Investing Research Articles

…a five-factor model effectively explains differences among individual stock returns, with volatility of past returns at least as important as size, value and momentum factors.

…hedge funds may be more risky than their quantitative strategies indicate because the strategies do not account for the effects of fund growth, proliferation of similar funds and increased leverage. The hedge fund party may have become so crowded that, when someone yells “Fire!”, the exit door cannot handle the computer-driven panic.

…hedge funds that conservatively smooth out market bumps with minimal net exposure to equities and mid-range returns tend to be the most reliable outperformers.

…traders should care strongly about their trading, focus on understanding any negative emotions they experience while trading, and work hard to prevent emotions from affecting their risk management practices.

…by trying to make the Federal Funds Rate lead rather than respond to economic fundamentals, the Federal Reserve causes a disconnect between short-tem and long-term interest rates.

…although energy sector ETFs track the price of crude oil fairly well over long periods during 1999-2007, short-term variations in the two series are only slightly related.

…while a dramatic move up (down) in the price of crude oil represents a modest near-term headwind (tailwind) for the overall stock market, oil price is generally not a good predictor of stock market behavior.

…international diversification as implemented by individual U.S. investors on average neither compensates for bad investing/trading practices nor dramatically enhances good ones. While sophisticated investors generally improve returns and (especially) reduce portfolio volatility via positions in foreign equity funds, underperforming investors tend to underutilize or misuse foreign holdings.

…investors are willing to pay very high premiums, perhaps irrationally high, to insure against large losses in their stock portfolios. Sellers of this insurance can earn high average returns.

…double 9-to-1 up day events may reliably signal abnormal short-term returns, but designing a system to exploit such rare and unpredictable signals is problematic.