Investing Research Articles
September 2, 2014 - Calendar Effects
“Intraday U.S. Stock Market Behavior” examines behavior of the S&P 500 Index at 15-minute intervals over the trading day during each of 2007 (bullish year) and 2008 (bearish year), finding slight tendencies for market weakness during mid-afternoon and market volatility at the beginning and the end of the trading day. Does recent data confirm these findings? To investigate, we calculate average cumulative returns and standard deviations of returns for both the S&P 500 Index and SPDR S&P 500 (SPY) measured at 5-minute intervals during the trading day over the last six months. Using 5-minute levels/prices for the S&P 500 Index and for SPY during 9:30-16:00 over the period August 2012 through August 2014, we find that: Keep Reading
September 2, 2014 - Fundamental Valuation
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 these ratios are high (low). Where are the ratios now? Using the most recent actual and forecasted earnings and dividend data from Standard & Poor’s, we find that: Keep Reading
August 29, 2014 - Calendar Effects, Fundamental Valuation, Momentum Investing
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 August 2014.
- Updated Market Models backtest charts and the market valuation metrics map based on data available through August 2014.
We have updated the Trading Calendar to incorporate data for August 2014.
We have updated the the monthly asset class momentum winners and associated performance data at Momentum Strategy.
August 29, 2014 - Weekly Summary
Below is a weekly summary of our research findings for 8/25/14 through 8/29/14. 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
August 29, 2014 - Momentum Investing
The home page and “Momentum Strategy” now show preliminary asset class momentum strategy positions for September 2014. The differences in past returns among the top three places are very small, and they may change order by the close. However, the gap between the third and fourth places is large enough that the top three are unlikely to change.
August 29, 2014 - Momentum Investing
As a follow-up to “Mutual Fund Hot Hand Performance Robustness Test”, a subscriber suggested testing a portfolio that each year holds the top two Fidelity diversified equity funds plus the top two Vanguard diversified equity funds from “Mutual Fund Hot Hand Performance” (four funds total). Such a portfolio should suppress volatility, particularly the effects of any outlier returns, while maintaining tax-friendly capital gains treatment. We extend that suggestion to consider the top three funds from each of the Fidelity and Vanguard sets. We use June-to-June annual returns starting 1993 with availability of SPDR S&P 500 (SPY) as a widely used and easily investable benchmark. The number of Fidelity (Vanguard) funds available for the initial ranking in 1993 is 23 (10), growing to 61 (49) by 2013. Using monthly total returns for SPY and the Fidelity and Vanguard diversified equity mutual funds as available from Yahoo!Finance during June 1993 through June 2014 (21 years), we find that: Keep Reading
August 28, 2014 - Big Ideas, Investing Expertise
How should investors assess systematic trading programs? In his August 2014 paper entitled “Evaluation of Systematic Trading Programs”, Mikhail Munenzon offers a non-technical overview of issues involved in evaluating systematic trading programs. He defines such programs as automated processes that generate signals, manage positions and execute orders for exchange-listed instruments or spot currency rates with little or no human intervention. He states that the topics he covers are not exhaustive but should be sufficient for an investor to initiate successful relationships with systematic trading managers. Based on his years of experience as a systematic trader and as a large institutional investor who has evaluated many diverse systematic trading managers on a global scale, he concludes that: Keep Reading
August 27, 2014 - Fundamental Valuation
Which firm accounting measures best predict future stock returns? In the August 2014 version of their paper entitled “Are Cash Flows Better Stock Return Predictors than Profits?”, Stephen Foerster, John Tsagarelis and Grant Wang investigate the power of enhanced cash flow measures to predict stock returns. They first devise procedures for transforming indirect cash flow and income statements into estimates of cash flow directly available to stockholders (see the table below). They then compare the ability of these measures and of alternative cash flow/profit/income measures to predict stock returns via hedge portfolios that are each month long (short) the tenth of stocks with the best (worst) values of each measure. They scale all measures either by total assets or by market value of equity. They consider both value-weighted and equal-weighted hedge portfolios. They use the real-time S&P 1500 (excluding financial firms) as their stock universe to ensure investability. Using monthly accounting data lagged by four months and monthly stock returns for the specified set of firms during October 1994 through December 2013, they find that: Keep Reading
August 26, 2014 - Calendar Effects
Does the Labor Day holiday, marking the end of summer vacations, signal any unusual return effects by refocusing U.S. stock investors on managing their portfolios? By its definition, this holiday brings with it any effects from the turn of the month. To investigate the possibility of short-term effects on stock market returns around Labor Day, we analyze the historical behavior of the stock market during the three trading days before and the three trading days after the holiday. Using daily closing levels of the S&P 500 Index for 1950 through 2013 (64 observations), we find that: Keep Reading
August 26, 2014 - Momentum Investing, Strategic Allocation
Subscribers have asked whether substituting leveraged exchange-traded funds (ETF) in the “Simple Asset Class ETF Momentum Strategy” might enhance performance. To investigate, we execute the strategy with the following eight 2X leveraged ETFs, plus cash:
ProShares Ultra DJ-UBS Commodity (UCD)
ProShares Ultra MSCI Emerging Markets (EET)
ProShares Ultra MSCI EAFE (EFO)
ProShares Ultra Gold (UGL)
ProShares Ultra S&P500 (SSO)
ProShares Ultra Russell 2000 (UWM)
ProShares Ultra Real Estate (URE)
ProShares Ultra 20+ Year Treasury (UBT)
3-month Treasury bills (Cash)
We allocate all funds at the end of each month to the asset class leveraged ETF or cash with the highest total return over the past five months (5-1). Using monthly adjusted closing prices for the specified ETFs and the yield for Cash over the period January 2010 (the earliest month prices for all eight ETFs are available) through July 2014 (only 55 months), we find that: Keep Reading