Investing Research Articles

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

Do attention-grabbing recent returns reliably indicate overvalued and undervalued stocks? In their December 2016 paper entitled “Salience Theory and Stock Prices: Empirical Evidence”, Mathijs Cosemans and Rik Frehen test the effectiveness of salience theory for predicting stock returns. They hypothesize that investors overweight (underweight) stocks with high (low) attention-grabbing recent past returns, thereby overvaluing (undervaluing) them, and that… Keep Reading

How frequent, deep and long are currency carry trade (buying currencies with high interest rates and selling currencies with low interest rates) drawdowns, and how can traders mitigate them? In their January 2017 paper entitled “When Carry Goes Bad: The Magnitude, Causes, and Duration of Currency Carry Unwinds”, Michael Melvin and Duncan Shand analyze the worst currency… Keep Reading

“Equity Market and Treasuries Variance Risk Premiums as Return Predictors” reports a finding, among others, that the variance risk premium for 10-year U.S. Treasury notes (T-note) predicts near-term returns for those notes (as manifested via futures). However, the methods used to calculate the variance risk premium are complex. Is there a simple way to exploit the… Keep Reading

Do bonds, like equity markets, offer a variance risk premium (VRP)? If so, does the bond VRP predict bond returns? In their January 2017 paper entitled “Variance Risk Premia on Stocks and Bonds”, Philippe Mueller, Petar Sabtchevsky, Andrea Vedolin and Paul Whelan examine and compare the equity VRP (EVRP) via the S&P 500 Index and U.S. Treasuries VRP (TVRP)… Keep Reading

Do narratives (stories) sometimes trump rationality in financial markets? In his January 2017 paper entitled “Narrative Economics”, Robert Shiller considers the epidemiology (spread, mutation and fading) of stories as related to economic fluctuations. He explores the 1920-21 depression, the Great Depression of the 1930s, the Great Recession of 2007-9 and the political-economic situation of today as… Keep Reading

Do accounting-based stock return anomalies exist in samples that precede and follow those in which researchers discover them? In their November 2016 paper entitled “The History of the Cross Section of Stock Returns”, Juhani Linnainmaa and Michael Roberts examine the robustness of 36 accounting-based stock return anomalies, with initial focus on profitability and investment factors. Anomalies tested… Keep Reading

Does suppressing unrelated risks from stock factor portfolios improve performance? In their January 2017 paper entitled “Diversify and Purify Factor Premiums in Equity Markets”, Raul Leote de Carvalho, Lu Xiao, François Soupé and Patrick Dugnolle investigate how to improve the capture of four types of stock factor premiums: value (12 measures); quality (16 measures); low-risk (two measures); and, momentum (10 measures). They… Keep Reading

Are trend in stock fundamentals and stock price momentum mutually reinforcing return predictors? In their January 2017 paper entitled “Dual Momentum”, Dashan Huang, Huacheng Zhang and Guofu Zhou combine a measure of fundamentals trend and past return to form a U.S. stock portfolio designed to exploit the powers of both to select outperforming stocks. To construct their measure… Keep Reading

How can the financial markets research community shed biases that exaggerate predictability and associated expected performance of investment strategies? In his January 2017 paper entitled “The Scientific Outlook in Financial Economics”, Campbell Harvey assesses the conventional approach to empirical research in financial economics, sharing insights from other fields. He focuses on the meaning of p-value, its limitations and… Keep Reading