Investing Research Articles

…behavioral finance adds elements of human irrationality to the standard finance foundation concepts of Modern Portfolio Theory and Efficient Markets Hypothesis.

…a trading strategy based on simple moving averages is most appropriate for small capitalization stocks.

…stock market returns and volatility reflect investor uncertainty regarding the likelihood and nature of Congressional activity. This effect is economically significant.

In case the market’s got you down…

…the Fed Model better describes the behavior of the market P/E over the past forty years than does a mean-reverting model.

…some risk-tolerant investors successfully exploit significant informational advantages by concentrating their portfolios in a few stocks that they know well.

In his December 2004 paper, Jason Hsu shows that: “Cap-Weighted Portfolios Are Sub-optimal Portfolios”. Noting that over $10 trillion are currently invested in passive capitalization-weighted indices, he examines data from 1962-2003 to show that:

…if you consider analyst recommendations when picking stocks, you really should check for investment banking conflicts. Better yet, just ignore the analysts.

…underperformance of high short interest stocks may be limited to those with high levels of informed (non-arbitrage, non-noise) trading.

…the higher the probability that trading in a stock is informed, the greater the size and persistence of stock price movement.