Investing Research Articles

What is the best way to put strategic edges and tactical views into investment portfolios? In their March 2018 paper entitled “Model Portfolios”, Debarshi Basu, Michael Gates, Vishal Karir and Andrew Ang describe and illustrate a three-step optimized asset allocation process incorporating investor preferences and beliefs that is rigorous, repeatable, transparent and scalable. The three steps are:  Select a benchmark… Keep Reading

How do widely studied anomalies relate to representative stocks-bonds portfolio returns (rather than the risk-free rate)? In his March 2017 paper entitled “Understanding Anomalies”, Filip Bekjarovski proposes an approach to asset pricing wherein a representative portfolio of stocks and bonds is the benchmark and stock anomalies are a set of investment opportunities that may enhance the… Keep Reading

Does the term structure of crude oil futures predict stock market returns? In their October 2016 paper entitled “Do Oil Futures Prices Predict Stock Returns?”, I-Hsuan Chiang and Keener Hughen examine the ability of crude oil futures prices to predict U.S. stock market returns. They identify the first three principal components of the nearest six oil futures… Keep Reading

Can an approach that describes each asset class as a bundle of sensitivities to economic/market conditions improve investment decision-making? In their March 2016 paper entitled “Factor-Based Investing”, Pim Lausberg, Alfred Slager and Philip Stork develop a “heat map” to summarize how returns for seven asset classes relate to six economic/market factors. The seven asset classes are: (1) government bonds; (2) investment grade corporate… Keep Reading

Which is the better equity investment strategy: (1) a consistent portfolio tilt toward one or a few factors widely accepted, based on linear regression backtests, as effective in selecting stocks with above-average performance (smart beta); or, (2) a more complex strategy that seeks to identify stocks with above-average performance via potentially dynamic relationships with a set of many proprietary… Keep Reading

Do commonly used indicators reliably predict stock size, value and momentum strategy returns? In the June 2014 version of his paper entitled “A Comprehensive Look at Size, Value and Momentum Return Predictability”, Afonso Januario examines the abilities of 17 fundamental and technical indicators and indicator combinations to anticipate returns for these three factors. He defines factor portfolios… Keep Reading

Are high-quality stocks worth the price? In the June 2017 update of their paper entitled “Quality Minus Junk”, Clifford Asness, Andrea Frazzini and Lasse Pedersen investigate whether high-quality stocks outperform low-quality stocks. They define high-quality stocks as those that are profitable, growing, safe and well-managed. Specifically, they compute a single quality score for each stock by… Keep Reading

How can equity weighting strategies and their opposites both outperform the stock market? In the October 2012 version of their paper entitled “The Surprising ‘Alpha’ from Malkiel’s Monkey and Upside-down Strategies”, Rob Arnott, Jason Hsu, Vitali Kalesnik and Phil Tindall challenge beliefs underlying a variety of stock investment strategies that beat a capitalization-weighted benchmark by examining… Keep Reading

In their March 2011 paper entitled “The Shrinking Space for Anomalies”, George Jiang and Andrew Zhang investigate the robustness of ten well-known anomalies by iteratively “shrinking the stock space” in two ways to determine whether and how the anomalies really work. The ten anomaly variables are: size, book-to-market ratio, momentum, two liquidity measures, idiosyncratic volatility,… Keep Reading

…there is considerable redundancy and invalidity among the many factors used to explain differences in returns among individual stocks. Three factors may be necessary and sufficient, with liquidity the most influential.