Price-Based Investment Strategies (eBook)

Adam Zaremba is Assistant Professor at the Poznań University of Economics and Business, Poland. He is an economist, adviser, and portfolio manager for investment management companies. Zaremba has written numerous research papers on financial markets and is also an individual investor with many years' experience. Koby (Jacob) Shemer is an experienced asset manager in international capital markets. He is the founder of Analyst IMS, a public asset management firm, and AlphaBeta, a quantitative asset management company. During his career, he has been responsible for managing portfolios of assets totalling billions of US dollars.

Dedication 5
Praise Page 6
Preface 10
References 17
Acknowledgments 19
Contents 20
List of Figures 22
List of Tables 29
Chapter 1: Data, Portfolios, and Performance: How We Test the Strategies 30
What Data We Use? 30
Portfolios Structure 32
Evaluation of the Strategies 35
References 39
Chapter 2: The Trend Is Your Friend: Momentum Investing 45
What Is Momentum? 45
Does Momentum Work? 46
Why Momentum Works? 53
Improving the Momentum 63
Timing the Momentum 73
Alternative Trend-Following Signals 77
Empirical Test of Momentum Strategies 85
References 97
Chapter 3: Trees Do Not Grow to the Sky: Reversals in a Stock Market 115
What Is the Reversal Effect? 115
Evidence of the Reversal Phenomenon 117
Explaining the Reversal Effect 121
Improving the Reversal Strategies 130
Empirical Test of Long-Run Reversal 131
Short-Term Reversal: A Younger Cousin? 136
References 141
Chapter 4: No Pain, No Gain? The Puzzle of Risk-Return Relationship 153
The Low-Risk Anomaly 153
Measuring the Risk 156
Standard Deviation 156
Systematic Risk Market Risk 158
Idiosyncratic Risk 160
VaR 166
Exposure to Non-market Risk Factors 167
Non-price Risks 168
Why the Low-Risk Anomaly Exists? 170
Empirical Tests of Risk-Based Strategies 175
References 184
Chapter 5: Are Stocks Lotteries? The Shape of Distribution Matters 194
The Role of the Shape of the Distribution 194
Why the Skewness Matters? 197
Measuring Skewness 199
Empirical Test of Strategies Based on Skewness 208
References 216
Chapter 6: Januaries, Mays, and Lunar Cycles: Stock Selection with Seasonal Anomalies 221
Seasonal Effects in Equity Markets 221
Calendar Anomalies in the Cross-Section of Returns 227
Empirical Tests of Cross-Sectional Seasonality Strategies 228
References 232
Chapter 7: Predicting Prices Based on… Prices? The Role of Nominal Prices 239
The Role of Raw Prices 239
Reverse Splits 242
Empirical Test of the Strategies Based on Raw Price 244
References 248
Chapter 8: To Time or Not to Time? Tactical Allocation Across Strategies 252
Diversification Across Price-Based Strategies 253
Momentum Across Anomalies 254
The Role of Long-Term Returns 256
Cross-Sectional Seasonality 256
Empirical Test of Timing the Strategies 257
References 264
Chapter 9: Conclusions 267
References 270
Index 322