Investing Research Articles

Do firms that acquire patents in similar technologies persistently perform similarly? In the October 2017 draft of their paper entitled “Technology and Return Predictability”, Jiaping Qiu, Jin Wang and Yi Zhou examine monthly performance persistence of stocks grouped by similarity in recent firm patent activity. Specifically, they: Record the patent activity of each firm by patent class over the… Keep Reading

Do strongly accelerating firm earnings identify future outperforming stocks? In the October 2017 revision of their paper entitled “Earnings Acceleration and Stock Returns”, Shuoyuan He and Ganapathi Narayanamoorthy investigate the power of earnings acceleration (quarter-over-quarter change in earnings growth, which is year-over-year change in quarterly earnings) to predict abnormal stock returns. They test a hedged trading strategy that… Keep Reading

Do value strategy returns vary exploitably over time and across asset classes? In their October 2017 paper entitled “Value Timing: Risk and Return Across Asset Classes”, Fahiz Baba Yara, Martijn Boons and Andrea Tamoni examine the power of value spreads to predict returns for individual U.S. equities, global stock indexes, global government bonds, commodities and currencies. They measure value spreads… Keep Reading

Should investors view stock returns around recurring firm events in aggregate as an exploitable anomaly? In their October 2017 paper entitled “Recurring Firm Events and Predictable Returns: The Within-Firm Time-Series”, Samuel Hartzmark and David Solomon review the body of research on relationships between recurring firm events and future stock returns. They classify events as predictable (1) releases of information… Keep Reading

Is there an effective Betting Against Alpha (BAA) strategy analogous to the widely used Betting Against Beta (BAB) strategy? In his October 2017 paper entitled “Betting Against Alpha”, Alex Horenstein investigates relationships between stock 1-factor (market), 4-factor (market, size, book-to-market, momentum) alpha and 5-factor (profitability and investment instead of momentum) alphas and future stock returns. He specifies… Keep Reading

Do widely used charts of equity and bond market performance inculcate harmfully false beliefs among investors? In his September 2017 paper entitled “Stock Market Charts You Never Saw”, Edward McQuarrie dissects some of these charts and outlines cautions to investors in interpreting them. Using very long-term data for U.S. stock and bond markets spanning hundreds of years,… Keep Reading

How effective is investor sentiment in predicting stock market returns? In his October 2017 paper entitled “Measuring Investor Sentiment”, Guofu Zhou reviews various measures of equity-oriented investor sentiment based on U.S. market, survey and media data. He highlights the Baker-Wurgler Index (the most widely used), which is based on the first principal component of six sentiment inputs: (1)… Keep Reading

Are there stock return forecasts good enough to make mean-variance optimization work as a stock portfolio allocation strategy? In their October 2017 paper entitled “Mean-Variance Optimization Using Forward-Looking Return Estimates”, Patrick Bielstein and Matthias Hanauer test whether firm implied cost of capital (ICC) based on analyst earnings forecasts is effective as a stock return forecast for… Keep Reading

What is the best way to tackle multi-class, multi-factor investing? In their August 2017 paper entitled “Investing in a Multi-Asset Multi-Factor World”, Alexandar Cherkezov, Harald Lohre, Sergey Protchenko and Jay Raol investigate the use of factor investing across multiple asset classes. They define several factors for each of four asset classes, as follows: Equities (individual stocks for developed and… Keep Reading

What makes momentum investing tick? In their September 2017 paper entitled “Understanding the Momentum Risk Premium: An In-Depth Journey Through Trend-Following Strategies”, Paul Jusselin, Edmond Lezmi, Hassan Malongo, Côme Masselin, Thierry Roncalli and Tung-Lam Dao present a theoretical analysis of the momentum risk premium. They assume that asset prices generally exhibit geometric Brownian motion (randomness) with constant volatility, but with a time-varying trend. They… Keep Reading