Investing Research Articles

Do hedge funds trade on market risk, idiosyncratic risk or tail risk? In their November 2011 paper entitled “Systematic Risk and the Cross-Section of Hedge Fund Returns”, Turan Bali, Stephen Brown and Mustafa Caglayan explore the predictability of hedge fund returns based on distinct market-related (systematic), idiosyncratic (residual) and tail risk measures. They alternatively consider four-factor… Keep Reading

James O’Shaughnessy (Chairman and CEO of O’Shaughnessy Asset Management) introduces his 2011 book, What Works on Wall Street (Fourth Edition): the Classic Guide to the Best-Performing Investment Strategies of All Time, by stating: “…investors seem programmed by nature to fail at investing, forever chasing the asset class that has turned in the best performance recently and heavily… Keep Reading

…evidence indicates that large (diversified) hedge fund investors may be able to exploit multiple predictive factors by averaging their predictive powers to enhance returns derived from selecting recent past winners.

Do stocks of firms that initiate buybacks (open market stock repurchases) tend to appreciate due to elevated takeover risk? In the October 2013 draft of their paper entitled “The Timing and Source of Long-run Returns Following Repurchases”, Leonce Bargeron, Alice Bonaime and Shawn Thomas investigate the timing and source of the abnormal return associated with… Keep Reading

…evidence indicates that hedge funds with low net market exposure may earn returns largely by assuming that correlations between assets and asset classes will behave predictably, and rogue correlation spikes may swamp these funds with extremely large drawdowns.

…evidence indicates that investors may be able to exploit consistency of past stock performance, independently of widely used momentum measures, via continuation over the intermediate term and reversal over the long term.

…evidence indicates that investors may be able to exploit a systematic relationship between the price impact of trading as measured by the return-to-turnover ratio and future stock returns.

…evidence indicates that short sellers are on average able to identify both overvalued and undervalued stocks. Investors/traders may be able to exploit the economically large positive future returns of lightly shorted stocks with simple long-only strategies.

…evidence indicates that many sentiment indicators add little or no value to simple price action indicators, but VIX purified of price action contains significant predictive power for future stock market returns. However, price action masks the predictive information contained in raw VIX.

…actively managed mutual funds on average generate about half their value by picking the right industries rather than the right stocks. This big-picture skill, not company analysis, accounts for fund performance persistence.