Investing Research Articles

How can long-term investors maximize their edge of strategic patience? In their November 2011 paper entitled “Investing for the Long Run”, Andrew Ang and Knut Kjaer offer advice on successful long-term investing (such as by pension funds).  They define a long-term investor as one having no material short-term liabilities or liquidity demands. Using the California Public Employee’s Retirement System and other large institutions as examples,… Keep Reading

How might the capital gains tax rate affect stock market returns? First, a relatively low (high) rate might encourage (discourage) capital investment and stimulate (depress) economic growth, thereby persistently increasing (decreasing) corporate earnings and stock market returns. Second, an increase (decrease) in the rate might immediately drive lower (higher) portfolio allocations to stocks and thereby… Keep Reading

How do individuals perceive and position for Black Swans? In his March 2013 paper entitled “The Psychology of Tail Events: Progress and Challenges”, Nicholas Barberis employs a two-step framework to summarize recent research on the psychology of tail events. He first addresses belief about the probability of a tail event. He then covers actions/decisions based on this belief,… Keep Reading

How should investors assess the credibility of investment strategy backtests? In his October 2013 paper entitled “Telling the Good from the Bad and the Ugly: How to Evaluate Backtested Investment Strategies”, Patrick Beaudan recommends ways to judge investment strategies and backtests based on his years of experience in evaluating, managing and investing in algorithmic strategies. His perspective… Keep Reading

Here is this Friday’s installment of Avoiding Investment Strategy Flame-outs, a short book we are previewing for subscribers. Chapter previews will continue for the next two Fridays. Chapter 7: “Thinking about Taxes” “To the extent that governments tax different kinds of income/investment returns (interest, dividends, long-term capital gains and short-term capital gains) differently, taxes may be decisive… Keep Reading

Does the average mutual fund investor accrue the average fund performance, or do investor timing practices alter the equation? In their July 2014 paper entitled “Timing Poorly: A Guide to Generating Poor Returns While Investing in Successful Strategies“, Jason Hsu, Brett Myers and Ryan Whitby compare the average dollar-weighted and buy-and-hold returns of different U.S. equity mutual fund styles, with focus… Keep Reading

In the introduction to his 2015 book entitled The 3% Signal: The Investing Technique that Will Change Your Life, author Jason Kelly states: “Ideas count for nothing; opinions are distractions. The only thing that matters is the price of an investment and whether it’s below a level indicating a good time to buy or above a level indicating a… Keep Reading

Does the set of variables that have the strongest correlations with subsequent U.S. stock market returns over the prior decade usefully predict market returns out-of-sample? In the July 2015 draft of their paper entitled “A Practitioner’s Defense of Return Predictability”, Blair Hull and Xiao Qiao apply this correlation screening approach to a set of 20 published stock market forecasting variables encompassing… Keep Reading

A subscriber proposed four alternative ways of timing the U.S. stock market based on simple moving averages (SMA) of the market price-earnings ratio (P/E), as follows: 5-Year Binary – hold stocks (cash) when P/E is below (above) its 5-year SMA. 10-Year Binary – hold stocks (cash) when P/E is below (above) its 10-year SMA. 15-Year Binary… Keep Reading

Does a flexible robo advisor (offering automated, passive investment strategies tailored to investor situation/preferences) perform well in comparison to mutual fund/stock portfolios they might replace? If so, what inhibits investors from switching to them? In their November 2016 paper entitled “Robo Advisers and Mutual Fund Stickiness”, Michael Reher and Celine Sun compare actual mutual fund/stock portfolios held… Keep Reading