Global Macro Trading Journal
- Thread starter Daal
- Start date
http://www.rdboehme.com/Papers/jfqa_final.pdf
"Over the period 1988-2002, a period of significant appreciation in the market, the
annualized raw returns of the most short-sale-constrained, high-dispersion stocks are between â9.1% and
â13% for one-month holding periods. Using the various standard benchmarks we have reported, annualized
monthly holding period abnormal returns over the same period are between â14.8% and â20.7% depending
on the method used. This conclusion appears to be robust across model specifications and portfolio
construction methods"
Lesson here is never avoid shorting a stock because the short fees are high. They actually found that stocks that are expensive and widely shorted(plus that have a lot of difference of opinions on them, sometimes called a controversy) significantly underperform the market
Of course your net returns could be negative after the fees but I don't believe this is going to happen most of the time. My instinct tells me that the avg short seller is a better evaluator of stocks than the avg long investor. Naturally they have to be given the upward tendency of stock prices but I believe their edge surpasses even this disvantage
I should have shorted GRPN even though I had a 30% fee plus 5%(expected avg market rise for next 10 years) against me. The short sellers(Which I believe are smarter money on avg) sniffed out something there and were willing to pay a lot for the opportunity to profit from it
The question is, does shorting a basket of similar stocks to the study(hard to short and with a lot of different opinions on them) beat the market?
I'm not quite sure what the answer is. If I had a gun to my head I'd say yes but by not as much as they study shown(The edge declined a bit)
But the bottom line is that big fees to short are not a good argument to avoid a short
"Over the period 1988-2002, a period of significant appreciation in the market, the
annualized raw returns of the most short-sale-constrained, high-dispersion stocks are between â9.1% and
â13% for one-month holding periods. Using the various standard benchmarks we have reported, annualized
monthly holding period abnormal returns over the same period are between â14.8% and â20.7% depending
on the method used. This conclusion appears to be robust across model specifications and portfolio
construction methods"
Lesson here is never avoid shorting a stock because the short fees are high. They actually found that stocks that are expensive and widely shorted(plus that have a lot of difference of opinions on them, sometimes called a controversy) significantly underperform the market
Of course your net returns could be negative after the fees but I don't believe this is going to happen most of the time. My instinct tells me that the avg short seller is a better evaluator of stocks than the avg long investor. Naturally they have to be given the upward tendency of stock prices but I believe their edge surpasses even this disvantage
I should have shorted GRPN even though I had a 30% fee plus 5%(expected avg market rise for next 10 years) against me. The short sellers(Which I believe are smarter money on avg) sniffed out something there and were willing to pay a lot for the opportunity to profit from it
The question is, does shorting a basket of similar stocks to the study(hard to short and with a lot of different opinions on them) beat the market?
I'm not quite sure what the answer is. If I had a gun to my head I'd say yes but by not as much as they study shown(The edge declined a bit)
But the bottom line is that big fees to short are not a good argument to avoid a short
Interesting from Krasting ...
http://brucekrasting.blogspot.com/2012/04/on-swiss-imf-and-g-20.html
Keep an eye on how much Switzerland contributes to extra IMF funding. If the number is a lot more than $12B, look for the IMF criticism of the 1.20 floor to go away (and perhaps a green light for 1.25).
http://brucekrasting.blogspot.com/2012/04/on-swiss-imf-and-g-20.html
Keep an eye on how much Switzerland contributes to extra IMF funding. If the number is a lot more than $12B, look for the IMF criticism of the 1.20 floor to go away (and perhaps a green light for 1.25).
Hmm. For me 25% is a pretty small forex position, if we are talking something like EURCHF (rather than Argentine Pesos or something crazy). I'd say 50% is a reasonable size, 75%-100% is quite aggressive but not crazy by any means.
What does 'the market is always right' mean? I've always been intrigued by that phrase. If the market is always right, then surely it doesn't make sense to trade, because the current price will be a 100% accurate probability-weighted estimate of all future scenarios, meaning there can be no possible edge in betting against it.
Whenever I've heard that phrase, it's in the context of 'don't bet against the trend'. Yet we've all seen trend reversals, and some traders even specialise in them profitably. And EURCHF doesn't really have a trend at the moment, unless you count a slow 3% downward drift over half a year to be a trend.
Looks like I am the only one?
I was short SHLD a few times during the run from 40 to 80 and had to exit not only because price went against me but also because it cost 50+% annualized to borrow the shares.
I re-shorted around $80 @ 80% annualized rebate and luckily it unraveled quickly.
With these high rebate stocks your timing on the short has to be spot on, even more so than usual. You can't simply sit around for months waiting for a hard-to-borrow stock to take a dive, that might well eat away a large chunk if not all of your potential profits.
http://www.briefing.com/investor/our-view/the-big-picture/bearish-arguments-to-ignore.htm
This article says the Shiller PE is wrong because of bank earnings during the financial crisis distort the earnings number. To check I changed the Shiller PE formula in the Shiller excel database to TRIMMEAN. With a Alpha of 20%. Essentially it removes distributions above and bellow 20%(0.4 alpha) from the mean(I think). Shiller PE goes down from 22.22 to 20.89, hardly a huge difference
It is still significantly above average. Furthermore the argument put forward by the author against margin contraction, even though its true, it only supports that notion that stocks are overvalued
This article says the Shiller PE is wrong because of bank earnings during the financial crisis distort the earnings number. To check I changed the Shiller PE formula in the Shiller excel database to TRIMMEAN. With a Alpha of 20%. Essentially it removes distributions above and bellow 20%(0.4 alpha) from the mean(I think). Shiller PE goes down from 22.22 to 20.89, hardly a huge difference
It is still significantly above average. Furthermore the argument put forward by the author against margin contraction, even though its true, it only supports that notion that stocks are overvalued