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Latest Market Research Articles

Weekly Summary of Research Findings: 4/14/14 – 4/17/14

Below is a weekly summary of our research findings for 4/14/14 through 4/17/14. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs.

Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list. Keep Reading

Utilities Sector as Stock Market Tell

Does the utilities sector exhibit a useful lead-lag relationship with the broad stock market? In their January 2014 paper entitled “An Intermarket Approach to Beta Rotation: The Strategy, Signal and Power of Utilities”, Charles Bilello and Michael Gayed test a simple strategy that holds either the U.S. utilities sector or the broad U.S. stock market based on their past relative strength. Specifically, when utilities are relatively stronger (weaker) than the market based on total return over the last four weeks, hold utilities (the market) the following week. They call this strategy the Beta Rotation Strategy (BRS) because it seeks to rotate into utilities (the market) when the investing environment favors low-beta (high-beta) stocks. They perform both an ideal (frictionless) long-term test and a short-term net performance test using exchange-traded funds (ETF). Using weekly total returns for the Fama-French utilities sector and broad market since July 1926 and for the Utilities Select Sector SPDR (XLU) and Vanguard Total Stock Market (VTI) since July 2001, all through July 2013, they find that: Keep Reading

Assessing Active Investment Managers

Do active investment managers beat the market? In their January 2014 paper entitled “Active Manager Performance: Alpha and Persistence”, Frank Benham and Edmund Walsh assess the performance of active investment managers relative to appropriate benchmarks across asset classes over long periods. They consider six basic investment classes: core bonds; high-yield bonds; domestic large capitalization stocks; domestic small capitalization stocks; foreign large capitalization stocks; and, emerging markets stocks. They focus on whether investment managers beat benchmarks in the past and whether past outperformers become future outperformers. They take steps to avoid survivorship bias, selection bias and fund classification errors. Using a sample of 5,379 live and dead funds assembled from Morningstar Direct by filtering to avoid classification errors and to eliminate redundant funds run by the same manager from benchmark inceptions (ranging from January 1979 for domestic stocks to January 1988 for emerging markets stocks) through 2012, they find that: Keep Reading

Inflation Forecast Update

The Inflation Forecast now incorporates actual total and core Consumer Price Index (CPI) data for March 2014. The actual total (core) inflation rate for March is slightly higher than (slightly higher than) forecasted.

The new actual and forecasted inflation rates will flow into Real Earnings Yield Model projections at the end of the month.

Why Analysts Miss Targets?

Do professional analysts systematically miss target prices for individual stocks? In the November 2013 draft of their paper entitled “Understanding and Predicting Target Price Valuation Errors”, Patricia Dechow and Haifeng You measure the errors in returns implied by professional stock analyst consensus price targets and examine the sources of these errors. They further investigate whether investors can anticipate and exploit consensus target price errors. They construct consensus target prices at the end of each month as the simple average of the most recent target price forecasts issued by following analysts within the last 90 days. Using analyst stock price targets, actual monthly returns and trading volumes, firm accounting data and institutional ownership data spanning April 1999 through December 2011 (227,127 firm-month observations), they find that: Keep Reading

Stock Returns Around Easter

Does the seasonal change marked by the Easter holiday, with the U.S. stock market closed on the preceding Good Friday, tend to produce anomalous returns? To investigate, we analyze the historical behavior of the S&P 500 Index before and after the holiday. Using daily closing levels of the S&P 500 index for 1950-2013 (64 events), we find that: Keep Reading

Weekly Summary of Research Findings: 4/7/14 – 4/11/14

Below is a weekly summary of our research findings for 4/7/14 through 4/11/14. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs.

Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list. Keep Reading

Room for Manipulation by Stock Analysts?

How do professional analysts value stocks? In their March 2014 paper entitled “Peering Inside the Analyst ‘Black Box’: How Do Equity Analysts Model Companies?”, Andreas Markou and Simon Taylor examine the private stock valuation models of a group of analysts working in research departments of large investment banks. They examine both modeling methods and inputs. Using 53 Excel-based valuation models from professional analysts covering the European healthcare and chemicals sectors acquired during the third quarter of 2009, they conclude that: Keep Reading

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Editor Archive Picks

Estimating Snooping Bias for a Multi-parameter Strategy

…ce is much better for high weights on past returns than for low weights. We guesstimate a rule of thumb that the snooping bias for the optimal parameter setting is the difference between the optimal CMGR and the average CMGR for the half of the range of settings closest to the optimal setting. Here, the optimal setting is 75% or 80%, and the half of the range of settings closest to optimal is 55% to 100%. The estimated snooping bias in CMGR from…

Navigating the Data Snooping Icebergs

Iterative testing of strategies on a set of data introduces snooping bias, such that a winning (losing) strategy is to some degree lucky (unlucky). Sharing of strategies across a community of researchers carries the luck forward, with accretion of additional bias from testing by subsequent researchers. Is there a rigorous way to account for this accumulation of snooping bias? In the October 2013 version of their paper entitled “Backtesting…

De-Snooping Market Timing Rules Based on Fundamental and Sentiment Indicators

…generate outperformance after correcting for this bias? In their February 2009 paper entitled “Data Snooping and Market-Timing Rule Performance”, Andreas Neuhierl and Bernd Schlusche assess the profitability of a comprehensive set of simple and complex market timing rules based on fundamental indicators and investor sentiment indicators after correcting for data snooping bias. Simple rules derive from a single indi…

Technical Trading Rules and Data Snooping Bias

…technical trading rules produce statistically significant profits before consideration is given to data snooping bias, but this profitability disappears after data snooping bias is taken into account.’ How are they doing ‘data snooping’ detection?” The paper you cite is an update of the version summarized at “Technical Analysis Tested Globally”. Working papers such as this one have varying…

What About the Paper “S&P 500 Returns Revisited”?

…reau, might be a useful predictor for the period after 2008.” This discussion indicates a tendency to data snooping. The variable construction and smoothing techniques used in the study point to explicit or implicit measurement/estimation intervals on the order of a year, indicating that many of the backtest periods in the paper are short. Small samples tend to elevate the import of data snooping bias. The study does not test any ways to ex…

Popular Articles

    Models, Trading Calendar and Momentum Strategy Updates

    We have updated the S&P 500 Market Models summary as follows: Extended Market Models regressions/rolled projections by one month based on data available through March 2014. Updated Market Models backtest charts and the market valuation metrics map based on data available through March 2014. We have updated the Trading Calendar to incorporate data for March 2014. More

    Inflation Forecast Update

    The Inflation Forecast now incorporates actual total and core Consumer Price Index (CPI) data for March 2014. The actual total (core) inflation rate for March is slightly higher than (slightly higher than) forecasted. The new actual and forecasted inflation rates will flow into Real Earnings Yield Model projections at the end of the month.

    Preliminary Momentum Strategy Update

    The home page and “Momentum Strategy” now show preliminary asset class momentum strategy positions for April 2014. Differences in past returns across the first, second and third places are relatively large and unlikely to change by the close. The difference between the third and fourth places is small enough that they might switch order by More

    A Few Notes on Investing with the Trend

    In the preface to his 2014 book entitled Investing with the Trend: A Rules-Based Approach to Money Management, author Greg Morris, Chairman of the Investment Committee and Chief Technical Analyst for Stadion Money Management LLC, states: “This book is a collection of almost 40 years of being involved in the markets, sharing some things I have More

    Stock Market Valuation Ratio Trends

    To determine whether the stock market is expensive or cheap, some experts use aggregate valuation ratios, either trailing or forward-looking, such as earnings-price ratio (E/P) and dividend yield. Operating under a belief that such ratios are mean-reverting, most imminently due to movement of stock prices, these experts expect high (low) future stock market returns when More

    Sector Performance by Calendar Month

    The Trading Calendar presents full-year and monthly cumulative performance profiles for the overall stock market (S&P 500 Index) based on its average daily behavior since 1950. How much do the corresponding monthly behaviors of the various stock market sectors deviate from an overall market profile? To investigate, we consider the nine sectors defined by the More

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Current Momentum Winners

ETF Momentum Signal
for April 2014 (Final)

Momentum ETF Winner

Second Place ETF

Third Place ETF

Gross Momentum Portfolio Gains
(Since August 2006)
Top 1 ETF Top 2 ETFs
217% 197%
Top 3 ETFs SPY
197% 68%
Strategy Overview
Stock Market Projection

Projected change in S&P 500 Index as of market close on 4/17/14…

4-17-14

For elaboration, go to Market Models or the detailed descriptions of the Real Earnings Yield (REY) Model and the Reversion-to-Value (RTV) Model.

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