|By Business Wire||
|October 19, 2016 09:01 AM EDT|
Cuemacro, a research firm identifying the cues in macro markets, today released a study of a hypothetical trading model using the Investopedia Anxiety Index (IAI) as a filter. The results showed that the IAI could be a replacement for the VIX and that IAI-filtered portfolios can outperform VIX-filtered portfolios.
“The Investopedia Anxiety Index is an original and effective way to measure investor concerns,” comments Saeed Amen, Founder of Cuemacro. “We conducted the study to test the hypothesis that having a finger on the pulse of what investors’ concerns might provide a trading advantage. What was remarkable about our findings was that the IAI actually outperforms the VIX and can be a leading indicator of price action.”
Investopedia is the web's premier source of trusted financial content with over 23 million unique visitors a month and 75 million page views. The IAI aggregates search terms indicating investor concern into an index to illustrate a clear picture of investor sentiment over time. Cuemacro’s research proved a statistically significant and heavy correlation between the VIX and the IAI, suggesting that for firms using the VIX as an indicator, it could be replaced with the IAI.
Using data from 2012 to the end of May 2016, the Cuemacro study found that:
- An IAI-filtered trading strategy outperforms a long-only strategy across stock futures related to the S&P500, Nikkei, FTSE100 and DAX
- An IAI-filtered portfolio outperforms a long-only and VIX filter with risk-adjusted returns of 1.25 (versus 0.95 for VIX and 0.83 for long-only)
The IAI-filtered portfolio delivered the best returns of 15.6% versus
13.3% for VIX and 12.9% for long-only
The IAI has a statistically significant relationship with the VIX and can be used as a replacement for the VIX when it comes to measuring fear in the market
- Using the IAI can “add considerable value compared to using the VIX alone as a filter for trading risky assets”
While resulting in higher returns, the IAI-filtered portfolio also experienced the lowest volatility of the trading strategies.
David Siegel, CEO of Investopedia, says, “When we created the IAI, we always believed that the potential of the index was far-reaching. In addition to providing an indicator as to how anxious investors might be, firms may now be able to use the IAI as a valuable indicator when building trading strategies or financial products. We are excited by the results of Cuemacro’s study and the possibilities they present.”
Cuemacro is a company focused on understanding macro markets from a quantitative perspective, in particular currency markets. Our goal is to understand how data can be used to deepen understanding of macro markets. We use both existing and innovative data sources, to create systematic trading strategies and data indices.
Wholly owned by IAC (NASDAQ:IAC), Investopedia is the world's leading source of financial content on the web, with more than 23 million unique visitors and 75 million page views each month. Powered by a team of data scientists and financial experts, Investopedia offers timely, trusted and actionable financial information for every investor, from early investors to financial advisors to high net worth individuals. Investopedia is operated by IAC Publishing, a collection of some of the web's largest and most trusted digital media brands. For the latest in financial news and information, visit http://www.investopedia.com.
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