Investing Research Articles

Is firm profitability trend, or momentum, a useful indicator of future stock returns? In their December 2014 paper entitled “The Trend in Firm Profitability and the Cross Section of Stock Returns”, Ferhat Akbas, Chao Jiang and Paul Koch investigate the relationship between trend in firm profitability and stock returns, while controlling for level of profitability. They calculate gross profit quarterly as… Keep Reading

Do changes in consensus analyst earnings forecasts that disagree with contemporaneous stock returns signal exploitable mispricings? In their November 2014 paper entitled “To Follow or Not to Follow – An Analysis of the Profitability of Portfolio Strategies Based on Analyst Consensus EPS Forecasts”, Rainer Baule and Hannes Wilke investigate the power of a variable that relates consensus earnings forecast momentum to… Keep Reading

Are winning (losing) stocks with the strongest upward (downward) acceleration the best bets for a momentum strategy? In their July 2013 paper entitled “Investor Attention, Visual Price Pattern, and Momentum Investing”, Li-Wen Chen and Hsin-Yi Yu investigate whether visually striking patterns of past prices tend to grab investor attention, induce overreaction and amplify the momentum… Keep Reading

How diverse are the beliefs of experts on the Capital Asset Pricing Model (CAPM)? In his November paper entitled “CAPM: The Model and 233 Comments about It”, Pablo Fernandez reproduces 52 largely disagreeing and 181 largely agreeing comments solicited from professors, finance professionals and Ph.D. students regarding his prior paper entitled “CAPM: an Absurd Model” (summarized in “Forget CAPM… Keep Reading

Do hedge fund-like mutual funds work like hedge funds? In his September 2014 paper entitled “Hedge Funds versus Mutual Funds (2): An Examination of Multialternative Mutual Funds”, David McCarthy evaluates mutual funds categorized by Morningstar as “multialternative” after further subcategorizing them as: Global Asset Allocation (active asset allocation across a broad set of global markets); Multistrategy (investing across distinct investment… Keep Reading

What’s the latest research on portfolio construction and risk management? In the the introduction to the July 2014 version of his (book-length) paper entitled “Many Risks, One (Optimal) Portfolio”, Cristian Homescu states: “The main focus of this paper is to analyze how to obtain a portfolio which provides above average returns while remaining robust to most risk… Keep Reading

Do hedge fund managers who use technical analysis beat those who do not? In their May 2014 paper entitled “Sentiment and the Effectiveness of Technical Analysis: Evidence from the Hedge Fund Industry”, David Smith, Na Wang, Ying Wang and Edward Zychowicz examine the relative performance of users and non-users of technical analysis among hedge fund managers in different sentiment environments. They hypothesize that… Keep Reading

Is there a practical way to apply momentum investing in a Modern Portfolio Theory (MPT) framework? In his June 2014 paper entitled “Momentum, Markowitz, and Smart Beta”, Wouter Keller constructs a long-only, unleveraged Modern Asset Allocation (MAA) model in three steps Make MPT tactical by using short historical intervals to predict future asset returns (rate of return, or absolute momentum), return volatilities… Keep Reading

Do professional analysts systematically miss target prices for individual stocks? In the November 2013 draft of their paper entitled “Understanding and Predicting Target Price Valuation Errors”, Patricia Dechow and Haifeng You measure the errors in returns implied by professional stock analyst consensus price targets and examine the sources of these errors. They further investigate whether investors can… Keep Reading

Is expected crude oil price volatility (risk) an important economic indicator, thereby influencing stock market and individual stock returns? In their February 2014 paper entitled “Oil Risk Exposure and Expected Stock Returns”, Peter Christoffersen and Nick Pan analyze the impact of expected oil risk on the U.S. stock market and on the cross section of… Keep Reading