Evidence Investing

Rotate What?  - (3/18/10)
Just the basic intro and definitions of an asset rotation based system.

Asset Allocation  - (3/25/10)
Introducing some of the basics of Tactical Asset Allocation...
Specifically the three main ways of asset allocation that are evidenced based:

1. Momentum
2. Moving Average
3. Yield Curve

 The Model:  Framework -  (5/10/10)
The basic frame work on how we are going to move toward discoving our ultimate model:

• How do we measure momentum?
• What time period of data do we use to measure momentum?
• How often do we rebalance the portfolio?
• On what day of the month (week/year) do we rebalance the portfolio?
• What universe of securities should we use?
• Can we go both long and short?
• Should we use a skip month/period?
• What can we do to further maximize the model?

Momentum Evidence 1.1 - (4/1/10)
#1: Summary of the concept of Momentum:    “The Case for Momentum Investing” (Moskowitz), including a very convincing summary graph of out-performance by high momentum stocks.

#2: Review of  “Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency”   It shows:

• Trading strategies that buy past winners and sell past losers realize significant abnormal returns over 1965 to 1989 period.
• The tested momentum strategy realizes a compounded excess return of 12.01% per year.

 Momentum Evidence 1.2 - (4/9/10)
#3: Review of “Profitability of Momentum Strategies: An Evaluation of Alternative Explanations.”  This paper shows:

• Momentum profits have continued in the 1990's
• Momentum cannot be explained by other phenomena (such as size, liquidity, etc)

 #4: Review of “Dissecting Anomalies.” (by Fama).  This paper shows:

• Momentum (and net stock issuance) exhibit the strongest average regressions across all size groups. 
• Momentum is one of the few effects that has withstood the test of time
• Momentum cannot be captured by their three factor model

 Momentum Evidence 1.3 - (4/12/10)
#5: Review of “Momentum Profits, Non-Normality Risks and the Business Cycle.”  This paper shows:

• Momentum profits are not normally distributed
• Abnormal profits are pervasive across nine momentum trading strategies
• Standard deviation is also smaller for past winners/momentum

#6: Review of “Momentum Profits, Factor Pricing, and Macroeconomic Risk.” This paper shows:

• Average winner-minus-loser (momentum) has excess return of 0.85% per month. 
• Winners have temporarily higher average future growth rates of dividends, capital investment and sales

Momentum Evidence 1.4 - (4/20/10)
#7:  Review of “Momentum Strategies in Commodities Futures Markets.”  This paper shows:

• Momentum exists in commodity futures, with the average momentum strategy yielding 9.38% and the most profitable strategy yielding about 15%       
• Momentum  is persistent across time
• Momentum strategies effectively use backwardation and contagion
• Correlations between stock/bond momentum strategies and commodity momentum strategies are low

Momentum Evidence 1.5 - (5/03/10)
#8:  Review of “Relative Strength Strategies for Investing.”  This paper shows (among many things):

• This paper uses 80 years of data in 10 US equity sectors
• This type of momentum strategy outperforms buy-and-hold in over 70% of the years
• Increased Sharpe ratios in every case (each of the ranking/holding periods tested)
• Decreased draw-downs and increased total return
• Average out-performance of 3.25% to 5.5% over buy-and-hold