Investing Research Articles

Are equity multifactor strategies, as implemented by exchange-traded funds (ETF), attractive? To investigate, we consider seven ETFs, all currently available: iShares Edge MSCI Multifactor USA (LRGF) – holds large and mid-cap U.S. stocks with focus on quality, value, size and momentum, while maintaining a level of risk similar to that of the market. The benchmark… Keep Reading

Does purifying stock return rankings of any dependence on Fama-French three-factor model risk factors enhance momentum strategy performance? In an update of their August 2009 paper entitled “Residual Momentum”, David Blitz, Joop Huij and Martin Martens suppress exposures of a conventional stock momentum strategy to market, size and book-to-market ratio risk factors by ranking stocks on residual returns… Keep Reading

Does the earnings yield (inverse of price-to-earnings ratio, or E/P) usefully predict returns for individual stocks? In their April 2011 paper entitled “Reexamination of the Earnings-Price Anomaly by the Buy-Sell Strategy”, Hsin-Yi Yu and Li-Wen Chen test a long-only strategy that forms monthly value-weighted portfolios based on time-series sorting rather than cross-sectional sorting. Time-series sorting… Keep Reading

What about all those criticisms of momentum investing (such as high turnover/trading frictions and crash-proneness)? In the May 2014 draft of their paper entitled “Fact, Fiction and Momentum Investing”, Clifford Asness, Andrea Frazzini, Ronen Israel and Tobias Moskowitz summarize research on the momentum anomaly and rebut ten criticisms (myths) of momentum investing. Specifically, they address claims that momentum… Keep Reading

Does “meaningful” short-term stock return momentum predict exploitable short-term price trends? In their October 2015 paper entitled “News Momentum”, Hao Jiang, Sophia Li  and Hao Wang combine time-stamped firm news with high-frequency (15-minute) stock returns to identify stocks exhibiting news-driven momentum. Their news feed is the stream of unique items (no repeated stories) delivered in near real time by RavenPack. News-driven momentum derives from high-frequency returns… Keep Reading

A subscriber, noting an article on slowing down intrinsic (absolute or time series) momentum for SPDR S&P 500 (SPY) when its return volatility is relatively high, suggested doing the same for the Simple Asset Class ETF Momentum Strategy (SACEMS). The hypothesis is that this dynamic lookback interval approach avoids undesirable whipsaws when asset returns are… Keep Reading

Is there a best way to exploit unusual closed-end fund discounts to net asset value? In their July 2014 paper entitled “Exploiting Closed-End Fund Discounts: The Market May Be Much More Inefficient Than You Thought”, Dilip Patro, Louis Piccotti and Yangru Wu construct two regression models to predict closed-end fund returns: One model is a simple regression based on the… Keep Reading

Do investors fixate on price-to-earnings ratio (P/E) and thereby create trading opportunities as P/Es change? In his June 2017 paper entitled “P/E Ratios and Value Investor Attention”, Jordan Moore examines market responses to U.S. common stocks sorted by earnings yield (inverse of P/E). He defines P/E as the ratio of stock price to the sum… Keep Reading

Does disentangling measures of stock illiquidity and market capitalization (size) support belief in an illiquidity premium (a reward for holding illiquid assets)? In the December 2016 version of their paper entitled “The Value of True Liquidity”, Robin Borcherding and Michael Stein investigate this question by controlling the most widely used stock illiquidity metric for size. Specifically they… Keep Reading

Are there material average performance differences between hedge funds that emphasize systematic rules/algorithms for portfolio construction versus those that do not? In their December 2016 paper entitled “Man vs. Machine: Comparing Discretionary and Systematic Hedge Fund Performance”, Campbell Harvey, Sandy Rattray, Andrew Sinclair and Otto Van Hemert compare average performances of systematic and discretionary hedge funds… Keep Reading