Research Papers

Back II to The System: An Updated Analysis on Which NBA Teams and Players Fit Best into the Grinnell System

In a followup to our first-ever paper, we dive back into the world of crossing the NBA with the high-paced, high-shot volume, full-pressed playstyle of the Grinnell System. Our original paper looked at the creation of a “System factor” at the team level over the course of a single season’s worth of NBA games to determine which teams were best-suited to run The System, but we’ve greatly expanded upon that original framework in three key ways in this publication. We’ve widened the lens of the games data at the team level to the previous ten seasons in order to better understand which teams were truly capable of running The System over the past decade, either for a single season or over a longer-term period. We’ve looked at player data for the past three seasons in order to determine which players are the most-suited for System play. When this output greatly favored All Star-level talent, we created a series of adjustments relative to Player Impact Estimates (PIE) in order to find players who could see a great boost in performance in such a playstyle. Finally, we use the player results to project which 2021-22 preseason rosters are the best-suited to run The System for the upcoming season. This analysis ends up resulting in five potential teams, once accounting for recent performance, franchise history, and potential impact of the rookies that lack the data to be included in the results.

Buy Local: Creation of a Robust Long-Term Single-Market Equity Strategy Via Coves (Country-Oriented Volatility-Enhanced Strategies)

Try as we might via research, recommendation, and ridicule, it does not seem that the financial industry will ever be able to fully remove the home country bias effect from investors. While investing in companies that you encounter in domestic life makes rational sense, it over-leverages individuals in their home country, so when a recession occurs their investment portfolio is at increased risk along with their job and economy. If investors will continue to over-invest in their own markets, providing a domestic investment strategy that protects against economic downturn would be the best option to protect against inevitable drawdowns. Since most losses occur in markets during periods of high volatility, using a strategy that plays off of the anti-correlated nature between a volatility-based index (similar to VIX) and the market at-large is a way to assure that positioning is correct during bull and bear market phases. By using a synthetic volatility index derived solely from daily pricing data, we applied a simple “double-switch” strategy to ETFs that represented the stock markets of 45 different countries. While the double-switch strategy by itself saw a significant rise in both annualized returns and volatility, pairing the double-switch with a long position in the core ETF on a quarterly-rebalancing 70:30 (ETF/Switch) ratio, we saw an increase in annualized return over the core ETF that greatly outpaced the rise in volatility. These Country-Oriented Volatility-Enhanced Strategies (COVES) provide a powerful proof-of-concept of a volatility-based hedge strategy for a standard equity index market. The structure of these COVES make funds an near-impossibility via traditional finance, but strides being made in the Decentralized Finance (DeFi) industry hold a lot of promise for a path toward investable COVES in the near future, including the pairing of COVES with an inflation-hedged base currency to provide an even more protected domestically-focused investment vehicle.

Identification of Potential COVID-Related Insider Trading by US Representatives Based on Financial Disclosures

In a follow-up companion piece to our previous paper, we have continued with our analysis of COVID-based insider trading by US legislators. Much like the US Senate, the US House of Representatives received their own closed-door briefing regarding the severity of the COVID-19 virus in late January, well before its designation as a pandemic that would radically alter the lives and livelihoods of practically everyone in the world. Despite having a significant amount of headway to fully prepare the nation, the lack of a unified response at the national level led to the United States being near the top of the country list for COVID-19 cases and deaths per capita. Furthermore, some elected officials went even further beyond ineptitude and into illegal profiteering by placing self-enriching stock transactions based on the information gained from that non-public COVID briefing. To identify these bad actors, we carried out three analyses on US Representative stock transactions looking for signs of insider trading centered around the private COVID-19 briefing: alterations in transactional volume, significant changes in strategy relative to the US market, and a market timing advantage relative to two baselines. Much like our previous work, we found signals and suggestions of insider trading by certain elected officials, specifically by 15 Representatives ranging from “doubtful” to a “strong likelihood” of illegal trading. Once again, while there are strong suggestions of insider trading within these results, the data provided can only go so far in terms of solid evidence, and we hope to see a deeper analysis and investigation by those who have access to a more-complete picture of these transactions.

Identification of Potential COVID-Related Insider Trading by US Senators Based on Financial Disclosures

The COVID-driven recession in the first quarter of 2020 was a sharp and severe decline in the US market that mirrored the unchecked spread of the virus across the nation. While the vast majority of the publiic was caught off-guard by this pandemic, others knew about the threat the virus posed on the well-being of Americans as well as its potential impact on the economy. In particular, the US Senate was informed of the severity of COVID-19 in a private briefing on January 24th, 2020; while a plurality of Senators used this knowledge to attempt to help prepare the nation, a few Senators decided to personally profit off of this information. We carried out three analyses on US Senator stock transactions looking for signs of insider trading centered around the private COVID-19 briefing: alterations in transactional volume, significant changes in strategy relative to the US market, and a market timing advantage relative to two baselines. Based on the results from these analyses, there are suggestions that three senators took advantage of the information obtained in that January briefing to alter their investment strategy: Senators Richard Burr, Kelly Loeffler, and David Perdue. Interestingly, each senator enacted their informational advantage in a different way, making it difficult to detect some of them with a topline glance. While there are strong suggestions of insider trading within these results, the data provided can only go so far in terms of solid evidence, and we hope to see a deeper analysis and investigation by those who have access to a more-complete picture of these transactions.

Determination of Executive Actions for Self-Enrichment (EASE) at the Cost of Corporate Integrity

The COVID-19 pandemic and its impact on the US economy led to an unprecedented bailout in the early days of the subsequent recession. Companies lined up for a share of the funds but many of them were, in our estimation, unworthy of assistance given risky use of free cashflow for share repurchases, limiting their ability to adjust to an economic downturn. Our research resulted in the creation of the Executive Actions for Self-Enrichment (EASE) score, a quarterly determination of the companies that are working toward long-term business outcomes vis-a-vis those working towards hollowing out their business in the pursuit of short-term market gains. Scores were determined through the combination of pricing, key financials, and executive stock sales/purchases via SEC Form 4 data. We believe that EASE is able to accurately identify the overleveraging of debt to buy back company shares while executives offload their equity at artificially-induced prices. Conversely, this data also indicates an outsized return effect for the top decile of long-term-focused businesses. Going forward, we expect that EASE will provide a clear window into how companies are being run in a way that is immediately actionable, providing the public with the means to hold companies accountable via their investment decisions and beyond.

Not All Heroes Wear CAPEs: Creation of a Global Stock Investment CEILING (Country Equity Index Leading Indicator for Near-term Gains)

Investors have a home country bias when it comes to investing, despite the diversification benefits that a global scope can provide. This over-reliance on domestic markets can be reduced through reliable indicators that inform investors of how global markets are performing. While ubiquitous indicators such as the CAPE ratio can provide an idea of market positioning, mostly all of these are not useful on a typical investment timescale. This led to the development of the County Equity Index Leading Indicator for Near-term Gains (CEILING), an indicator that delivers daily global market positioning for over 100 countries, providing strong and weak signals for value and growth potential. CEILING shows strong correlation with growth and value signals, and even shows potential viability as an investment strategy, with gross returns of over 10% or more depending on the rebalancing period.

Kings of The System: Determining the NBA Team(s) That Would Be the Best Fit for the Grinnell System Using Investment-Based Quantitative and Qualitative Analysis

The Grinnell System is a fast-paced basketball playstyle that emphasizes a massive amount of high-value shots, stifling full-court defense, and full lineup substitutions in order to both force opponents into a high-octane shootout and to provide a non-stop spectacle for anyone watching. The System has resulted in multiple NCAA records for most assists in a single game along with providing a game in which a Grinnell player scored an absurd 138 points in 36 minutes, a total unequaled at any professional or collegiate level in the United States. It is clear that The System has merit in its current application, but does it have promise at the NBA level? This paper sought out the answer to that question, combining quantitative and qualitative analysis akin to that used in the investment field. The quantitative portion consisted of using NBA 2018-19 season data to build a factor model off of five key components of The System and transforming them via normalization and vectorization. This resulted in an all-encompassing "System Factor" in order to see which NBA teams fared best with The System. This quantitative factor analysis resulted in four NBA teams being the top candidates. These teams were further winnowed down with a combination of topline quantitative statistics and qualitative perspectives, eliminating teams with too much downside, personnel uncertainty, and a lack of history with The System itself. In the end, the Sacramento Kings emerged as the NBA team with the right combination of quantitative metrics and qualitative support to run The System.