Quantitative Monographs "From Carts to Charts: Tradable Signals from Tao..."

Research evidence excerpt

Quantitative Monographs "From Carts to Charts: Tradable Signals from Tao..."

Quantitative Monographs UBS Research

Executive summary

The China Online Market Monitor is a proprietary dataset from UBS Evidence Lab. It

tracks the online market performance of major platforms, categories and consumer

brands by monitoring Gross Merchandise Value (GMV) and Unit Sales of merchandise

being sold on Taobao and Tmall platforms in China.

We test these inputs as factors at the security level, asking the simple question: can

online pricing and sales behaviour be used to identify alpha for global consumer stocks?

Calculating information coefficients (ICs) across various holding periods, we find there is

significant positive correlation between the Tmall Average Selling Price (ASP)

and subsequent excess returns (t = 2.44), after controlling for quant factor

exposures. Other measures and platforms provide context, but do not deliver the same

persistent performance.

Intuitively, this signal should only work where Tmall sales are significant enough to move

equity values. We calculate the Tmall GMV as a percentage of company sales (exposure)

and use this to further condition our analysis.

Back testing a long-short portfolio using the residual Tmall Average Selling Price (ASP)

factor, and conditioning on Tmall GMV exposure, achieves excess returns of +11.1% p.a

(IR = 0.80).

Figure 2: Factor information coefficients - Consumer Figure 3: Residual Tmall ASP - Consumer - Excess Returns

(equal weighted) - Upper two quintiles by Tmall GMV %

total sales

Factor information coefficient Ret sales

s - Consumer cess

- Ex

mer

nsu

Co

P -

AS

ll

Tma

dual

Resi

urns ( equal weight ed) - Upper two qu intile s by T

ma ll G MV % total

Source: FactSet, UBS Evidence Lab, UBS Quant Research. USD Market cap > 250m.