Investing Research Articles

…there is considerable redundancy and invalidity among the many factors used to explain differences in returns among individual stocks. Three factors may be necessary and sufficient, with liquidity the most influential.

…hedge funds that conservatively smooth out market bumps with minimal net exposure to equities and mid-range returns tend to be the most reliable outperformers.

…while dominant factors may be common, different groups of stocks require different factor models to explain the variation in returns among individual stocks within them.

…volatility-based portfolio strategies derive their effectiveness from: (1) the difference between realized volatility and implied volatility ; and, (2) the difference between call-implied volatility and put-implied volatility.

…evidence from pricing of call options on individual stocks supports belief in a volatility risk premium that increases with stock volatility and decreases with firm market capitalization, but only investors who keep trading frictions low can exploit the variations in premium.

…aggregate data on the performance of the stock trading systems currently offered on Collective2 is not encouraging for traders.

What is the best way to measure and interpret market reaction to new information? In their October 2010 paper entitled “Measuring Flow Toxicity in a High Frequency World”, David Easley, Marcos López de Prado and Maureen O’Hara introduce a new method to estimate the degree to which trading in financial markets is informed. They name… Keep Reading

Can diversification via allocations to volatility-related securities enhance the absolute and risk-adjusted returns of equity portfolios? In other words, can investors construct useful asset classes from equity volatility? In their early 2010 paper entitled “Volatility Exposure for Strategic Asset Allocation”, Ombretta Signori, Marie Briere and Alexandre Burgues investigate potential benefits to long-term U.S. equity investors… Keep Reading

Are options for volatile stocks overpriced? In the September 2010 version of their paper entitled “Cross-Section of Option Returns and Stock Volatility”, Jie Cao and Bing Han investigate the relationship between option return and price volatility of the underlying stock. The focus on delta-hedged positions in options and underlying stocks calibrated such that the combination… Keep Reading

Do strategies modeled using major indexes translate cleanly to the exchange-traded funds (ETF) that track them? ETF returns may deviate from underlying index levels because: (1) ETFs incorporate trading frictions from rebalancing and management fees; (2) ETF composition may differ slightly from that of the underlying index due to trading cost considerations; (3) ETFs accumulate… Keep Reading