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'Beyond the Random Walk, A Guide to Stock Market Anomalies', by Vijay Singal
Reviewed by Steve Wisdom
Singal's 'Beyond the Random Walk, A Guide to Stock
Market Anomalies' [Oxford U Press, '2004'] was praised by Prof Pennington but
panned by Chair ('a thoroughly specious disreputable piece of work'). With my
betters at cross
purposes, I took a read through it myself.
In general, it's a workmanlike, if sometimes naive,
effort. The author summarizes and sometimes ekes the available literature on the
'marquee' anomalies, then 'tests' each anomaly by fashioning a trading strategy
for each as of yearend 2001, and applies it to (usually) the first six months of
2002. Not clear to me how much this extra six months adds to the corpus.
The book is a good review of the literature, and to the author's credit he
sometimes shows full trade-by-trade workouts for his 'test' period. Also he does
a good job of omitting the fatuous and conjectural 'model' material so common to
academic papers about the markets.
On the other hand, he has an irritating habit of quoting factoids ('stocks [with
characteristic X] outperform by 3.78%) without reference. According to what
study? What universe of stocks? What time period?
Also there's a certain amount of ad-hoc'ery. When discussing insider trading, he
suggests omitting Bill Gates from the MSFT list because his trades are too big
and thus distortive. But in fairness, stockmarket data don't always fit neatly
are unoriginal; indeed it was his purpose to re-tread the
well-worn. Finally, he often doesn't understand what 'really' drives some of the
strategies. For instance there's no mention of married-puts as a way to get the
drop in merger-arb. You get the sense he hasn't spent much time on the front
Quick look at the chapters
- 'January Effect and the New December Effect' discusses how poor-performing smallcap stocks have tended to go up in January, and strong-performing
largecaps have tended to have a Santa Claus rally. Whether this will
continue or fall prey to everchanging cycles is, to my mind, a matter of
religious belief. Certainly everyone and his brother on WallSt knows about
- 'Weekend Effect' discusses how smallcap stocks
have tended to rise on
Fridays and fall on Mondays, perhaps because sellers are afraid to hold
short positions in risky stocks over the weekend, so they buy back and
re-initiate. However, this effect has petered in recent years. Enough
- 'Short Term Price Drift' discusses how very large-one day moves have
tended to continue for a few weeks after. The chart titled 'Price
Continuation After Earnings Surprises' is a graphic everyone's seen in some
form in an academic or WallSt research piece. The author has some good
descriptive material, but doesn't mention that these effects are being
pursued privately by 1,001 statarb shops, and publicly by Starmine et al.
- 'Mispricing of Mutual Funds' is a good overview, though missing a few
tricks-of-the-trade, but was obviously written pre-Spitzer. Heck, maybe the
book's list of good mutual funds to time is what set off the hurricane.
- 'Momentum in Industry Portfolios' discusses how 'hot' sectors have tended
to stay hot, at least in the intermediate term, and how this effect
explains essentially all the observed momentum at the individual-share
level, and explains in detail how to trade this with Fidelity or Rydex
sector-funds. I have reason to believe lots of money that's (hurriedly)
coming out of mutual-fund timing is going into these sector-based
strategies, so if you trade them you'll have lots of company going forward.
- 'Trading by Insiders' discusses how insider trades (especially buys,
especially by top execs) have tended to predict future price moves,
particularly of smallcap stocks. Includes a good discussion of how to
obtain and wrangle the necessary data (along related lines, many Specs met
Dr Strausberg, CEO of Edgar Online, at 'Master and Commander'), and good
descriptive material. Note that Chair has written at length about insider
trading at money.msn and DailySpeculations.
- 'Changes to the S&P 500 Index' discusses how index-deletes have tended to
fall till the effective date then rally, and index-adds the opposite.
Includes a good overview of the history of this strategy, which doesn't work as well as it once did
- 'Merger Arbitrage' is a reasonably good overview but doesn't break any
ground. The author mentions that the returns have been much poorer in the
past three years, but doesn't connect the dots with the huge inflow of hedgefund merger-arb money, and the declining dealflow post-bubble.
Certainly we have merger-arb experts on Speclist who can add much more.
Also this and many other subjects were explained 100 times better in
- 'International Investing and the Home Bias' is worthless.
- 'Bias in Currency Forward Rates' discusses evidence that it pays to be a
yield-pig, ie to buy the highest-yielding currencies. This gets into deep
water, the Peso Problem, the Deriv Expert & etc, and there are analogs in
many areas, wherein the question is 'better to buy or to sell insurance?'
- 'A Description of Other Possible Mispricings' fast-forwards through the
Value Line Enigma, closed-end fund discounts, stock buy-backs, expiry of
IPO lockups, and several others
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