Tactical allocation in falling stocks: Combining momentum and solvency ratio signals
We identified 4500 US stocks with year ending losses of 50 percent or more during the 2001-2011 period. We screened our "falling knives" for financial strength to promote a greater likelihood of recovery and minimize any survivorship bias. We added the constraints of Altman Z-Scores, debt/equity ratio, and current ratio to our data set. We use GARCH-in-mean model to control the risk of the strategies. The results show consistent improvement of risk-standardized return profiles of the strategies in comparison with buy and hold strategy.
|Date of creation:||2012|
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- Ilir Roko & Manfred Gilli, .
"Using Economic and Financial Information for Stock Selection,"
Swiss Finance Institute Research Paper Series
06-21, Swiss Finance Institute.
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- Bhandari, Laxmi Chand, 1988. " Debt/Equity Ratio and Expected Common Stock Returns: Empirical Evidence," Journal of Finance, American Finance Association, vol. 43(2), pages 507-28, June.
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