Screen Backtest during the 2008 debacle

Screen Backtest during the 2008 debacle

October 4, 2011 Research Insights
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(Last Updated On: January 23, 2017)


Turnkey Analyst showed me a very interesting article from ZeroHedge this morning:

http://www.zerohedge.com/news/some-fun-analogies-rhyming-history-and-repeating-futures

The main point of the article? History almost repeated itself!

Oct 3, 2008: SPX=1099.23; VIX=45.14

Oct 3, 2011: SPX=1099.23; VIX=45.45

Since the stock market seems to be on track with 2008, I went ahead and used our new backtesting tool in Turnkey Analyst to assess how our screens performed.

First, a screen shot of what the Shiller model predicts for the next 10 year real return on equity–a dismal 35bp/year.

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

But at the same time, the real spread between stock earnings yield and bond yields is almost 7%–what’s an investor to do? Ugg, the Fed has us all in a pickle!

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

When we look at how our screens performed from August 1, 2008 through December 31, 2009, we find some interesting results:

The results are hypothetical results and are NOT an indicator of future results and do NOT represent returns that any investor actually attained. Indexes are unmanaged, do not reflect management or trading fees, and one cannot invest directly in an index. Additional information regarding the construction of these results is available upon request.

We find that ALL of our screens end up outperforming the broad-based Russell 2000 index, however, profit and value and goodwill gone bad stand out as the best performers (here we focus on long-only, long/short systems also did well over this chaotic time period).

Lesson: If you believe we are in the midst of another September 2008 time period, focus on the profit and value and goodwill gone bad screens to find some potential winners.

Best of luck and try out our new backtesting tool if you are interested in exploring deeper.

 


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Please remember that past performance is not an indicator of future results. Please read our full disclosures. The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Alpha Architect, its affiliates or its employees. This material has been provided to you solely for information and educational purposes and does not constitute an offer or solicitation of an offer or any advice or recommendation to purchase any securities or other financial instruments and may not be construed as such. The factual information set forth herein has been obtained or derived from sources believed by the author and Alpha Architect to be reliable but it is not necessarily all-inclusive and is not guaranteed as to its accuracy and is not to be regarded as a representation or warranty, express or implied, as to the information’s accuracy or completeness, nor should the attached information serve as the basis of any investment decision. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission from Alpha Architect.


Definitions of common statistics used in our analysis are available here (towards the bottom)




About the Author

Wesley R. Gray, Ph.D.

After serving as a Captain in the United States Marine Corps, Dr. Gray earned a PhD, and worked as a finance professor at Drexel University. Dr. Gray’s interest in bridging the research gap between academia and industry led him to found Alpha Architect, an asset management that delivers affordable active exposures for tax-sensitive investors. Dr. Gray has published four books and a number of academic articles. Wes is a regular contributor to multiple industry outlets, to include the following: Wall Street Journal, Forbes, ETF.com, and the CFA Institute. Dr. Gray earned an MBA and a PhD in finance from the University of Chicago and graduated magna cum laude with a BS from The Wharton School of the University of Pennsylvania.