finding alpha from stock buyback announcements in the quantopian research platform, anju marempudi...
TRANSCRIPT
Objectives - Overview of Share Buybacks - Asking the question: How do we find alpha?
- Find out what the data looks like - Walk through abnormal returns found in event study - Craft an algorithm based off final results
- Incorporating multiple events with EventVestor
Why Companies Perform Share Buybacks - Buybacks are increasing in recent years
- Better ROE and ROA - Value for investors - Undervalued company - Tax benefits before 2013
- Buybacks were taxed at capital gains - Dividends were taxed at income-rates
- Buybacks can backfire
- “It’s just not the way to run a business.” - Buffet
Finding Alpha - What does the data look like? - What do abnormal returns look like around the event? - Can we use that to create a viable trading strategy?
Size of Buyback Announcements - Smaller buybacks are more popular
- ~800 smaller vs. 300 bigger in 2014 - Growing at the same pace: ~11% YoY median increase
PSBAD Algorithm - Trading on buybacks with a size greater than 7.5%
- Returns: 144.5% - Sharpe: 1.66 - Drawdown: 16.5% - Community Post
- Soon live trading available with E*TRADE
Growing Popularity of Event-Driven Strats - 19% increase in net demand for Event-Driven strategies, according to the
2014 Credit Suisse survey. - Most funds focus on few events, but more and more funds are expanding
to additional corporate events for alpha generation - Beyond hedge funds, event-driven strategies are gaining ground with
mutual funds and ETFs . - Corporate Events add significant boost to quant trading strategies - Event-driven investors are increasingly using the portfolio approach,
building portfolios with high sigma events, there by increasing the portfolio hit rates
- Hedge funds looking to profit from rising and falling share prices (long/short equity strategies) also benefit and generate excess returns using corporate events overlays on market data
- Event-driven strategies provide an alternate investment strategy with low correlations to economic and market trends.
More Alpha Generating Events
- CEO Changes - Clinical Trials - FDA Decisions - PDUFA Dates - Dividend Changes - Earnings Releases - Earnings Guidance - Index Changes - Equity Issue
- Insider Transactions - Activist Transactions - Litigations and
Regulatory - Mergers & Acquisitions - Proxy Contests - Retail Same Store Sales - Shareholder Activism - Spin-offs - Stock Splits
EventVestor events to be available in Q 10-K Filings Divestment M&A Announcement 10-Q Filings Dividend M&A Approval 13D Filings Downsizing M&A Close 13G Filings Earnings Preview M&A Related 8-K Filings Earnings Release M&A Withdrawal Alliance Earnings Restatement Patents & Copyrights Asset Purchase Exec Bonus and Grants PDUFA Dates Asset Sale Executive Changes Poison Pill Bankruptcy FDA Filings Product Recall Board Changes Guidance Product/Service Business Expansion Impairments and Charges Proxy Contest Business Unit Close Index Additions Proxy Meeting Business Unit Purchase Index Deletions Proxy No-Action
Letters Business Unit Sale Insider Transactions Proxy Voting Results Business Update Institutional Transactions Redemption Buyback Investment Refinance Buyback Update Investor Meeting Reorganization CEO Change Issue Debt Same Store Sales Clinical Trials Issue Equity Secondary Pricing Conference Joint Venture Settlement Contract Win Layoff Spin-off Credit Facility Legal/Regulatory Stock Split
Listings Related Strategy
Tender Offer