets when they experienced negative years X years ago. The chart below re-summarizes those findings:Were there any global equity markets that were down in 2004 or 2005? I track roughly 50 countries, and the results are below:Iran (2005)Peru (2004, just barely)Thailand (2004, and 2006)Venezuela (2005)The only country,...

Option Selling Funds

Are option selling funds a blowup waiting to happen?For the past few years there has been a proliferation in option selling CTAs. These funds, while wildly different in their trading methodology, generally sell options on the US stock indices. This tactic produces very strong risk adjusted numbers - as evidenced by these funds dominating the Sharpe rankings...

Best Ideas Hedge FOF

I have examined a few different ways of cobbling together portfolios from hedge fund 13Fs:1. Consensus - Putting together a portfolio of names that are owned by multiple funds.2. Replication - Replicating a single fund with its top 10 holdings.3. Conviction - The Morgan Stanley study that bought companies with a high %age of their shares owned by a...

Got That Sinking Feeling?

The equity markets took a big whoosh down today, and many other asset classes suffered as well:That's what market pundits talk about when they say that all correlations go to 1 when the market is declining. Bonds were up on the day, but that's not much solace when your equity funds are down 4%. As taken up by Nelson...

The Long Lasting Momentum in Weekly Returns

Link to this paper is here. "While prior studies examine the performance of stocks with extreme weekly returns for only a few weeks, which is the duration of the reversal, momentum profits emerge several weeks after an extreme return and persist over the remainderof the year. The momentum that we document easily offsets the brief and initial reversal in...