Behavioral Bias Benefits: Beating Benchmarks By Bundling Bouncy Baskets
Ravi Kashyap

TL;DR
This paper introduces 'The Bounce Basket', a strategy that combines macroeconomic insights and security characteristics to identify undervalued, heavily shorted stocks with solid fundamentals, aiming to outperform markets during rebounds after downturns.
Contribution
It develops a quantitative, data-driven investment approach that leverages short interest and fundamental analysis to exploit market rebounds, especially during crisis-induced downturns.
Findings
Simulations show effective ranking of heavily shorted securities.
The strategy performs well during market rebounds post downturns.
Applicable during crisis scenarios like the COVID-19 pandemic.
Abstract
We consider in detail an investment strategy, titled "The Bounce Basket", designed for someone to express a bullish view on the market by allowing them to take long positions on securities that would benefit the most from a rally in the markets. We demonstrate the use of quantitative metrics and large amounts of historical data towards decision making goals. This investment concept combines macroeconomic views with characteristics of individual securities to beat the market returns. The central idea of this theme is to identity securities from a regional perspective that are heavily shorted and yet are fundamentally sound with at least a minimum buy rating from a consensus of stock analysts covering the securities. We discuss the components of creating such a strategy including the mechanics of constructing the portfolio. Using simulations, in which securities lending data is modeled as…
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Taxonomy
TopicsMarket Dynamics and Volatility · Energy, Environment, and Transportation Policies · Innovation Diffusion and Forecasting
