Investing Research Articles

Is momentum a rational firm earnings growth proxy rather than a manifestation of investor underreaction/overreaction to news? In their August 2024 paper entitled “A Unified Framework for Value and Momentum”, Jacob Boudoukh, Tobias Moskowitz, Matthew Richardson and Lei Xie present an asset pricing model that treats value and momentum as complementary inputs to a present… Keep Reading

“Predicting Stock Market Return with Stocks-TIPS Yield Delta” summarizes results of a study finding that deviations of the S&P 500 earnings yield from the real government bond yield, as measured by the 10-year Treasury Inflation-Protected Securities (TIPS) coupon yield, has statistical power to predict future stock market returns. To corroborate this finding from an investing… Keep Reading

Are all stocks except U.S. growth cheap? In his brief February 2025 paper entitled “Decomposing Equity Returns: Earnings Growth vs. Multiple Expansion”, David Blitz decomposes equity returns of different global equity markets and styles (size, low-volatility, value) into dividend yield, earnings growth and multiple expansion. The decomposition consists of: Subtracting price return from total return… Keep Reading

Does trading in stock index options exploitably predict the behavior of the stock market? In their June 2016 paper entitled “The Informational Role of Index Option Trading”, Tarun Chordia, Alexander Kurov and Avanidhar Subrahmanyam examine the relationship between U.S. equity index option net order imbalance and future S&P 500 Index returns. They calculate net order imbalance as the… Keep Reading

…operating earnings forecasts are the best simple indicator of stock market valuation.

The guiding belief of the Fed Model of stock market valuation is that investors use a Treasury note (T-note) yield as a benchmark for the expected (forward) earnings yield of the stock market. When the gap between the forward earnings yield and the T-note yield is positive (negative), stocks are relatively attractive (unattractive), and investors… Keep Reading

Should investors buy stocks of companies for which analysts have issued very high earnings growth forecasts? In the March 2021 revision of their paper entitled “Diagnostic Expectations and Stock Returns”, flagged by a subscriber, Pedro Bordalo, Nicola Gennaioli, Rafael La Porta and Andrei Shleifer update and extend prior research on the relationship between analyst long-term… Keep Reading

Can financial statement analysis expose stocks that investors incorrectly view as value or growth (glamor)? In their February 2011 paper entitled “Identifying Expectation Errors in Value/Glamour Strategies: A Fundamental Analysis Approach”, Joseph Piotroski and Eric So investigate stock misvaluation by contrasting firm performance expectations implied by value/growth classification with a simple financial statement metric that… Keep Reading

Enterprise multiple (EM) is the ratio of enterprise value (EV) to earnings before interest, taxes, depreciation and amortization (EBITDA), with EV market value of equity plus total debt and preferred stock value minus cash and short-term investments. What happens when EM disagrees with other stock valuation metrics? In their October 2016 paper entitled “Why Do Enterprise… Keep Reading

Do expert investors (institutional stock portfolio managers) add value both by buying future outperforming stocks and by selling future underperforming stocks? In their December 2018 paper entitled “Selling Fast and Buying Slow: Heuristics and Trading Performance of Institutional Investors”, Klakow Akepanidtaworn, Rick Di Mascio, Alex Imas and Lawrence Schmidt examine trade decisions of experienced institutional (e.g., pension fund) stock portfolio… Keep Reading