Shiller using the P/E Ratio to predict the “Lost Decade” in 1996 – and being wrong

From Wes’ excellent research digest: The theory that the stock market is approximately a random walk does not look right at all: Figure 1 is a (log-log) scatter diagram showing for each year 1901–1986 the ratio of the real Standard and Poor Index ten years later to the real index today (on the y axis) versus a certain price–earnings ratio: the ratio of the real Standard and Poor Composite Index … [Read more...]

Out-of-Sample Backtesting of Calendar Effects on the STI, Interaction with Momentum

I have published my philosophical thoughts on Calendar Effects in my CFDAlert white paper previously. This was before I was able to extend my data back a further 10 years. If you are new to the blog and have not read my abstract: the current Calendar Effect strategy I adopt is the most naive I can imagine. It is based on the empirical observation that odd-numbered years and Decembers reject the … [Read more...]

The After-Cost Effect of Daily Follow-Through

[unable to retrieve full-text content]I have examined the naive DFT strategy in a prior post. Only recently have I been able to quantify just how astounding the figures are if you trade the strategy cost-free. Starting with $2,000 in 1975, you end up with $3.4 billion dollars at 31 Aug 2011 – a rate of compounding of 31%, and that’s [...] … [Read more...]

Something Rotten in The State Of Data

For a long while now something has smelled fishy in my extensive backtesting of Bloomberg-sourced data, and today I have finally tracked it down: If you check out my amateurishly maintained, hand collected data pulled off from Bloomberg you will see that I keep separate track of Price time series as well as Total Return Index (“Trice” for short) time series. The idea is that, of course, if you are … [Read more...]

The Importance of Accounting for Trading Costs

Posted by Student on August 28, 2011 Accounting for trading costs is in my book the top failure of most technical analysts: If you have a signal that generates a high zero-cost return, but trades so often that you definitely incur a lot of commissions, do the costs eat up all of the returns? Because of the highly nonlinear structure of brokerage/commission costing systems there is often no … [Read more...]

I’m Back – A General Update

This month I embarked on a “Golden Month” of research – and I had NO idea what was in store both in live trading and in research. Live Trading – Our CFDAlert system took heavy damage after the S&P downgrade but we severely cut down risk by August 5. No changes to the signals have come since then as the markets continue to look bearish without end. I chuckle when I hear people panicking and … [Read more...]

On Robots, Short-Sellers, and Insider Trading

This week has given rise to a host of extremely odious arguments from non-finance specialists, media people, and regulators. People who do not think and therefore, per Descartes, should not exist. I here use my soapbox to share thoughts with my readers who deserve better. Robots. People have raised the specter of HFT/algo trading to explain the volatility. You cannot prove a negative, but you can … [Read more...]

Banging The Close

Posted by Student on August 10, 2011 One last qualitative piece, for this month. What to make of market reaction to the FOMC statement, and where will sentiment go from here? I don’t know. People in finance don’t say that enough. But we guess because we have to. Even inaction is an action, and we all would prefer to have our actions based on fact/knowledge/theory instead of chance. As Ken Arrow … [Read more...]

Close Out Your Shorts TODAY; Watch For Bernanke Put

Sorry if you are only here for my quantitative material, but I feel compelled to put out a qualitative opinion for the record. Be greedy when others are fearful, and fearful when others are greedy. If you have been a short seller then you are the proud owner of some wonderful profits. Here are a few short ideas I have discussed on this site: I have closed out all my shorts. When you have a … [Read more...]

Is There A National Day “Rally” Effect?

Posted by Student on August 6, 2011 Now that the downgrade we discussed in CFDAlert (on July 20, in an unposted email “Suddenly Everyone Is So Happy! Buy!!”, and in The Coming US Downgrade) has happened, it is a very open question what will happen to our markets on Monday as the STI will be acting without its usual guidance from the US. I thought it might be interesting to have a look to see if … [Read more...]

What Happens After A 4% Drop In The STI?

Posted by Student on August 5, 2011 Since 1975 the STI has dropped >4% on 52 occasions. Here is how they look on subsequent days: You can clearly see those dates on the right hand site closely correspond to the periods of high volatility, of the good kind as well as the bad kind (the full list of 52 dates got cut off, sorry). We can make the chart less messy by taking only averages: Which … [Read more...]

Singapore Comes In World #1 In Demographic Forecast Of Stock And Bond Markets

Posted by Student on August 4, 2011 I got a minor shock when I found these two charts: This is a Research Affiliates paper so it carries extremely high credibility. The paper arrives at this forecast via a complicated route – forecasting GDP per capita growth instead of simply GDP. Also it takes the assumption that “Young people are focused on investing in stocks and providing goods and … [Read more...]

X-Div: Raffles Class

Don’t tell anyone, but a big part of today’s sizable 38 point drop in the STI surely had NOTHING to do with: the US debt crisis the US PMI crisis the US employment situation crisis the EU debt crisis the China overheating crisis the Japan reality denial crisis the Australian housing crisis the Brazilian stock market crisis your favorite crisis of the moment What’s more, today’s drop was largely … [Read more...]

PDT Notes SG: Post-IPO Pricing Paths

Posted by Student on July 28, 2011 Is there any quantifiable pattern to how newly listed stocks perform after IPO? I have been meaning to do this particular study for a while now although I was held up by a big question of how to obtain and then properly organize the relevant data. I think I have worked out enough right now that I can give it a go. The best source of information on Singapore … [Read more...]

Tiger: The Customers Speak

Boy, have I been wrong in “having little doubt that the stock price will go down from $1.18” (and that is what I love about the financial markets). I’m not afraid to be wrong; I’m afraid to be wrong and not learn from being wrong. With CASA suddenly cooperative with Tiger (contra to some reports, today’s adjournment was requested by both parties, not just Tiger), the odds that the ban will be … [Read more...]

R Sivanithy’s Divine Comedy

In Part I of Dante Aligheri’s Divine Comedy, Inferno, there goes a quote that says something to the effect of: so full was I of slumber at that point where I abandoned the true way. (Canto I) I am reminded of this when I read R’s Market Commentary today, in which he says this: SGX Market CommentaryPublished July 27, 2011 STOCKSSTI continues to anticipate Wall StIndex advances 15 points despite … [Read more...]