Investing Research Articles

Why do optimal portfolios derived from Modern Portfolio Theory (MPT) often lose to simple equal-weight portfolios? In the March 2013 version of their paper entitled “Why Optimal Diversification Cannot Outperform Naive Diversification: Evidence from Tail Risk Exposure”, Stephen Brown, Inchang Hwang and Francis In explore why mean-variance optimal diversification (giving more weight to those assets driving mean-variance… Keep Reading

How much difference does it make to calculate mutual fund alphas with exchange-traded funds (ETF) rather than ideal (frictionless) indexes/factors? In their November 2012 paper entitled “Mutual Fund’s Net Economic Alpha: Definition and Evidence” Sharon Garyn-Tal and Beni Lauterbach investigate how benchmarking mutual funds with ETFs differs from traditional benchmarking with ideal performance models based… Keep Reading

Does the carry trade concept provide a useful framework for valuation of securities within and across all asset classes? In their July 2013 paper entitled “Carry”, Ralph Koijen, Tobias Moskowitz, Lasse Pedersen and Evert Vrugt investigate expected return across asset classes via decomposition into “carry” (expected return assuming price does not change) and expected price appreciation. They… Keep Reading

What calendar and technical factors drive the size effect? In the June 2012 version of his paper entitled “Predictable Dynamics in the Small Stock Premium”, Valeriy Zakamulin explores the interaction of the size effect with the January effect and both prior-month and prior-year stock market returns. He defines the size effect based on the Small-Minus-Big (SMB)… Keep Reading

Do country stock markets exhibit useful aggregate value and size metrics? In his December 2013 paper entitled “Macro Model for Macro Funds”, Adam Zaremba investigates whether macro size and value factors for country stock markets predict country stock index returns. Specifically, he calculates size and value factors at the country level in each of 66… Keep Reading

Does a time series (absolute or intrinsic) momentum strategy work at the stock level? In their January 2016 paper entitled “The Enduring Effect of Time-Series Momentum on Stock Returns Over Nearly 100-Years” Ian D’Souza, Voraphat Srichanachaitrchok, George Wang  and Yaqiong Yao test the significance of time series momentum among individual stocks. Their baseline time series momentum strategy consists of each… Keep Reading

How big is the return premium associated with stock illiquidity? In his March 2014 paper entitled “The Pricing of the Illiquidity Factor’s Systematic Risk”, Yakov Amihud specifies and measures an illiquidity premium. He defines illiquidity as the average daily ratio of absolute return to dollar volume over the past three months. He specifies the illiquidity… Keep Reading

Do stocks worldwide generate most of their total return while the market is open or closed? In their October 2015 paper entitled “Making Money While You Sleep? Anomalies in International Day and Night Returns”, Kevin Aretz and Sohnke Bartram decompose returns and factor premiums into day and night components. When aggregating returns across countries, they first average… Keep Reading

Should investors adopt a mutual fund for the long term, or should they occasionally switch to funds with fresh ideas and energy? In the July 2015 draft of their paper entitled “Milk or Wine: Mutual Funds’ (Dis)economies of Life”, Laura Dahm and Christoph Sorhage investigate whether mutual fund performance tends to decline or improve with age. They… Keep Reading

When and why do investors make changes in asset class allocations? In the March 2015 version of their paper entitled “Global Asset Allocation Shifts”, Tim Kroencke, Maik Schmeling and Andreas Schrimpf examine the asset reallocation decisions of U.S. mutual fund investors. They focus on shifts between U.S. equities and U.S. bonds (rotation) and between U.S. assets and non-U.S. assets… Keep Reading