Markets in Turmoil
are they?
Seems like the bull run that started in July 2022 is coming to an end.
The question on everyone’s mind is whether it is going to be shallow/swift drawdown or a deep/prolonged one. Nobody knows for sure.
In a bull market, everything you do to reduce risk seems like a waste of money, time and effort. And most of the time, it is true. It is like carrying a spare tyre in your car. It consumes space, fuel and effort and is useless most of the time. The value of risk management, like the spare tyre’s, becomes apparent only when something catastrophic happens.
Case in point is the return differential between our Momentum strategy (rebalanced once a month) vs. it’s trend overlaid derivative - Tactical Momentum.
Tactical Momentum (red line) has seen more whipsaws than a Texas rodeo and has given up more than 8% in returns trying to find a floor. Thanks to it being in cash since the end of September, it has sidestepped the current collapse in momentum stocks. However, its benefit will only become apparent if the markets continue to correct. Otherwise, it is one more whipsaw where being long would’ve proved right, in hindsight.
Market Gods are not going to serve you up a free lunch. You need to figure out what you want out of your investments and make peace with it.
Markets this Week
More here: country ETFs, fixed income, currencies and commodities.
Links
Research
Predicting Anomalies (SSRN)
We show that stock returns follow predictable patterns before the publication of anomaly trading signals. Moreover, anomaly trading signals derived from financial data are themselves predictable, making it possible to trade before financial statements are released. In recent periods this predictability is concentrated in signals that are harder to forecast and returns are increasingly earned several quarters before signals are released. Our findings suggest anomalies are more anomalous than previously recognized.
Cross-Market Intraday Time-Series Momentum (SSRN)
The US stock market's last half-hour return predicts the next day's first half-hour stock returns in international markets.
Interday Cross-Sectional Momentum (SSRN)
We examine whether half-hour returns predict half-hour returns on subsequent days at the firm level. We show that interday cross-sectional momentum (ICSM) exists in all markets of our sample. It is most pronounced during the last half hour of a trading day. In the previously studied U.S. market, ICSM has become weaker. We find that ICSM is stronger when volatility is low, and absolute overnight returns are small, while liquidity has no significant effect. Finally, we show that international investors can save transaction costs of economically significant size by strategically timing trades based on ICSM.
Enhancing the High-Volume Return Premium (SSRN)
We suggest a novel trading strategy that can enhance the high-volume return premium (HVRP) in the US stock market. The key point is that by applying the HVRP strategy to stocks that have a negative contemporaneous correlation between return and volume changes (CCRV), the strategy takes advantage of additional returns generated during the trading volume mean reversion process.
Feeding the Tigers (NBER)
This paper estimates and quantifies the impact of the diaspora remittance flows on the conflict intensity and outcomes in the Sri Lankan Civil War during the period 1996-2009. Our main quantitative finding is that remittances had a significant impact on the timing of the central government victory, and were a substantially more important component of the military strength of the Tamil Tigers than of the government. Remittances that favored the Tamil Tiger rebels may have prolonged the war by as much as 14 years.
Investing
India
Income and consumption are stagnating among the Indian middle-classes. The classic K-shaped GDP growth recovery after Covid has led to an equally K shaped consumption pattern where premium segments are doing well but the middle segment is tepid. (thewire, cnbctv18)
India's last 100-150 million 2G customers are unlikely to transition to 4G or 5G anytime soon. Existing 2G customers don't want to move to smartphones because of the high prices of devices and preference for featurephones. For users from the lowest economic strata, tariffs would be high even though they're among the lowest in the world in India. (livemint)
No startup’s too small to IPO in a bull market (livemint)
row
The BRICS Still Don't Matter (fa-mag)
TikTok was designed with the express intention of addicting young people to the app and the multi-billion-dollar company deceived the public about the risks. (npr)
Odds & Ends
Feeding a baby born by caesarean section milk containing a tiny bit of their mother’s poo introduces beneficial microbes to their gut. (nature)
Surgeons Are Wearing The Apple Vision Pro In Operating Rooms (time)
Drone Warfare’s Terrifying AI-Enabled Next Step Is Imminent (twz)
Meme of the Week
