{"id":2089723,"date":"2018-10-19T15:13:02","date_gmt":"2018-10-19T09:43:02","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=2089723"},"modified":"2018-10-19T15:13:02","modified_gmt":"2018-10-19T09:43:02","slug":"is-skewness-a-timing-signal","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2018\/10\/19\/is-skewness-a-timing-signal\/","title":{"rendered":"Is Skewness a Timing Signal?"},"content":{"rendered":"

We recently came across a post titled “IMPROVING THE ODDS OF VALUE” (link<\/a>,) where the author uses the skewness of one-year daily returns to time the value factor. Here, we try to replicate\/extend the original backtest.<\/p>\n

Key differences<\/h3>\n

We had to make some tweaks to simplify the task:<\/p>\n

    \n
  1. The original uses a one-year lookback period, we use a 220-day (trading days) lookback. [minor]<\/li>\n
  2. The original uses the S&P 500 index, we use the SPY ETF. Our prices are adjusted for dividends. [minor]<\/li>\n
  3. The original constructs a long-short value portfolio. i.e., an academic alpha portfolio. We use it to time the IVE ETF<\/a> which tracks the S&P 500 Value Index. [major]<\/li>\n<\/ol>\n

    We expected the major premise of the original post – that you can go long value during periods of positive skewness and go into cash otherwise – to hold. And perhaps provide some marginal advantage while using it to time a long-only value ETF.<\/p>\n

    Results<\/h3>\n

    We observed the exact opposite result. Going long IVE during periods of positive skewness under-performed going long IVE during periods of negative skewness. In the cumulative returns chart below:<\/p>\n