Investing Research Articles

…investor emotions drive market volatility, but there is an asymmetry to fear and greed.

…individual investors should be wary of investing in stocks that are the top mutual fund holdings.

…portfolios built using aggregate analyst recommendations may produce gross outperformance, but transaction costs absorb excess returns. Moreover, privileged investors get the jump on analyst-driven trades.

…the Fed Model has worked pretty well starting about 1960, with interest rates since playing a key role in stock valuation.

In their June 2003 paper entitled “A General Theory of Stock Market Valuation and Return”, Christophe Faugere and Julian Van Erlach contend that past stock returns are overstated and develop a market valuation formula that out-fits the Fed Model. Specifically, they show that:

…the gap between the S&P 500 earnings yield and Treasury instrument yields has some market timing value, with short spreads outperforming long spreads.

…stock market returns fluctuate away from, and revert to, a running mean on a roughly annual basis.

…investors should avoid stocks with high short interest ratios.

…individual investors systematically show attention-driven herd-like behaviors.

…a high level of trading activity usually underperforms.