{"id":719,"date":"2016-12-29T14:19:53","date_gmt":"2016-12-29T14:19:53","guid":{"rendered":"http:\/\/quantpedia.com\/?p=719"},"modified":"2019-08-22T05:48:18","modified_gmt":"2019-08-22T05:48:18","slug":"quantopian-quantpedia-trading-strategy-series-cross-sectional-equity-mean-rever","status":"publish","type":"post","link":"https:\/\/vvv.quantpedia.com\/es\/quantopian-quantpedia-trading-strategy-series-cross-sectional-equity-mean-rever\/","title":{"rendered":"Quantopian & Quantpedia Trading Strategy Series: Cross-Sectional Equity Mean Reversion"},"content":{"rendered":"

\n\tQuantopian & Quantpedia Trading Strategy Series<\/strong><\/u> continues … Now with a 4th article, again written by Matthew Lee, focused on Cross-Sectional Equity Mean Reversion<\/strong><\/u> (Strategy #13<\/a>):<\/p>\n

\thttps:\/\/www.quantopian.com\/posts\/quantpedia-trading-strategy-series-an-analysis-on-cross-sectional-mean-reversion-strategies<\/a><\/p>\n

\n\tCross-sectional mean reversion in stocks (strong tendency of stocks with strong gains\/losses to reverse in a short-term time frame – up to one month) is a well-known market observation and the main reason why so many academic researchers generally use a 2-12 momentum measurement (returns over the past 12 months, excluding the previous one) when examining momentum anomaly. Many academic papers examined this effect, the most notable are papers by Jagadesh<\/a>, y Bruce Lehmann<\/a> (see "Other papers" section on Quantpedia subpage for this reversal strategy<\/a> for additional academic research papers). The most academics speculate that the fundamental reasons for the anomaly are market-microstructure frictions (bid-ask bounce) or investors' cognitive biases – overreaction to past information and a correction of that reaction after a short time horizon.<\/p>\n

\n\tBut is this simple equity strategy still profitable?<\/p>\n

\n\tMatthew Lee from Quantopian performed an independed analysis during an out of sample period from 12-01-2011 to 12-01-2016. Overall, the performance of simple short-term equity reversal strategy is below the market. But, it's to be noted that this strategy is long\/short compared to just long-only equity benchmark (which is the SPY). So if we want to compare total performance of that strategy, we should compare long only reversal of the "loser stocks decile". Long\/short equity reversal strategy has a Sharpe ratio 0.84 and Beta of 0.15. Sharpe ratio of long\/short version is comparable to market portfolio and a low correlation of equity reversal strategy makes it a possible addon to investment portfolio.<\/p>\n

\n\tHowever … Reversal strategy is very active (weekly, bi-weekly rebalancing) which means high transaction costs and slippage. So really high caution should be paid in a real-world implementation and steps which tries to limit strategy's turnover should be taken.<\/p>\n

\n\tThe final OOS equity curve:<\/p>\n

\t\"Strategy's<\/p>\n

\n\tThanks for the analysis Matthew!<\/p>\n

\n\tYou may also check first<\/a>, second<\/a> o third<\/a> article in this series if you liked the current one. Stay tuned for the next …<\/p>","protected":false},"excerpt":{"rendered":"

\n\tQuantopian & Quantpedia Trading Strategy Series<\/strong><\/u> continues … Now with a 4th article, again written by Matthew Lee, focused on Cross-Sectional Equity Mean Reversion<\/strong><\/u> (Strategy #13<\/a>):<\/p>\n

\thttps:\/\/www.quantopian.com\/posts\/quantpedia-trading-strategy-series-an-analysis-on-cross-sectional-mean-reversion-strategies<\/a><\/p>\n

\n\tCross-sectional mean reversion in stocks (strong tendency of stocks with strong gains\/losses to reverse in a short-term time frame – up to one month) is a well-known market observation and the main reason why so many academic researchers generally use a 2-12 momentum measurement (returns over the past 12 months, excluding the previous one) when examining momentum anomaly. Many academic papers examined this effect, the most notable are papers by Jagadesh<\/a>, y Bruce Lehmann<\/a> (see "Other papers" section on Quantpedia subpage for this reversal strategy<\/a> for additional academic research papers). The most academics speculate that the fundamental reasons for the anomaly are market-microstructure frictions (bid-ask bounce) or investors' cognitive biases – overreaction to past information and a correction of that reaction after a short time horizon.<\/p>\n

\n\tBut is this simple equity strategy still profitable?<\/p>\n

\n\tMatthew Lee from Quantopian performed an independed analysis during an out of sample period from 12-01-2011 to 12-01-2016. Overall, the performance of simple short-term equity reversal strategy is below the market. But, it's to be noted that this strategy is long\/short compared to just long-only equity benchmark (which is the SPY). So if we want to compare total performance of that strategy, we should compare long only reversal of the "loser stocks decile". Long\/short equity reversal strategy has a Sharpe ratio 0.84 and Beta of 0.15. Sharpe ratio of long\/short version is comparable to market portfolio and a low correlation of equity reversal strategy makes it a possible addon to investment portfolio.<\/p>\n

\n\tHowever … Reversal strategy is very active (weekly, bi-weekly rebalancing) which means high transaction costs and slippage. So really high caution should be paid in a real-world implementation and steps which tries to limit strategy's turnover should be taken.<\/p>\n

\n\tThe final OOS equity curve:<\/p>\n

\t\"Strategy's<\/p>\n

\n\tThanks for the analysis Matthew!<\/p>\n

\n\tYou may also check first<\/a>, second<\/a> o third<\/a> article in this series if you liked the current one. Stay tuned for the next …<\/p>","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-719","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/posts\/719","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/comments?post=719"}],"version-history":[{"count":0,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/posts\/719\/revisions"}],"wp:attachment":[{"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/media?parent=719"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/categories?post=719"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vvv.quantpedia.com\/es\/wp-json\/wp\/v2\/tags?post=719"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}