Investing Research Articles

Do retail investors tend to underprice equity options in monthly series when the interval between expirations from third Friday to third Friday is five weeks instead of the more frequent (65% versus 35%) four weeks? In their November 2016 paper entitled “Inattention in the Options Market”, Assaf Eisdorfer, Ronnie Sadka and Alexei Zhdanov examine differences in U.S…. Keep Reading

Do stocks with expectations of high capital expenditures (growth opportunities) outperform those with expectations of low capital expenditures? In their December 2016 paper entitled “Expected Investment Growth and the Cross Section of Stock Returns”, Jun Li and Huijun Wang examine the power of expected investment growth (EIG) to predict cross-sectional stock returns. They construct EIG for each stock… Keep Reading

Are there profitable intraday stock price momentum and/or reversal strategies? In his January 2017 paper entitled “Intra-Day Momentum”, Oleg Komarov examines the profitability of intraday times series (intrinsic or absolute) and cross-sectional stock price momentum and reversal strategies. Time series strategies involve predicting the behavior of a stock based on its own past return. Cross-sectional strategies… Keep Reading

Does conventional reward-for-risk wisdom about the long-run performance of the U.S. stock market translate to the typical stock? In the May 2018 update of his paper entitled “Do Stocks Outperform Treasury Bills?”, Hendrik Bessembinder compares the performance of the typical U.S. stock to that of the 1-month U.S. Treasury bill (T-bill) over monthly, annual, decade… Keep Reading

What are the ins and outs of crash risk measurement via Value at Risk (VaR)? In their March 2017 paper entitled “A Gentle Introduction to Value at Risk”, Laura Ballotta and Gianluca Fusai provide an introduction to VaR in financial markets, with examples mainly from commodity markets. They address problems related to VaR estimation and backtesting at single asset… Keep Reading

How accurate are consensus firm earnings forecasts worldwide at a 12-month horizon? In his May 2016 paper entitled “An Empirical Study of Financial Analysts Earnings Forecast Accuracy”, Andrew Stotz measures accuracy of consensus 12-month earnings forecasts by financial analysts for the companies they cover around the world. He defines consensus as the average for analysts coverings… Keep Reading

What makes momentum investing tick? In their September 2017 paper entitled “Understanding the Momentum Risk Premium: An In-Depth Journey Through Trend-Following Strategies”, Paul Jusselin, Edmond Lezmi, Hassan Malongo, Côme Masselin, Thierry Roncalli and Tung-Lam Dao present a theoretical analysis of the momentum risk premium. They assume that asset prices generally exhibit geometric Brownian motion (randomness) with constant volatility, but with a time-varying trend. They… Keep Reading

What is the best way to think about reliabilities and risks of various anomaly premiums commonly that investors believe to be available for exploitation? In their December 2017 paper entitled “A Framework for Risk Premia Investing”, Kari Vatanen and Antti Suhonen present a framework for categorizing widely accepted anomaly premiums to facilitate construction of balanced investment strategies. They… Keep Reading

Is there a tractable way of estimating the level of data snooping bias in investment strategy studies and thereby correcting for it? In their April 2018 paper entitled “Detection of False Investment Strategies Using Unsupervised Learning Methods”, Marcos Lopez de Prado and Michael Lewis summarize and validate an approach for estimating snooping bias derived from backtesting multiple strategies… Keep Reading

Data snooping bias is pervasive in published research and quantitative investment strategies. Should investors resign themselves to the consequence that investment managers/funds offer products picked mostly on past luck? In his May 2018 presentation package entitled “How the Sharpe Ratio Died, and Came Back to Life”, Marcos Lopez de Prado introduces an approach to Sharpe ratio estimation… Keep Reading