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3527 Research Articles

Causal Discovery Applications in Stock Investing

Can causal discovery algorithms (which look beyond simple statistical association, and instead consider all available data and allow for lead-lag relationships) make economically meaningful contributions to equity investing? In their December 2023 paper entitled “Causal Network Representations in Factor Investing”, Clint Howard, Harald Lohre and Sebastiaan Mudde assess the economic value of a representative score-based… Keep Reading

Causality in the 5-factor Model of Stock Returns

Does the Fama-French 5-factor model of stock returns stand up to causality analyses? Do the factors cause the returns? In their December 2023 paper entitled “Re-Examination of Fama-French Factor Investing with Causal Inference Method”, Lingyi Gu, Ellen Zhang, Andrew Heinz, Jingxuan Liu, Tianyue Yao, Mohamed AlRemeithi and Zelei Luo construct causal graphs to analyze the… Keep Reading

Party in Power and Stock Returns

Past research relating U.S. stock market returns to the party holding the Presidency mostly concludes that Democratic presidents are better for the stock market than Republican presidents. However, Presidents share power conferred by the electorate with Congress. Does historical data confirm that Democratic control of Congress is also better for stock market returns than Republican… Keep Reading

Commercial and Industrial Credit as a Stock Market Driver

Does commercial and industrial (C&I) credit fuel business growth and thereby drive the stock market? To investigate, we relate changes in credit standards from the Federal Reserve Board’s quarterly Senior Loan Officer Opinion Survey on Bank Lending Practices to future U.S. stock market returns. Presumably, loosening (tightening) of credit standards is good (bad) for stocks. The… Keep Reading

Weekly Summary of Research Findings: 1/29/24 – 2/2/24

Below is a weekly summary of our research findings for 1/29/24 through 2/2/24. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs. Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list.

Inherent Misspecification of Factor Models?

Do linear factor model specification choices inherently produce out-of-sample underperformance of investment strategies seeking to exploit factor premiums? In their January 2024 paper entitled “Why Has Factor Investing Failed?: The Role of Specification Errors”, Marcos Lopez de Prado and Vincent Zoonekynd examine whether standard practices induce factor specification errors and how such errors might explain… Keep Reading

FFR Actions, Stock Market Returns and Bond Yields

Do Federal Funds Rate (FFR) actions taken by the Federal Reserve open market operations committee reliably predict stock market and U.S. Treasuries yield reactions? To investigate, we use the S&P 500 Index (SP500) as a proxy for the stock market and the yield for the 10-Year U.S. Constant Maturity Treasury note (T-note). We look at index… Keep Reading

More International Equity Market Granularity for SACEMS?

A subscriber asked whether more granularity in international equity choices for the “Simple Asset Class ETF Momentum Strategy” (SACEMS), such as considered by Decision Moose, would improve performance. To investigate, we augment/replace international developed and emerging equity market exchange-traded funds (ETF) such that the universe of assets becomes: SPDR S&P 500 (SPY) iShares Russell 2000 Index (IWM) iShares… Keep Reading

U.S. Academic Research Extinguishing Global Stock Anomalies?

Does publication of academic studies on stock return anomalies in the U.S. tend to extinguish these anomalies in global markets? In their November 2023 paper entitled “Does U.S. Academic Research Destroy the Predictability of Global Stock Returns?”, Guohao Tang, Yuwei Xie and Lin Zhu compare out-of-sample (post-research sample) and post-publication global returns to research-sample global… Keep Reading

CFO U.S. Economic Sentiment and Stock Market Returns

The quarterly CFO Survey asks chief financial officers, owner-operators, vice presidents and directors of finance, accountants, controllers, treasurers and others with financial decision-making roles in small to very large companies across all major industries to “rate optimism about the overall U.S. economy on a scale from 0 to 100.” Does the average economic sentiment of… Keep Reading