Journal of Investment Strategies

Ali Hirsa
Professor, Columbia University & Managing Partner, Sauma Capital LLC

Welcome to the fourth and final issue of the twelfth volume of The Journal of Investment Strategies, in which we have three research papers.

In the first paper in this issue, “Securities and Exchange Commission Form 13F Holdings Report: statistical investigation of trading imbalances and profitability analysis”, Deborah Miori and Mihai Cucuringu delve into the hidden information revealed by SEC Form 13F-HR. This form, which must be filed quarterly by US institutions that manage more than US$100 million, discloses certain long positions. Miori and Cucuringu analyze the changes in institutions’ holdings between consecutive reporting periods and develop a normalized measure to quantify discrepancies (imbalances) in the volume and count of trades for each asset. By grouping assets into quantiles based on the strength of these imbalances, they assess various investment strategies against a basic price mean-reversion benchmark. Their results demonstrate that significant opportunity for profit can be achieved by trading contrarily to the imbalances indicated by the 13F filings, particularly with a strategy that exploits short-term price movements over 21–42 trading days following each quarter’s end. The success of this approach highlights the predictive value of understanding market behaviors such as crowding and herding that are reflected in the trading imbalances.

In the issue’s second paper, “Examining sustainability investments and financial performance of football clubs: an empirical analysis”, Lazaros Ntasis and Athanasios Strigas explore the impact of sustainability investments, financial leverage and growth rates on the stock price returns of football (soccer) clubs. Utilizing data envelopment and regression analyses, their study analyzes stock prices from nine listed professional football clubs across major European leagues between May 1, 2015 and October 7, 2023. Their findings indicate that sustainability investments significantly boost stock price returns, reflecting a positive investor valuation of such practices. Additionally, club growth correlates positively with stock performance, highlighting the value of growth strategies. Ntasis and Strigas found no significant link between financial leverage and sustainability investments, however, suggesting that other factors might influence clubs’ sustainability decisions more heavily. Their research underscores the need for further investigation into the motivations behind sustainability initiatives in football clubs, and they suggest that industry stakeholders should consider a variety of factors beyond financial leverage when integrating financial decisions with sustainable practices. Their insights not only contribute to the academic literature but also have practical implications for enhancing sustainability in football clubs’ decision-making processes.

Finally, “Design risk: the curse of constant proportion portfolio insurance” by Raquel M. Gaspar and Jo˜ao Beleza Sousa, our third paper, explores the unintended risks associated with poorly designed structured products, focusing specifically on constant proportion portfolio insurance (CPPI) strategies. The study employs conditional Monte Carlo simulations to assess the effectiveness of CPPI in comparison with option-based portfolio insurance and simpler strategies such as stop-loss portfolio insurance or CPPI with a lower multiplier. Gaspar and Sousa reveal that despite the potential for high returns, CPPI strategies are particularly susceptible to cash-lock scenarios, especially under conditions of high volatility or over long investment horizons. These cash-lock occurrences are more influenced by the multiplier’s magnitude and the investment horizon than by the dynamics of the underlying asset. The study demonstrates the path-dependent nature of these strategies and their tendency to converge to paying only the minimum guarantee under certain conditions, thus highlighting a significant design risk. The authors’ findings prompt more comprehensive evaluations of design risks not only in CPPIs but also potentially in other structured products, such as constant proportion debt obligation, dynamic conditional beta and constant proportion portfolio reinsurance. Gaspar and Sousa conclude by considering the potential complexities introduced by real-life factors such as multiple asset classes, coupon payments and trading constraints.

The editorial board and I extend our gratitude to you, our valued readers, for your unwavering support and your continued interest in the journal. We are excited to present a growing collection of practical papers on diverse topics related to modern investment strategies, sourced from both academic and industry experts.