Sunday, March 29, 2015

Momentum Rotation Strategies and Data - Part 4

In the last three posts (Part 1, Part 2, Part 3), we looked at how dividend adjusted data and non-dividend adjusted data generate different results with Momentum Rotation Strategies.  We also looked at a hybrid approach using the signals generated from the non-dividend adjusted series, combined with the returns from the dividend adjusted series.  As expected all three approaches generated different results.

I started this review of data approaches because I was/am seeing fund ranking instability in my live trading.  For example, one of my Mutual Fund Rotation Systems signaled an entry into Fidelity Leveraged Company Stock (FLVCX) on Wednesday, April 30, 2014.  On the last trading day of the next month, Friday, May 30, 2014, I received a signal to hold my position of Fidelity Select Chemicals Portfolio (FSCHX).  The position was in FLVCX, not FSCHX.  In this particular example, the dividend issued in April to FSCHX had an impact on this fund's rank in later runs.  FLVCX did not have a dividend issued during this period.

During the last several days, I reviewed all of the code of my Momentum Rotation Strategies and found that dividend adjusted data should result in stable ranking as dividends are issued.  I also analyzed several ETFs to determine if their ROC values were stable across dividend issuance.  Theoretically, ROC values should be stable with the Yahoo/CSI dividend adjusted data, and I did find this to be correct.  My analysis of EEM can be found here.

At this point, the issue I am seeing is most likely being caused by a rare error with the Yahoo/CSI data related to dividends.  My current theory is that this is being caused by a late addition of a dividend to the time series.  For example, say a dividend was issued on April 11, 2014, but not added to the time series.  Then at some point in the future, say May 1, 2014 the error is discovered and the dividend is added to the April 11, 2014 date.  If this situation were to occur, then the ranking on April 30 would change.  This is purely speculation at this point, but it could be the cause of the situation that I am seeing occasionally in my live trading.

Starting this month, I am going to be taking snapshots of my AmiBroker database at the end of each month.  This should help me find the exact cause of this ranking instability that occasionally crops up during the year.  Thanks to Cesar Alvarez for this tip!

I will have another post on this topic after I am confident in the cause of my ranking instability.

If you don't want to miss my new blog posts, follow my blog either by email or by RSS feed.  Both options are free, and are available on the top of the right hand navigation column under the headings "Follow By Email" and "Subscribe To RSS Feed".  I follow blogs by RSS using Feedly, but any RSS reader will work.


Cesar Alvarez said...

Another issue may be timing. Meaning imagine that the dividend is issued near the end of the month. How quickly is the data adjusted for this dividend? Unless it happens on the day of the event, this may be causing problems too. I used CSI Data for years, and I cannot tell you how quickly they adjust their data. I know that Premium Data adjusts on the same day but it only happens on their final update of the day. Meaning if you update your data before the final update, it would have this problem.


Dave R. said...

Hi Cesar,

That's a good point. Hopefully I'll be able to diagnose this problem better in the future with the database snapshots...I'm taking the first snapshot tonight.

Thanks for all of your help!


Post a Comment