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Tactical allocation in falling stocks: Combining momentum and solvency ratio signals

Piotr Arendarski ()

No 2012-01, Working Papers from Faculty of Economic Sciences, University of Warsaw

Abstract: We identified 4500 US stocks with year ending losses of 50 percent or more during the 2001-2011 period. We screened our "falling knives" for financial strength to promote a greater likelihood of recovery and minimize any survivorship bias. We added the constraints of Altman Z-Scores, debt/equity ratio, and current ratio to our data set. We use GARCH-in-mean model to control the risk of the strategies. The results show consistent improvement of risk-standardized return profiles of the strategies in comparison with buy and hold strategy.

Keywords: falling stocks; contrarian investing; financial strength ratios; GARCH in mean model; Augmented Dickey-Fuller test (search for similar items in EconPapers)
JEL-codes: C58 G11 G14 G17 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2012
New Economics Papers: this item is included in nep-fmk and nep-rmg
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http://www.wne.uw.edu.pl/inf/wyd/WP/WNE_WP67.pdf First version, 2012 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:war:wpaper:2012-01

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