Strategy Implementation

After following the steps to import EPFR Stock Factor data as outlined in the previous section, which utilizes the library('EPFR') to handle the summing/compounding of factors by a n day look-back period and accounts for a two-day trading delay (T+2) based on this signal, we are ready to perform the backtest.

In the next phase, we will rank the stocks within our selected backtest universe into five equal baskets based on our signal. We will take long positions in the top fifth of stocks and short positions in the bottom fifth. The backtest results for MSCI, S&P 500, and Russell 1000 and 2000, including Quintile Spreads and Sharpe, are presented below.

Results

Quintile Spreads

Quintile spreads by universe and factor (monthly, annualized)
			Sector Neutral			Region/Sector neutral
			S&P	Russell		MSCI			Wgt in
	Look-back	Corr v PrcMo	500	1000	2000	EAFE	EAFE SC	EM	Flow Alpha
FloMo	15d	4%	+1.9	+2.6	-2.2	-1.4	-1.4	-5.2
ActWtTrend	15d	4%	+2.0	+1.3	+0.4	+1.0	+0.9	+2.3	10
ActWtDiff	15d	2%	+1.6	+0.6	+1.9	+0.1	+0.9	+3.0	10
ActWtDiff2	15d	4%	+0.8	+0.4	-1.1	-0.5	+0.6	+1.0
FloTrend	40d	10%	+1.5	+0.0	+4.1	-1.3	-0.7	+3.5
FloDiff	40d	17%	-0.9	+0.4	+3.9	+0.3	-0.7	+3.2	10
FloDiff2	40d	-1%	+0.6	+0.6	+1.3	-1.0	-0.3	+0.4
AllocMo	11m	61%	-0.8	+0.3	-2.1	+0.6	+3.0	+2.4
AllocTrend	11m	57%	+0.3	+1.4	+0.4	+0.7	+4.4	+3.5	20
AllocDiff	11m	61%	+0.6	+1.8	+0.7	+1.0	+4.7	+3.3
AllocSkew	11m	0%	+1.7	+0.8	+0.0	-0.6	+1.3	-0.8	10
Herfindahl[1]	1m	8%	-0.7	+0.8	+2.4	+2.5	+4.8	+0.5	10
FundCt[2]	1m	7%	+0.6	+1.8	+1.1	+1.7	+2.6	+1.2	30
Flow Alpha		34%	+1.7	+2.5	+3.1	+2.6	+5.0	+3.4	100
Price Momentum	8mlg1	100%	+0.7	+1.8	+2.1	+2.6	+4.7	+0.3

Sharpe

Monthly Sharpe ratio (top over bottom fifth, annualized)
		Sector Neutral			Region/Sector neutral
		S&P	Russell		MSCI
	Look-back	500	1000	2000	EAFE	EAFE SC	EM
FloMo	15d	0.29	0.44	-0.33	-0.23	-0.24	-0.71
ActWtTrend	15d	0.31	0.22	0.08	0.22	0.19	0.33
ActWtDiff	15d	0.26	0.11	0.28	0.02	0.20	0.54
ActWtDiff2	15d	0.12	0.07	-0.22	-0.13	0.15	0.19
FloTrend	40d	0.26	0.00	0.79	-0.31	-0.17	0.56
FloDiff	40d	-0.13	0.06	0.58	0.06	-0.14	0.44
FloDiff2	40d	0.16	0.16	0.30	-0.31	-0.08	0.09
AllocMo	11m	-0.07	0.03	-0.19	0.06	0.31	0.22
AllocTrend	11m	0.03	0.15	0.05	0.08	0.53	0.33
AllocDiff	11m	0.06	0.20	0.08	0.11	0.53	0.31
AllocSkew	11m	0.40	0.20	0.00	-0.11	0.37	-0.13
Herfindahl[1]	1m	-0.15	0.13	0.36	0.45	0.82	0.07
FundCt[2]	1m	0.08	0.22	0.12	0.28	0.39	0.16
Flow Alpha		0.18	0.30	0.41	0.43	0.74	0.39
Price Momentum	8mlg1	0.06	0.14	0.18	0.22	0.39	0.02

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