Trends with (No) Benefits
square peg / round hole.
Came across a suite of trend-following ETFs in the US managing around $5 billion recently. They are all less than a year shy of a decade old and have trailed their benchmarks by a mile.
Wrote it up on StockViz here: Trends with (No) Benefits
Trend-following strategies should deliver on low-drawdown + decent returns that can be leveraged to a target volatility. And you should fund them only if the post-tax returns make sense.
Markets this Week
More here: country ETFs, fixed income, currencies and commodities.
Links
Research
Press Freedom and Systemic Risk (SSRN)
This paper investigates the role of press freedom on systemic risk. We use an international sample of banks and a comprehensive measure of press freedom that incorporates press freedom country ranking, the freedom of expression index and the number of killings of journalists. Our empirical evidence suggests that press freedom is associated with lower systemic risk in the banking sector. We show that this relationship is mitigated during the upward phase of the economic cycle, and enhanced during banking crises.
Transmission Bias in Financial News (SSRN)
We examine how financial news is distorted as it spreads across different news outlets, akin to the "telephone game". Media distortion negatively predicts the following month's abnormal returns, suggesting that transmission bias creates a stronger and more pessimistic public perception of the original story. Transmission bias mostly influences retail traders, and leads to heightened disagreement among sophisticated and unsophisticated traders.
A Skew is a Skill: Portfolio Skewness of Mutual Fund Holdings (SSRN)
The return cross-section of a mutual fund’s portfolio holdings is positively skewed on average. At the fund level, portfolio skewness varies substantially across funds yet is highly persistent over time. We show that actively managed mutual funds with high portfolio skewness outperform funds with low portfolio skewness by 2.88% on an annualized basis. Further stock-level analyses reveal that shares added or tilted to by high skewness funds relative to low skewness funds significantly outperform their counterparts, pointing to stock selection skill as an explanation for both the portfolio skewness and its predictability of fund performance.
Expected EPS × Trailing P/E (SSRN)
Most analysts use a trailing P/E (price-to-earnings) ratio not a discount rate. Instead of computing the present value of a company’s future earnings, they ask: “How would a firm with similar earnings have been priced last year?” Trailing twelve-month P/E ratios account for 91% of the variation in analysts’ price targets. We construct a new kind of asset-pricing model around this fact and show that it explains the market response to earnings surprises.
The Anatomy of Lost Stock Market Decades (SSRN)
This paper examines whether lost periods, defined as a stock market index level not reaching a new high for at least ten years, is a frequent phenomenon for G7 stock markets. Results indicate that lost periods do consistently exist and alternate regularly with bull periods.
Investing & Economy
The kleptocrats aren’t just stealing money. They’re stealing democracy (ft)
India
The Indian residential real estate market is seeing a significant influx of investors, a trend that experts believe is crowding out genuine homebuyers and end-users. (cnbctv18)
Small-town India is jet-setting overseas like never before (livemint)
After four years of restrictions on Chinese investments and visas, Prime Minister Narendra Modi's government is looking to pivot closer to the Asian rival and breathe new life into his ambitions to "Make in India". (reuters)
India’s iPhone Exports Skyrocket (swarajyamag)
Apple set to grab biggest bite of made-in-India semiconductors; in talks with Micron, Tata Group to source chips worth $12 billion (financialexpress)
Dixon to make laptops, computers for HP in India at a factory in Tamil Nadu (economictimes)
Amazon eyes $5 billion in sales from Indian exporters this year in bid to move away from China sourcing (livemint)
Israel Seeks 15,000 Skilled Indian Workers In Second Round Of Recruitment Drive (swarajyamag)
Nearly 62,000 of cases pending in high courts are over 30 years old (cnbctv18)
Cops arrest 4 GST officials for kidnapping and extorting (timesofindia)
RoW
Mexico’s Senate has approved a radical plan to have voters elect all its judges. The plan means about 7,000 state and federal judges will be fired — including the entire supreme court — and replaced in two elections: half in 2025 and half in 2027. It also gives the government broad powers over the selection of candidates and loosens the experience and qualification required for the roles. (ft)
VW illustrates the giant, ticking time-bomb at the heart of Europe’s economic model. (threadreaderapp)
Oracle is designing a data center that would be powered by three small nuclear reactors (cnbc)
China's online retailers Shein, Temu in focus as US aims to plug trade "loophole" (reuters)
China’s Deflationary Spiral Is Now Entering Dangerous New Stage (bloomberg)
Developing economies counter Beijing’s export boom with tariffs (ft)
As cheap Chinese imports flood Southeast Asia, industries struggle to stay afloat (scmp)
You can buy a diamond-making machine for $200,000 on Alibaba (arstechnica)
Massive oil, gas reserves found in Pakistani waters (thehindu)
Sweden To Offer Immigrants $34,000 To Leave Country (newsweek)
Odds & Ends
How Machines Learned to Discover Drugs (newyorker)
Man Arrested for Creating Fake Bands With AI, Then Making $10 Million by Listening to Their Songs With Bots (futurism)
Why AI Can Push You to Make the Wrong Decision at Work (brainfacts)
How Long Til We’re All on Ozempic? (asteriskmag)
Meme of the Week
