Investing Research Articles

…investors should probably use the excess market return (beta), size and liquidity factors in explaining and predicting individual stock returns, but not the book-to-market ratio (value factor) or other commonly used stock/firm-specific factors.

Are widely accepted equity factor exposures available in fact to investors via “smart beta” mutual funds and exchange-traded funds (ETF)? In their May 2020 paper entitled “Smart Beta Made Smart”, Andreas Johansson, Riccardo Sabbatucci and Andrea Tamoni test effectiveness of individual U.S. equity mutual funds and ETFs and combinations of these funds for exploiting several… Keep Reading

Does the low-risk stock anomaly hold for China A shares, dominated by local private investors rather than institutions and characterized by high volatility and herding? In their January 2021 paper entitled “The Volatility Effect in China”, David Blitz, Matthias Hanauer and Pim van Vliet examine the performance of low-volatility China A shares. At the end… Keep Reading

Do both the long and short sides of portfolios used to quantify widely accepted equity factors benefit investors? In their November 2019 paper entitled “When Equity Factors Drop Their Shorts”, David Blitz, Guido Baltussen and Pim van Vliet decompose and analyze gross performances of long and short sides of U.S. value, momentum, profitability, investment and… Keep Reading

Do simple factor models help explain future return variations across different cryptocurrencies, as they do for stocks? In their April 2019 paper entitled “Common Risk Factors in Cryptocurrency”, Yukun Liu, Aleh Tsyvinski and Xi Wu examine performances of cryptocurrency (coin) counterparts for 25 price-related and market-related stock market factors, broadly categorized as size, momentum, volume… Keep Reading

Did Bill Gross, the Bond King, generate significantly positive alpha during his May 1987 through September 2014 tenure as manager of PIMCO Total Return Fund (Fund)? In their March 2019 paper entitled “Bill Gross’ Alpha: The King Versus the Oracle”, Richard Dewey and Aaron Brown investigate whether Bill Gross generates excess average return after adjusting… Keep Reading

What are potential monthly returns and alphas from applying machine learning to pick stocks? In their February 2019 paper entitled “Machine Learning for Stock Selection”, Keywan Rasekhschaffe and Robert Jones summarize basic concepts of machine leaning and apply them to select stocks from U.S. and non-U.S. samples, focusing on the cross-section of returns (as in… Keep Reading

Do accounting-based stock return anomalies exist in samples that precede and follow those in which researchers discover them? In their November 2016 paper entitled “The History of the Cross Section of Stock Returns”, Juhani Linnainmaa and Michael Roberts examine the robustness of 36 accounting-based stock return anomalies, with initial focus on profitability and investment factors. Anomalies tested… Keep Reading

Can investors beat the market by avoiding high volatility and embracing low volatility? In the April 2016 version of their paper entitled “Volatility Managed Portfolios”, Alan Moreira and Tyler Muir test the performance of a simple volatility timing approach that lowers (raises) exposure to risky assets when volatility of recent returns for those assets is relatively high (low). Contrary to conventional wisdom,… Keep Reading

Do stock pricing factors predict option returns that are incremental to the factor premiums in underlying stock returns? In the December 2015 version of their paper entitled “Option Return Predictability”, Jie Cao, Bing Han, Qing Tong and Xintong Zhan examine whether 12 factors known to predict stock returns also predict delta-hedged (stock price-neutral) equity option returns. The 12 factors are: size,… Keep Reading