Investing Research Articles

Does uncertainty about future firm earnings underlie stock factor returns? In their August 2017 paper entitled “Uncertainty, Momentum, and Profitability”, Claire Liang, Zhenyang Tang and Xiaowei Xu examine relationships between analyst uncertainty about current-year firm earnings and four U.S. stock return anomalies. They each month estimate uncertainty for each stock as square root of the average squared differences between… Keep Reading

Do analysts systematically ignore the connection between future firm earnings and current economic conditions? In their July 2024 paper entitled “Predicting Analysts’ S&P 500 Earnings Forecast Errors and Stock Market Returns Using Macroeconomic Data and Nowcasts”, Steven Sharpe and Antonio Gil de Rubio Cruz examine the quality of bottom-up forecasts of near-term S&P 500 earnings… Keep Reading

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

Do analysts/investors predictably and exploitably misinterpret tones of earnings calls? In their October 2025 paper entitled “Do Investors Get It Right? Reaction Bias to Earnings Calls”, Zhenzhen Fan and Fred Liu study interactions between textual information in earnings conference calls and analyst revisions to their next-quarter earnings forecasts. Specifically, they: For each stock and each… 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