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Market ‘Convexity’ Makes Stocks a Tough Short—Searching for Alpha for August 2012
How many times will the central banks prop up the markets with action or verse? As many times as it takes.
We saw it on the last day of June, and we’ll see it again. The European Central Bank, the Fed and every other high-minded banker will do practically everything to keep the ball rolling up the hill.
Corporate earnings are another plus. Two-thirds of the S&P 500 companies have beat estimates, but on less revenue. That’s because C-suite executives are still too timid to start re-hiring, thus keeping expenses down. But stocks have been snapped up in the past week nonetheless.
And I expect this to continue on a short-term basis. The summer doldrums appear to be mostly over, and the market’s convexity—a characteristic that connotes more upside return than downside risk – indicates a rally that could drown the already water-treading short-sellers.
About the Author
Ben Warwick, Quantitative Equity Strategies
Veteran investment strategist Ben Warwick brings 20 years of investment management expertise to AdvisorOne.com in his blog, Searching for Alpha. His market and economic insights provide readers with an insider’s view on generating alpha through asset allocation, the use of strategic portfolio “tilts” and alternative investments.
Ben Warwick founded Quantitative Equity Strategies (QES) in 2002 as a platform for implementing his quantitative investment strategies. The firm manages assets with traditional long-only equity and fixed income, private equity, managed futures and alternative investment mandates. QES has developed an industry leading expertise in building investment programs that can replicate alternative returns, while offering daily liquidity and transparency. These products include the HFRq, a hedge fund replication strategy developed in concert with Hedge Fund Research in Chicago; the Managed Futures Beta Index, with Aspen Partners; and the Nomura QES Modeled Private Equity Returns Index (PERI), which was developed with Nomura Bank and Preqin, the leading source of information in the private equity industry.
He is the author of several books, including "Searching for Alpha: The Quest for Exceptional Investment Performance," (Wiley, 2000) and "The Handbook of Managed Futures," with Carl Peters, (McGraw-Hill, 1996). He can be reached at ben@qesinvest.com.
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