Friday, 19 April 2013

Seach Interest in the Tar Sands Peaked in 2006

Here are some charts showing how Google searches of terms tar sands, oil sands, and fracking compare. On a regional basis, searches for terms like tar sands or oil sands are mostly from Canada. This is a bit of a surprise, since the assumption here in Canada is that the world is very interested in the tar sands. It appears that there is much more interest in fracking.

What Google Trends is Saying About Renewable Energy and Fracking

Google searches of the term "renewable energy" peaked in March of 2009. Since then, Google searches for renewable energy having been trending downwards. In comparison, searches of the term "fracking" really started to take off in late 2010 and hit a record high in February of this year.

Here is a regional map of searches for renewable energy. Searchers in Europe, Africa, India, and Australia have shown strong interest in renewable energy. Here is a regional map of searches for fracking. Notice how much search interest there is in this term coming from the US and South Africa.

Wednesday, 17 April 2013

Maximum Drawdown for Previous Post

In my previous post I compared several investment strategies for the TSE. Here is an updated table which includes drawdown along with some of the usual risk measures. The seasonal strategy has the highest average annual return (11.35%) and lowest standard deviation. The seasonal strategy has the highest Sharpe Ratio, Sortino Ratio, and Omega Ratio.The seasonal strategy also has the lowest maximum drawdown.

Here is a chart showing how $1000 invested in December of 1970 has performed for each of the strategies.

Overall, the seasonal and moving average strategies provide some downside protection in case things go really bad.

Wednesday, 10 April 2013

Testing Absolute Momentum on the TSE

A new research paper by Gary Antonacci on absolute momentum piqued my interest.In its simplest form, absolute momentum strategies compare excess asset returns over a pre-defined look back period. If excess returns over the look back period are positive, invest in the asset. If excess returns over the look back period are negative, invest in a 3 month t bill.Antonacci's research shows that absolute momentum strategies work well in a number of markets including US equities, US REITS, US bonds, EAFE, and gold. I thought it would be interesting to see how well an absolute momentum strategy works for the TSE.

For equity data I use the MSCI Canada total return monthly data (includes dividends). For the risk free rate, I use 3 month Canadian t bills. I choose a look back period of 12 months. 12 months seems to work well for other assets so I choose 12 months for my analysis. This minimizes data snooping. The estimation sample covers the period January 1971 to March 2013. For comparison purposes, I also include buy and hold (B&H), a simple MA(10) switching portfolio, and a seasonal switch strategy (invest in the TSE in the 6 months November through April: invest in 3 month t bills for the 6 months May through October). The calculations do not include trading costs.

In the case of Canada, there is some evidence that absolute momentum works. Absolute momentum is preferred to buy and hold because it has a higher Sharpe ratio, Sortino ratio, and Omega ratio. One undesirable feature, however, is that absolute momentum has higher downside risk than buy and hold. Notice how the seasonal switch strategy really stands out. The seasonal switch strategy has the highest Sharpe ratio, Sortino ratio, and Omega ratio. The seasonal switch strategy also has the lowest standard deviatiion and downside risk.