Monthly Archives: June 2017

Research Review | 30 June 2017 | Searching For Alpha

US Sector Rotation with Five-Factor Fama-French Alphas
G. Sarwar (University of Greenwich), et al.
June 16, 2017
In this paper we investigate the risk-adjusted performance of US sector portfolios and sector rotation strategy using the alphas from the Fama-French five factor model. We find that five-factor model fits better the returns of US sector portfolios than the three factor model, but that significant alphas are still present in all the sectors at some point in time. In the full sample period, 50% of sectors generate significant five-factor alpha. We test if such alpha signifies a true sector out/underperformance by applying simple long-only and long-short sector rotation strategies. Our long-only sector rotation strategy that buys a sector with a positive five-factor alpha generates four times higher Sharpe ratio than the S&P500 buy-and-hold. If the strategy is adjusted to switch to the risk-free asset in recessions, the Sharpe ratio achieved is ten-fold that of the buy-and-hold. The long-short strategy fares less well.
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A Short Holiday For The Capital Spectator

Summer is here, the livin’ is easy (even if it’s still expensive), and the temptation to play hooky is too strong to resist. But the bills must be paid eventually and so this brief respite ends when the usual routine returns on Monday, June 26. Cheers!

Is Demography Destiny For US GDP Growth?

Forecasting economic activity is generally a thankless task — unless you’re using demographics as a modeling foundation, which provides a surprisingly accurate means for looking ahead. That’s good news for analysts trying to develop robust estimates of GDP growth over a medium-to-long-term horizon. But it’s also bad news if you’re expecting economic activity to accelerate on a sustainable basis.
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Book Bits | 17 June 2017

A History of the United States in Five Crashes: Stock Market Meltdowns That Defined a Nation
By Scott Nations
Review via Publishers Weekly
Nations (The Complete Book of Option Spreads and Combinations), a CNBC contributor, offers a fascinating look at five major stock market crashes: the Panic of 1907, Black Tuesday, Black Monday, the Great Recession, and the Flash Crash. Nations observes that stock market crises mean more than just tanking investment accounts. They also stop people from investing, impacting job availability and the economy as a whole. While these failures don’t have a single cause that is easy to recognize beforehand, he asserts that all five studied here share important indicators.
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