Investing Research Articles

...exceptionally volatile stocks are on average inferior investments, or at least trades. There is no reward for this kind of risk, and presently no explanation for this effect.

...practitioners who use the Fed Model are simpletons. The model is theoretically implausible and empirically challenged.

...corporate profitability and earnings growth exhibit non-linear mean reversion.

...investing in options as a marginal enhancement to a buy-and-hold approach can improve returns and Sharpe ratios, but only if the options positions are small compared to overall portfolio size.

...the power law distribution of sizes of large investors, along with the optimal trading behavior of those investors, explains the excess volatility observed in asset markets.

"...[T]he human mind has a predilection for rampant, uncontrolled induction, and it requires much education to overcome this."

"The variables that economists have found to be associated with increases in per capita income, to sum up, fall under two headings: investment and institutions."

...hidden gems (unlike hidden lumps of coal) generally do not want to be hidden. The best small firms solicit analyst coverage to get investor attention.

...the empirical foundation for value investing may not be as sound as generally thought.

...if you want to make money following the retail investor herd, you have to get in and out within weeks. For longer-term outperformance, bet against the herd.

Guru Grades ranks a group of 29 stock market experts according to our assessments of the accuracy of their stock market forecasts. Since Jason Kelly has been at or near the top of the list,...

In case you are sick of hearing about the January effect...

...the advertising of financial firms seeks to tap investor sentiment, a lagging indicator of stock market action, not investor rationality. These appeals encourage trend-following rather than contrarian behavior.

...large short sellers generally know what they are doing. A rapid increase in short interest indicates abnormally low returns over the near term.

...investors everywhere have increasingly embraced modern portfolio theory, emphasizing risk management (diversification) over stock picking. The best opportunities for (diligent) stock pickers are the stocks of young, small, obscure, foreign firms.

In his 2004 autobiography, My Life as a Quant, Reflections on Physics and Finance, Emanuel Derman recounts his experiences as a physicist driven by the forces of employment supply and demand to redirect his labor...

Does value beat growth because: (1) investors/traders irrationally overreact to recent bad (good) news about value (growth) stocks; or, (2) they rationally recognize that value stocks are inherently more risky than growth stocks? In their...

...Regulation FD has helped level the playing field for analysts, and likely also for investors/traders.

...investors/traders should focus first on unexplained volume in a stock, and then on its bid-ask spread, as indicators of future abnormal returns.

...a supply side analysis indicates that stocks will outperform long-term government bonds by an arithmetic average of 6% annually.

In their October 2005 paper entitled “The January Effect”, Mark Haug and Mark Hirschey examine the persistence of the January effect (abnormally high rates of return during the month of January). Using broad samples of...

...the Dow Theory has generated excess risk-adjusted (but not raw) returns when compared to buy-and-hold over some significant periods by following large trends.

...skillful individual investors exploit market inefficiencies to earn abnormal profits, above and beyond those available from well-known strategies based upon firm size, value or momentum.

...human psychology and sociology can trump the forces of stock market rationalization, at least for a while.

...demographic trends suggest a headwind for U.S. equities over the next 15 years. Baby Boomers may drive P/Es down as they sell to fund retirement.