Investing Research Articles

Is the difference between upside and downside asset participation ratios relative to a benchmark a useful metric for evaluating asset investment performance? In his June 2014 paper entitled “On the Holy Grail of ‘Upside Participation and Downside Protection’”, Edward Qian defines and investigates the performance implications of the Participation Ratio Difference (PRD) as a measure of combined upside participation and… Keep Reading

Does compounding rules tend to improve the performance of stock-picking strategies? In the October 2014 draft of their paper entitled “Does Complexity Imply Value, AAII Value Strategies from 1963 to 2013”, Wesley Gray, Jack Vogel and Yang Xu compare 13 stock strategies labeled as “Value” by the American Association for Individual Investors (AAII) to each other and to a simple “low-price” value strategy. The… Keep Reading

What is the smartest way (having the lowest prediction errors) to estimate market beta across stocks for the purpose of portfolio construction? In their November 2017 paper entitled “How to Estimate Beta?”, Fabian Hollstein, Marcel Prokopczuk and Chardin Simen test effects of different return sampling frequencies, forecast adjustments and model combinations on market beta prediction accuracy across the universe… Keep Reading

Does retail investor preference for stocks with skewed return distributions explain stock return anomalies? In their April 2018 paper entitled “Skewness Preference and Market Anomalies”, Alok Kumar, Mehrshad Motahari and Richard Taffler investigate whether investor preference for positively-skewed payoffs is a common driver of mispricing as indicated by a wide range of market anomalies. They each month… Keep Reading

Do currency exchange factor strategies usefully diversify a set of conventional asset classes? In their May 2018 paper entitled “Currency Management with Style”, Harald Lohre and Martin Kolrep investigate the systematic harvesting of currency exchange carry, value and momentum strategies, specified as follows and applied to the G10 currencies: Carry – buy (sell) the three equally weighted… Keep Reading

Can investors time premiums associated with widely used stock/firm fundamental ratios? In their September 2018 paper entitled “It Takes Two to Tango: Fundamental Timing in Stock Market”, Fuwei Jiang, Xinlin Qi, Guohao Tang and Nan Huang use a simple moving average (SMA) trend indicator to time premiums associated with four fundamental stock/firm ratios: book-to-market (BM), earnings-to-price (EP), gross profitability… Keep Reading

Is there an exploitable way to predict when short-term stock market return will be negative? In his June 2018 paper entitled “Predictable Downturns”, Carter Davis tests a random forest regression-based forecasting model to predict next-day U.S. stock market downturns. He uses the value-weighted return of a portfolio of the 10 U.S. stocks with the largest market… Keep Reading

How do the major crypto-assets (Bitcoin, Ripple, and Ethereum) stack up against conventional asset classes? In their August 2018 paper entitled “Risks and Returns of Cryptocurrency”, Yukun Liu and Aleh Tsyvinski apply standard tools of asset pricing to measure crypto-asset exposures to: 160 equity factors. Macroeconomic factors (non-durable consumption growth, durable consumption growth, industrial production growth, and… Keep Reading

Rainer Zitelmann prefaces his 2018 book, The Wealth Elite: A Groundbreaking Study of the Psychology of the Super Rich, as follows: “For this book, I succeeded in convincing 45 wealthy people to talk to me. …Without exception, the interviewees were entrepreneurs or investors… The interviews were conducted in person between September 2015 and March 2016, and each lasted… Keep Reading

Do investors systematically undervalue stocks that have relatively large book-to-market fluctuations? In their December 2018 paper entitled “The Value Uncertainty Premium”, Turan Bali, Luca Del Viva, Menna El Hefnawy and Lenos Trigeorgis test whether book-to-market volatility relates positively to future returns. They specify book-to-market volatility as standard deviation of daily estimated book-to-market ratios divided by their average over the past 12… Keep Reading