Investing Research Articles

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Preliminary Value Strategy Update

The home page and “Value Strategy” now show preliminary asset class ETF value strategy positions for July 2016. There may be small shifts in allocations based on final data.

A Few Notes on Odds On: The Making of an Evidence-based Investor

Matt Hall, cofounder and president of Hill Investment Group, introduces his 2016 book, Odds On: The Making of an Evidence-Based Investor, by stating that: “…the evidence-based movement has been studying market data and academic research to identify the groups of stocks and other investments that provide better odds of long-term success. …I’m inviting you to learn how evidence-based investing could change your life…” Based on his experience, he concludes that: Keep Reading

Momentum Strategy and Trading Calendar Updates

We have updated monthly asset class ETF momentum winners and associated performance data at Momentum Strategy.

We have updated the Trading Calendar to incorporate data for June 2016.

Preliminary Momentum Strategy Update

The home page and “Momentum Strategy” now show preliminary asset class ETF momentum strategy positions for July 2016. Differences in past returns among the top places suggest that rankings are unlikely to change by the close, with the smallest gap between third and fourth places.

Long-term SMA and TOTM Combination Strategy

“Turn-of-the-Month Effect Persistence and Robustness” indicates that average absolute returns during the turn-of-the-month (TOTM) are strong for both bull and bear markets. Does a strategy of capturing all bull market returns and TOTM returns only during bear markets perform well? To investigate, we apply four strategies to S&P Depository Receipts (SPY) as a tradable proxy for the stock market: (1) buy and hold SPY; (2) invest in SPY (cash) when SPY closes above (below) its 200-day simple moving average (SMA200); (3) invest in SPY from the close five trading days before through the close four trading days after the last trading day of each month and cash at all other times (TOTM); and, (4) invest in SPY when SPY closes above its 200-day SMA and otherwise use the TOTM strategy (SMA200 + TOTM). We explore sensitivities of these strategies to a range of one-way SPY-cash switching frictions, with baseline 0.1%. Using daily dividend-adjusted closing levels of SPY from inception (January 1993) through early June 2016 and contemporaneous 3-month Treasury bill (T-bill) yields, we find that: Keep Reading

Does the Turn-of-the-Month Effect Work for Asset Classes?

Does the Turn-of-the-Month Effect, a concentration of positive stock market returns around the turns of calendar months, work across a broad set of asset classes. To investigate, we measure turn-of-the-month (TOTM) returns for the following eight asset class exchange-traded funds (ETF) used in the “Simple Asset Class ETF Momentum Strategy”:

PowerShares DB Commodity Index Tracking (DBC)
iShares MSCI Emerging Markets Index (EEM)
iShares MSCI EAFE Index (EFA)
SPDR Gold Shares (GLD)
iShares Russell 1000 Index (IWB)
iShares Russell 2000 Index (IWM)
SPDR Dow Jones REIT (RWR)
iShares Barclays 20+ Year Treasury Bond (TLT)

We define TOTM as the eight-trading day interval from the close five trading days before the first trading day of a month to the close on the fourth trading day of the month. Using daily dividend-adjusted closes for these ETFs from their respective inceptions (ranging from May 2000 for IWB to February 2006 for DBC) through June 2016 (124-193 months), we find that: Keep Reading

Does the Turn-of-the-Month Effect Work for Sectors?

A reader inquired whether the Turn-of-the-Month Effect, a concentration of positive stock market returns around the turns of calendar months, works for U.S. stock market sectors. To investigate, we measure turn-of-the-month (TOTM) returns for the nine sector exchange-traded funds (ETF) defined by the Select Sector Standard & Poor’s Depository Receipts (SPDR), all of which have trading data back to December 1998:

Materials Select Sector SPDR (XLB)
Energy Select Sector SPDR (XLE)
Financial Select Sector SPDR (XLF)
Industrial Select Sector SPDR (XLI)
Technology Select Sector SPDR (XLK)
Consumer Staples Select Sector SPDR (XLP)
Utilities Select Sector SPDR (XLU)
Health Care Select Sector SPDR (XLV)
Consumer Discretionary Select SPDR (XLY)

We define TOTM as the eight-trading day interval from the close five trading days before the first trading day of a month to the close on the fourth trading day of the month. Using daily dividend-adjusted closes for the sector ETFs and for S&P Depository Receipts (SPY) as a benchmark from December 1998 through June 2016 (210 months), we find that: Keep Reading

Turn-of-the-Month Effect Persistence and Robustness

Is the Turn-of-the-Month (TOTM) effect, a concentration of relatively strong stock market returns around the turns of calendar months, persistent over time and robust to different market conditions. Does it exist for all calendar months? Does it persist throughout the U.S. political cycle? Does it work for different indexes? To investigate, we define TOTM as the interval from the close five trading days before to the close four trading days after the last trading day of the month (a total of eight trading days, centered on the monthly close). Using daily closes for the S&P 500 Index during January 1950 through June 2016 (797 TOTMs) and for the Russell 2000 Index during September 1987 through June 2016 (345 TOTMs), we find that: Keep Reading

ADP Employment Report and Stock Returns

Since May 2006, the monthly ADP National Employment Report has released a monthly estimate of U.S. nonfarm private sector employment growth using actual payroll data. The report is designed “to predict private-sector employment prior to the release of the CES [Bureau of Labor Statistics’ monthly Current Employment Statistics survey] report.” Do the ADP estimates affect or predict U.S. stock market returns on the release day or over the next month? To investigate, we consider both as-released (from press releases) and as-revised ADP data (from the extended downloadable historical dataset). Using monthly ADP report release dates and as-released employment growth estimates commencing April 2006, historically modeled ADP employment growth estimates commencing April 2001 and contemporaneous daily opening/closing and monthly dividend-adjusted closing prices of SPDR S&P 500 (SPY) through early June 2016, we find that: Keep Reading

Weekly Summary of Research Findings: 6/20/16 – 6/24/16

Below is a weekly summary of our research findings for 6/20/16 through 6/24/16. 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

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Current Momentum Winners

ETF Momentum Signal
for July 2016 (Final)

Winner ETF

Second Place ETF

Third Place ETF

Gross Compound Annual Growth Rates
(Since August 2006)
Top 1 ETF Top 2 ETFs
11.4% 11.8%
Top 3 ETFs SPY
12.8% 7.3%
Strategy Overview
Current Value Allocations

ETF Value Signal
for July 2016 (Preliminary)

Cash

IEF

LQD

SPY

The asset with the highest allocation is the holding of the Best Value strategy.
Gross Compound Annual Growth Rates
(Since September 2002)
Best Value Weighted 60-40
12.6% 9.8% 7.9%
Strategy Overview
Recent Research
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