Investing Research Articles

Are gains from tax-loss harvesting, the systematic taking of capital losses to offset capital gains, additive to or subtractive from premiums from portfolio tilts toward common factors such as value, size, momentum and volatility (smart beta)? In their October 2014 paper entitled “Factor Tilts after Tax”, Lisa Goldberg and Ran Leshem look at the effects on portfolio performance… Keep Reading

What is the best way to construct equity multifactor portfolios? In the November 2018 revision of their paper entitled “Equity Multi-Factor Approaches: Sum of Factors vs. Multi-Factor Ranking”, Farouk Jivraj, David Haefliger, Zein Khan and Benedict Redmond compare two approaches for forming long-only equity multifactor portfolios. They first specify ranking rules for four equity factors: value, momentum, low volatility… Keep Reading

Does duration (relative arrival sequence) of firm cash flows explain many widely accepted equity factor returns? In their April 2019 paper entitled “Duration-Driven Returns”, Niels Gormsen and Eben Lazarus investigate whether firm cash flow duration explains value, profitability, investment, low risk, idiosyncratic volatility and payout factor returns. They measure cash flow duration monthly via multiple… Keep Reading

How sensitive are findings about the magnitude and reliability of equity factor premiums to differences in the rules researchers use in sorting stocks to calculate them? In their July 2022 paper entitled “Non-Standard Errors in Portfolio Sorts”, Dominik Walter, Rüdiger Weber and Patrick Weiss examine variations in factor premiums (non-standard errors) due to differences in… Keep Reading

Does market volatility predictably affect returns to simple moving average (SMA) trend-following strategies? In their November 2023 paper entitled “Market Volatility and the Trend Factor”, Ming Gu, Minxing Sun, Zhitao Xiong and Weike Xu investigate how stock market volatility affects multi-SMA trend factor profitability. They first assess significance of the trend factor premium, as follows:… Keep Reading

Can diversification across economic states improve portfolio performance? In their November 2020 paper entitled “Investing Through a Macro Factor Lens”, Harald Lohre, Robert Hixon, Jay Raol, Alexander Swade, Hua Tao and Scott Wolle study interactions between three economic “factors” (growth, defensive/U.S. Treasuries and inflation) and portfolio building blocks (asset classes and conventional factor portfolios). Their… Keep Reading

Are published studies that predict higher returns for some U.S. stocks and lower for others based on firm accounting, stock trading and other data reproducible? In their May 2020 paper entitled “Open Source Cross-Sectional Asset Pricing”, Andrew Chen and Tom Zimmermann make available data and code that reproduce many published cross-sectional stock return predictors, allowing… Keep Reading

Does an asset class breadth rule work better than a class-by-class exclusion rule for momentum strategy crash protection? In their July 2017 paper entitled “Breadth Momentum and Vigilant Asset Allocation (VAA): Winning More by Losing Less”, Wouter Keller and Jan Keuning introduce VAA as a dual momentum asset class strategy aiming at returns above 10% with drawdowns… Keep Reading

Should investors worry that investment strategies available in the marketplace may derive from optimization via intensive backtesting? In the September 2013 update of their paper entitled “Backtest Overfitting and Out-of-Sample Performance”, David Bailey, Jonathan Borwein, Marcos Lopez de Prado and Qiji Zhu examine the implications of overfitting investment strategies via multiple backtest trials. Using Sharpe ratio as… Keep Reading

How does a large sample of stock return anomalies fare in recent replication testing? In their October 2018 paper entitled “Replicating Anomalies”, Kewei Hou, Chen Xue and Lu Zhang attempt to replicate 452 published U.S. stock return anomalies, including 57, 69, 38, 79, 103, and 106 anomalies 57 momentum, 69 value-growth, 38 investment, 79 profitability, 103 intangibles and 106… Keep Reading