Investing Research Articles

Can traders exploit the essential price-moving sentiment expressed in news articles about stocks? In their August 2013 paper entitled “News versus Sentiment: Comparing Textual Processing Approaches for Predicting Stock Returns”, Steven Heston and Nitish Sinha compare the abilities of two different word sentiment dictionaries and a sophisticated neural network to predict stock returns by analyzing… Keep Reading

Is option-implied volatility a useful predictor of returns for commodity futures? In her March 2017 paper entitled “Commodity Option Implied Volatilities and the Expected Futures Returns”, Lin Gao tests the power of option-implied volatilities (with 12-month detrending) for commodities to predict commodity futures returns. Specifically, she each month buys (sells) the fourth of commodities with the lowest (highest)… Keep Reading

Is recent Fama-French 5-factor alpha (accounting for market, size, book-to-market, profitability and investment risks) a useful predictor of U.S. equity sector performance? In other words, is there an alpha momentum anomaly at the sector level? In their June 2017 paper entitled “US Sector Rotation with Five-Factor Fama-French Alphas”, Golam Sarwar, Cesario Mateus and Natasa Todorovic examine 5-factor alphas of… Keep Reading

What kinds of fundamental and technical indicators play well together? In their August 2018 paper entitled “When Buffett Meets Bollinger: An Integrated Approach to Fundamental and Technical Analysis”, Zhaobo Zhu and Licheng Sun test performance of six stock portfolios that jointly exploit one of three popular fundamental indicators and one of two popular technical indicators,… Keep Reading

How can investors confidently assess risk of strategy crashes (tail events) when there are so few crashes even in long samples? In their March 2019 paper entitled “Time-Series Momentum: A Monte-Carlo Approach”, Clemens Struck and Enoch Cheng present a Monte-Carlo simulation procedure for strategy backtesting that both preserves time series and cross-sectional return characteristics while… Keep Reading

Does duration (relative arrival sequence) of firm cash flows explain many widely accepted equity factor returns? In their April 2019 paper entitled “Duration-Driven Returns”, Niels Gormsen and Eben Lazarus investigate whether firm cash flow duration explains value, profitability, investment, low risk, idiosyncratic volatility and payout factor returns. They measure cash flow duration monthly via multiple… Keep Reading

Does degree of difference between fast and slow simple moving averages (SMA) for a stock price series predict future stock return? In the December 2023 revision of their paper entitled “Moving Average Distance as a Predictor of Equity Returns”, Doron Avramov, Guy Kaplanski and Avanidhar Subrahmanyam test distance between a 21-day SMA (SMA21) and 200-day… Keep Reading

“Use Short-term S&P 500 Index Indicators to Predict VIX Futures?” describes research finding a potentially exploitable relationship between S&P 500 Index short-term overbought/oversold conditions and short-term VIX futures gross returns. Do findings transfer to short-term VIX futures exchange-traded funds (ETF)? To investigate, we look at predictive relationships between daily SPDR S&P 500 ETF Trust (SPY)… Keep Reading

Does the cost of borrowing shares of a stock for shorting predict its future returns? In their January 2014 paper entitled “The Shorting Premium and Asset Pricing Anomalies”, Itamar Drechsler and Qingyi (Freda) Drechsler investigate shorting fees as a predictor of stock returns. For analysis, they sort stocks at the end of each month into… Keep Reading

Does unusual behavior of the distribution of stock betas predict overall market behavior? In her March 2017 paper entitled “Beta Dispersion and Market-Timing”, Laura-Chloé Kuntz investigates the attractiveness of stock market timing strategies based on the dispersion of stock betas. She calculates betas using rolling windows of three or 12 months of daily returns. She considers… Keep Reading