Investing Research Articles

Does trading in stock index options exploitably predict the behavior of the stock market? In their June 2016 paper entitled “The Informational Role of Index Option Trading”, Tarun Chordia, Alexander Kurov and Avanidhar Subrahmanyam examine the relationship between U.S. equity index option net order imbalance and future S&P 500 Index returns. They calculate net order imbalance as the… Keep Reading

Does timing of factor premiums work? In his June 2016 paper entitled “My Factor Philippic”, Clifford Asness addresses three critiques of the exploitability of stock factor premiums: Most factors are currently very overvalued (expected premiums are small), perhaps because of crowded bets on them. Factor portfolios may therefore crash. In fact, increasing factor valuations account for most… Keep Reading

Should investors focus on past Sharpe ratio when picking individual stocks? In their June 2016 paper entitled “Don’t Stand So Close to Sharpe”, Angel Leon, Lluis Navarro and Belen Nieto compare 32 past performance metrics for effectiveness in selecting large capitalization U.S. stocks. They categorize these metrics into four groups: Eight related to Sharpe ratio. Six partial moment formulas (based on downside, or… Keep Reading

How do individual currency traders view their trading experience? In his June 2016 paper entitled “Retail FX Trader Survey Results”, Chris Davison reports results of an anonymous survey of retail currency traders asking 14 questions about the way they trade. He elicited participants via posts on two online currency trading forums: Forex Factory and MyFXbook. Using responses from 133 traders… Keep Reading

Is nearness to 52-week highs or lows informative about future stock returns? In their June 2016 paper entitled “Nearness to the 52-Week High and Low Prices, Past Returns, and Average Stock Returns”, Li-Wen Chen and Hsin-Yi Yu examine the power of extreme price levels (52-week highs and lows) to predict stock returns, and whether any such predictive… Keep Reading

Can computer software extract exploitable sentiments about individual stocks as conveyed by news articles? In their June 2016 paper entitled “News Versus Sentiment: Predicting Stock Returns from News Stories”, Steven Heston and Nitish Sinha test whether firm news sentiment as interpreted by Thomson Reuters NewScope reliably predicts stock returns. Input data include article publication time, firm mentioned, headline, relevance to the firm, staleness and sentiment… Keep Reading

Should investors believe that the financial industry can offer low-cost, liquid funds that reliably mimic Commodity Trading Advisor (CTA) hedge funds? In their June 2016 paper entitled “Just a One Trick Pony? An Analysis of CTA Risk and Return”, Jason Foran, Mark Hutchinson, David McCarthy and John O’Brien identify and examine performances of CTA-like hedge funds across eight distinct categories… Keep Reading

Can systematic, contrarian sports betting usefully diversify conventional investments? In their June 2016 paper entitled “Sports Betting As a New Asset Class: Can a Sports Trader Beat Hedge Fund Managers from 2010-2016?”, Lovjit Thukral and Pedro Vergel investigate whether a specific sports betting strategy outperforms and diversifies the Credit Suisse Hedge Fund Index and the S&P 500 Index. The strategy hypothesizes… Keep Reading

Do volume spikes in specific equity options signal abnormal returns for underlying stocks? In his June 2016 paper entitled “Investor Attention Strategy”, Xuewu Wang examines the motivation, construction and profitability of a strategy that selects stocks based on sudden attention to associated options. He defines sudden attention as volume spikes of at least 10 contracts after a week… Keep Reading

Matt Hall, cofounder and president of Hill Investment Group, introduces his 2016 book, Odds On: The Making of an Evidence-Based Investor, by stating that: “…the evidence-based movement has been studying market data and academic research to identify the groups of stocks and other investments that provide better odds of long-term success. …I’m inviting you to learn how evidence-based… Keep Reading