Testing Prattle: Does Our Data Make A Good Equity Market Trade Signal?

  • Wednesday, October 14, 2015

SFYRKERH4N

Prattle contends that Fed communications serve as vital investment data for equity market players, but this assertion is not without its skeptics.

Everyone knows the Fed moves fixed income, but the stock market is an entirely different game. After all, the Fed simply doesn’t purchase equity, so how much weight can their voice have in that space? And, even if it did, is there really a reliable way to leverage that impact in an investment strategy?

Our answers? The Fed has tremendous sway in the equity markets, and there is, in fact, a viable means of leveraging that impact–the Fed Index.

To begin to test this proposition, Prattle asked Arialytics, a systematic investment research and advisory firm, to evaluate the Fed Index as an equity markets trade signal. Applying their trademark rigor and scientific approach to the task, Arialytics thorough backtests of our data produced remarkable results. Arialytics used the Fed Index to guide 8 different strategies over 11 years judged against the performance of 8 different strategies over the same time span guided by standard means, and, in every case, the Fed Index-driven portfolios significantly outperformed (as measured by Sharpe Ratio) conventional methods.

Arialytics Results

To read the entire study, just click here.

 

The Prattle Team,
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