Investing Research Articles

…momentum investing works, and abnormalities in the distribution of returns for momentum-driven portfolios may partly explain why.

…commodity futures in aggregate offer a long-term return comparable to that of stocks, with less downside risk and a substantial diversification benefit for a stock/bond portfolio.

…”normal” statistical metrics and associated risk management methods do not work in the realm of Black Swans (including financial markets). Redundancy, not optimization, helps manage risk in this realm.

“On a day after a large decline in equities, it might be appropriate to look at managed futures.”

Which equity markets worldwide offer the best reward-to-risk ratios? In their October 2012 paper entitled “Risk-Adjusted Performances of World Equity Indices”, Yigit Atilgan and Ozgur Demirtas investigate whether 52 developed and emerging market equity indexes compensate investors equally based on reward-to-risk ratios. They consider three reward-to-risk ratios: (1) conventional Sharpe ratio based on monthly return and… Keep Reading

Does the information in short, intermediate and long stock price trends combined by relating multiple simple moving averages (SMA) to future returns usefully predict stock returns? In the September 2015 update of their paper entitled “A Trend Factor: Any Economic Gains from Using Information over Investment Horizons?”, Yufeng Han and Guofu Zhou examine a trend factor that simultaneously captures short, intermediate… 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

Why do optimal portfolios derived from Modern Portfolio Theory (MPT) often lose to simple equal-weight portfolios? In the March 2013 version of their paper entitled “Why Optimal Diversification Cannot Outperform Naive Diversification: Evidence from Tail Risk Exposure”, Stephen Brown, Inchang Hwang and Francis In explore why mean-variance optimal diversification (giving more weight to those assets driving mean-variance… Keep Reading

Does the market pay a premium to equity funds with relatively high “bad” (left tail) volatility? In their May 2013 paper entitled “Volatility vs. Tail Risk: Which One is Compensated in Equity Funds?”, James Xiong, Thomas Idzorek and Roger Ibbotson compare return premiums for conventional volatility (standard deviation of total returns) and tail risk (value-at-risk)… Keep Reading

The Trading Calendar presents cumulative return visualizations for the S&P 500 Index across the calendar year and across each calendar month. Three alternative perspectives on U.S. stock market performance by calendar month are: (1) percentage of positive returns; (2) ratio of average return to standard deviation of returns; and, (3) distribution of returns. Using monthly… Keep Reading