Journal of Investment Strategies

Ali Hirsa
Professor, Columbia University & Managing Partner, Sauma Capital LLC

Welcome to the fourth issue of the tenth volume of The Journal of Investment Strategies, which contains three research papers.

In our first paper, “Portfolio rebalancing, conflicts of interest of delegated investment management and seasonality in Canadian financial markets”, George Athanassakos presents a statistical study of seasonality in the returns of Canadian equity and government bond indexes for the period 1957–2018. He examines whether seasonality was present and persistent in the returns not only of risky securities but also of risk-free securities by looking at Canadian stock and government bond indexes that are frequently used in academic and practitioner-based research. He also tests the validity of the popular expression “sell in May and go away”. Athanassakos used these tests as a foundation to support portfolio rebalancing by professional portfolio managers as the determining factor that drives security return seasonality. The paper includes a well-documented and comprehensive fundamental analysis of rebalancing, seasonal and window-dressing effects. The statistical tests are applied in a rigorous process and the results are effectively interpreted and clearly presented.

In the issue’s second paper, “Abnormal returns and stock price movements: some evidence from developed and emerging markets”, Guglielmo Maria Caporale and Alex Plastun investigate the impact of abnormal returns on stock prices by using daily and hourly data for developed markets (the United States, the United Kingdom and Japan) and emerging markets (China and India) over the decade from January 1, 2010, to January 1, 2020. Average analysis, t -tests, cumulative abnormal returns (CAR) and trading simulation methods are used to test whether abnormal returns can be detected before the end of the day, whether there are price effects on the day after abnormal returns occur, if these effects are different for developed and emerging markets, and whether they can be used to generate profits from intraday trading. Their results suggest that there is a two-hour window before close of business in which to exploit momentum effects on days with abnormal returns. On the following day, momentum effects occur after positive abnormal returns, and contrarian (momentum) effects occur in the case of developed (emerging) stock markets after negative abnormal returns. Trading simulations show that some of these effects can be exploited to generate abnormal profits with an appropriate calibration of the timing parameters.

In “Is factor momentum greater than stock momentum?”, the third and final paper in this issue, Antoine Falck, Adam Rej and David Thesmar investigate the notion of factor momentum in relation to stock momentum in a large universe of US stocks. The most interesting finding of this paper is that on a timescale of one month, stocks show mean reversion, while factors show strong momentum. Falck et al conclude their study with a simple theoretical model that captures these forces: there is stock-level mean reversion at short lags and momentum at longer lags; there is stock and factor momentum at all lags; and there is natural comovement between the profit and loss of stock and factor momentums at all horizons. Their findings are well thought out and well written.

On behalf of the editorial board, we hope you have been doing well throughout the Covid-19 pandemic. We would like to thank you, our readers, for your continued support and keen interest in our journal. We look forward to sharing with you the growing list of practical papers on a wide variety of topics on modern investment strategies that we continue to receive from both academics and practitioners.

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