Mean Regression

  Friday June 18 th was Triple-Witching Friday for equities as it experiences a huge volume spike in trading due to the confluence of three events ·          Expiration of single stock options ·          Expiration of Index Futures ·          Expiration of Index Options This happens yearly on the 3 rd of March, June, September and December. Stock option expiration may require stock delivery resulting in increased trading. While index futures and options are cash settled, all the open interest in derivatives require market makers to hedge positions with equities, that now needs to be closed, again resulting in heaving trading.       Also to take advantage of this liquidity spike, some of the major indexes (below) also rebalance on these days. Index rebalances result in an additional 40% * Market-On-Close flow due to index funds. This addit...

  I’ve been analyzing the Q1 13F filings of Hedge Funds. In the last blog I split the equity filings into three groups - the new-buys, selloffs and no-change stocks, to study any mean differences across various fundamental and technical factors. But I couldn’t find any discernable (statistically significant) differences. Next I combined the new-buys and no-change equities common across 2 or more hedge funds into single portfolio (calling it FLNG_Q121_1), and analyzed it using Bloomberg PORT. Here are couple of screen grabs. I made the portfolio equal-weighted for simplicity. I could have weighted the equities based on overall positions from all hedge funds. Also, I have back-dated the portfolio to April 1, 2021. This way we can measure the returns and other factors starting Q2, approximately after most of these decisions were made. Of course, many of these positions could be longer term, so comparing two month returns against S&P500 may not demonstrate potential accurately. I...

  I’ve been analyzing the Q1 13F filings of Hedge Funds. In the last blog we looked at the top new equity buys and selloffs of hedge funds. We also analyzed them by sector to observe that Energy, Industrials, Health Care and Financial showed strong support pointing to strength in cyclicals and reopening play. Next my goal was to analyze the new-buys, selloffs and no-change stocks with various fundamental and technical factors to find any commonality. But I was not able to find any discerning differences in the respective means for those factors across these three groups – NewBuys, SellOffs and Static (no-change). I combine NewBuys and Static as one to see if there is any difference against SellOffs, and couldn’t find anything significant. Next I considered high conviction new-buys and selloffs – meaning equities that have 2 or more buyers or sellers. Still no significant difference. Here are some results. Chart 1 – Boxplot of last 3 month returns for the 3 groups NewBuys, SellOff...