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Investing Research Articles

Reversion to Something

Do stock index prices fluctuate around some value baseline? In his March 2001 paper entitled “Temporary Movements in Stock Prices”, Jonathan Lewellen investigates the degree to which stock market returns exhibit long-term reversion. Using data from the period 1926-1998, he concludes that: Keep Reading

Are Short Sellers Smarter Than the Average Bear?

Should investors avoid stock with a high short interest? In their March 2004 paper entitled “Short Interest and Stock Returns”, Paul Asquith, Parag A. Pathak and Jay R. Ritter examine short selling trends and test the performance of stocks with high levels of short interest. Using data covering the period 7/88-12/02 for NYSE-AMEX-NASDAQ firms and 2/76-12/02 for NYSE-AMEX firms only, they find that: Keep Reading

Implicit Coordination of Individual Investors?

In their April 2003 paper entitled “Systematic Noise”, Brad Barber, Terrance Odean and Ning Zhu investigate the degree to which the trading behaviors of individual investors are systematic and herd-like. Using samples of 66,465 investors at a large national discount broker and 665,533 investors at a large retail broker, they find that: Keep Reading

The Lure of Trading?

Is frequent trading an essential aspect of portfolio outperformance? In their April 2000 paper entitled “Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors”, Brad Barber and Terrance Odean examine the trading behavior and returns of retail investors. Using data for 66,465 households at a large discount brokerage firm during 1991-1996, they find that: Keep Reading

Does Investor Sentiment Give Trading Signals?

Should traders lean with or against the crowd? In their May 2002 paper entitled “Investor Sentiment and the Near-term Stock Market”, Gregory Brown and Michael Cliff from investigate whether investor sentiment offers any valid trading signals. They find that: Keep Reading

Randomly Walking in Circles?

In his April 2003 working paper entitled “The Efficient Market Hypothesis and Its Critics”, Burton Malkiel, author of A Random Walk Down Wall Street, contends that “a blindfolded chimpanzee throwing darts at the Wall Street Journal could select a portfolio that would do as well as the experts.” Has recent work of the behavioral finance community and the pattern-finders changed his mind? Keep Reading

Do Day Traders Make Money?

Could we make a bundle day trading? In their May 2004 paper entitled “Do Individual Day Traders Make Money? Evidence from Taiwan”, Brad Barber, Yi-Tsung Lee, Yu-Jane Liu and Terrance Odean assess the success of day traders in the Taiwan stock market. Using detailed individual trading records, they find that: Keep Reading

Does Consumer Confidence Predict Stock Market Returns?

Should we pay attention whenever pollsters issue new consumer confidence numbers? In their October 2002 paper entitled “Consumer Confidence and Stock Returns”, Ken Fisher and Meir Statman examine whether consumer confidence, as defined and measured by the Conference Board and the University of Michigan, predict the stock market? They determine that: Keep Reading

Classic Paper: Piotroski’s Efficient Value Investing

We occasionally select for retrospective review an all-time “best selling” research paper of the past few years from the General Financial Markets category of the Social Science Research Network (SSRN). In his January 2002 paper entitled “Value Investing: The Use of Historical Financial Statement Information to Separate Winners from Losers”, Joseph Piotroski applies a simple accounting-based fundamental analysis strategy to a broad portfolio of high (top 20%) book-to-market firms to enhance returns. His stock scoring system (FSCORE) consists of nine binary signals based on profitability and value-specific financial measures (see the list below). Using stock returns and fundamentals for a broad sample of U.S. stocks during 1976 through 1996, he finds that: Keep Reading

Fed Model: Predictive or Not?

Many investors monitor the Fed Model, based on the relationship between the earnings yield of stocks and the bond yield, for long-term stock market timing signals. Does this model really work? Notable contrary arguments are found in the December 2002 paper entitled “Fight the Fed Model: The Relationship Between Stock Market Yields, Bond Market Yields, and Future Returns” by Clifford S. Asness and the 2004 paper entitled “A Tactical Implication of Predictability: Fighting the Fed Model” by Roelof Salomons. These two papers present similar analyses and conclusions, as follows: Keep Reading

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