USING IMPLIED VOLATILITY TO PREDICT ETF RETURNS (4/09/16)
/FOR A DEEPER DIVE INTO ETF PERFORMANCE AND RELATIVE VALUE SUBSCRIBE TO THE ETF INTERNAL ANALYTICS PACKAGE HERE
To see the origin of this series click here
In the paper that inspired this series "What Does Individual Option Volatility Smirk Tell Us About Future Equity Returns?" the authors' research shows that their calculation of the Option Volatility Smirk is predictive of equity returns up to 4 weeks. Therefore, each week, I will calculate the Long/Short legs of a portfolio constructed by following their criteria as closely as possible. However this study will focus on ETF's as opposed to single name equities. I will track the results of the Long/Short portfolio, in equity returns, cumulatively for 4 weeks before rotating out of that portfolio. The ETF's are selected from the following groups:
PORTFOLIO ELEVEN:
LONGS: IYZ, GLD, TLT, EWL, SHY, FDN, ECH, RWR, IEF
SHORTS: VO, RWO, IXP, IYJ, FXG, FEZ, KIE, INDA, AAXJ
PORTFOLIO TWELVE:
LONGS: XHB, IBB, XLI, XLU, IYR, SIL, XLE, GLD, IEF
SHORTS: AAXJ, VWO, IXC, EWW, VIS, VDE, FXD, HEDJ, DGT
PORTFOLIO THIRTEEN:
LONGS: XBI, RSX, IBB, AGG, XLP, IWM, EEM, XLY, XRT
SHORTS: HACK, EPI, VPU, IDU, RWO, RTH, EWS, DGT, IXP
PORTFOLIO FOURTEEN:
LONGS: GLD, XLE, AGG, GDXJ, RSX, IYE, OIH, VDC, IGE, EWP
SHORTS: IYR, VWO, EWW, EPI, RWO, XBI, VPU, XLK, VO, EWS
PORTFOLIO FIFTEEN:
LONGS: KRE, KBE, IYT, EWP, FEZ, IYG, EPI, IWM, GLD, XRT
SHORTS: RWO, SIL, VOX, IGE, AAXJ, FXG, IXP, VPU, VDE, BNO
