Investing Research Articles

Should investors shun mutual funds with high fees? In their February 2017 paper entitled “Cheaper is Not Better: On the Superior Performance of High-Fee Mutual Funds”, Jinfei Sheng, Mikhail Simutin and Terry Zhang re-examine the conventionally accepted negative relationship between expense ratio and future net performance of actively managed equity mutual funds. They measure fund performance as alpha from each… Keep Reading

Does disentangling measures of stock illiquidity and market capitalization (size) support belief in an illiquidity premium (a reward for holding illiquid assets)? In the December 2016 version of their paper entitled “The Value of True Liquidity”, Robin Borcherding and Michael Stein investigate this question by controlling the most widely used stock illiquidity metric for size. Specifically they… Keep Reading

Do momentum and reversal stock anomalies stripped of market, size and book-to-market risks (residual anomalies) outperform their conventional forms? In their March 2017 paper entitled “Residual Momentum and Reversal Strategies Revisited”, Joop Huij and Simon Lansdorp compare performances of residual and conventional momentum (using returns from 12 months ago to one month ago) and reversal (using last-month… Keep Reading

Should market timers use moving averages of different lengths for trading uptrends and downtrends? In his January 2017 paper entitled “Asymmetry between Uptrend and Downtrend Identification: A Tale of Moving Average Trading Strategy”, flagged by a subscriber, Carlin chun-fai Chu investigates whether the use of different (asymmetric) moving average lookback intervals for uptrends and downtrends outperforms… Keep Reading

How do widely studied anomalies relate to representative stocks-bonds portfolio returns (rather than the risk-free rate)? In his March 2017 paper entitled “Understanding Anomalies”, Filip Bekjarovski proposes an approach to asset pricing wherein a representative portfolio of stocks and bonds is the benchmark and stock anomalies are a set of investment opportunities that may enhance the… Keep Reading

Do attention-driven retail stock investors bid prices of the biggest daily movers to overvaluation? In their March 2017 paper entitled “Daily Winners and Losers”, Alok Kumar, Stefan Ruenzi and Michael Ungeheuer examine the subsequent return behaviors of the biggest daily winning and losing stocks. Specifically, they each day identify the 80 stocks with the highest daily returns (winners) and… Keep Reading

What is “under the hood” at quantitative investment firms? In their December 2016 book-length paper entitled “Factor Investing and Asset Allocation: A Business Cycle Perspective”, Vasant Naik, Mukundan Devarajan, Andrew Nowobilski, Sebastien Page and Niels Pedersen examine the process of translating macroeconomic forecasts into alpha-generating portfolios via mean-variance optimization. They address how to: (1) specify the risk factors driving returns in global financial markets;… Keep Reading

What is a safe portfolio withdrawal rate for early retirees who expect more than 30 years of retirement? In their February 2017 paper entitled “Safe Withdrawal Rates: A Guide for Early Retirees”, ERN tests effects of several variables on retirement portfolio success: Retirement horizons of 30, 40, 50 and 60 years. Annual inflation-adjusted withdrawal rates of 3%… Keep Reading

Are widely used stock factor premiums amenable to timing based on the ratio of aggregate valuation of stocks in the long side to aggregate valuation of stocks in the short side of the factor portfolio (the value spread)? In their March 2017 paper entitled “Contrarian Factor Timing is Deceptively Difficult”, Clifford Asness, Swati Chandra, Antti Ilmanen and Ronen… Keep Reading

Are the profitability (Robust Minus Weak, RMW) and investment (Conservative Minus Aggressive, CMA) stock factor premiums observed post-1963 robust in earlier data? In the February 2017 version of his paper entitled “The Profitability and Investment Premium: Pre-1963 Evidence”, Sunil Wahal measures the profitability (revenue minus cost of goods sold, scaled by total assets) and investment (change in total… Keep Reading