Geschichte | Geographie | Wirtschaft | Gesellschaft
Lars Stomps, 2003 | Therwil, BL
This paper examines whether the put-call ratio (PCR) of options on the S&P500 and the yield spread between the 3-month and 10-year treasury bonds can be used to enhance investors’ returns while investing in the S&P 500. First, the two indicators were introduced in a theoretical part. It was shown what the indicators are, and how and why they should work. There were different short-term strategies created, where the PCR provided the buy and sell signals. These strategies were back-tested over a period from 2010 until 2019. Only one strategy was created where a negative yield spread provided the sell signal. The reentry points in this strategy were determined by waiting a certain number of months after the yield spread had turned positive again. Many different of these wait periods were tested. The yield spread strategy was back-tested over a period from 1982 until 2022. These tests showed that the PCR as an indicator only worked if it was used as a contrarian indicator and only if one buys when the PCR increases and sells when the PCR decreases again. The yield spread is good at predicting longer-term stock market downturns, but not, however, at determining the correct reentrypoint. During the testing period, many different wait periods were able to achieve positive excessive returns.
The lead question of this paper is whether it is possible to predict the movement of the S&P 500 stock index using different indicators and to capitalize on this knowledge as a retail investor. The two indicators discussed in this paper are the PCR and the yield spread between the 3-month and 10-year treasury bonds.
Many different papers were used as sources for the theoretical part and also as inspiration for which strategies should be tested. For the PCR five different trading strategies were created. For the yield spread only one was created. All of these strategies were back-tested with self-written python programs. To test these strategies, historic stock market data was used.
Only one of the five PCR strategies resulted in significantly better results compared to a simple buy and hold strategy. The long version of the PCR as a contrarian indicator beat the buy and hold strategy when looking at the compounded average daily return (CADR) with all but four out of the 26 threshold values that were tested. The best threshold value resulted in an excessive CADR of 1.1719%. In terms of risk-adjusted return 11 threshold values outperformed the buy and hold strategy. The other 15 resulted in lower risk-adjusted returns. None of the threshold values resulted in a significantly higher total return.
With the yield curve strategy, 18 out of the 47 wait periods that were tested, resulted in a positive excessive return with the highest excessive return being 1.63 times higher than that of the buy and hold strategy. The worst performing wait period was wait period 35 with an excessive total return of -699.95%. All threshold values had a higher average monthly return than the buy and hold strategy while they were invested in the market. However, every wait period had at least one sell signal where, during the time that strategy was not invested, the market had a positive return.
It was possible to answer the lead question with the results from the test. The PCR was able to produce excessive CADR with the long version of the PCR as a conformist indicator strategy in the short term and the yield spread strategy achieved higher total and average monthly returns in the long term. One problem, however, is that five different PCR strategies were tested during one period and only one of those strategies worked. Thus, leaving the question whether this strategy is actually useful or whether simply enough strategies were tested that one worked during that particular period, but would not perform equally well during any other period.
The results indicate that it is possible to predict market movement with these indicators, when using them correctly. However, with the PCR strategy one has to trade often, for quite little excessive returns, that in practice the strategy might not create excessive returns due to commissions etc. Still, to verify the quality of this strategy it should be tested during a different period to confirm its performance. The yield spread strategy seems to perform well in the long term and could be used to increase one’s total return over a period of a few decades. This paper did not, however, find a good answer to when one should reenter the market after a sell signal.
Würdigung durch den Experten
Prof. Dr. Raul Gimeno
In diesem Beitrag untersucht Lars Stomps, ob das Put-Call-Verhältnis und die Renditespanne zwischen 3-Monats- und 10-Jahres-Staatsanleihen als Frühindikatoren benutzt werden können, um die Renditen von Anleger:innen zu steigern, die in den amerikanischen Index S&P 500 investieren. Verschiedene Anlagestrategien wurden empirisch analysiert, welche Strategien von Long- bis Contrarian-Strategien umfassen. Die Implementierung mittels Python-Algorithmen und die tabellarische Darstellung der Ergebnisse überzeugt.
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