Investing Research Articles

Does a time series (absolute or intrinsic) momentum strategy work at the stock level? In their January 2016 paper entitled “The Enduring Effect of Time-Series Momentum on Stock Returns Over Nearly 100-Years” Ian D’Souza, Voraphat Srichanachaitrchok, George Wang  and Yaqiong Yao test the significance of time series momentum among individual stocks. Their baseline time series momentum strategy consists of each… Keep Reading

Has the Moore’s Law-driven advance in financial information technology strengthened the hand of Murphy’s Law in markets? In the January 2016 version of his paper entitled “Moore’s Law vs. Murphy’s Law in the Financial System: Who’s Winning?” Andrew Lo reviews big unintended consequences of technology-leveraged finance including fire sales, flash crashes, botched initial public offerings (IPO), catastrophic algorithmic trading… Keep Reading

How do gold futures and gold miner stocks interact? In their January 2016 paper entitled “Are Gold Bugs Coherent?”, Brian Lucey and Fergal O’Connor examine the relationship between gold miner stock behavior (NYSE ARCA Gold Bugs Index) and the price of gold (COMEX gold futures). Specifically, they apply wavelet transforms to analyze the degree of co-movement (coherency) and… Keep Reading

How can trend following (intrinsic or absolute or time series momentum) beat the market, while ostensibly similar return chasing transfers wealth from naive to smart investors? In their January 2016 paper entitled “Return Chasing and Trend Following: Superficial Similarities Mask Fundamental Differences”, Victor Haghani and Samantha McBride offer a plausible and testable definition of return chasing and explore its differences from trend… Keep Reading

Should equity risk premium (ERP) forecasters assume in their models, because stocks always carry risk, that the premium cannot be negative? In their January 2016 paper entitled “Forecasting the Equity Risk Premium: The Ups and the Downs”, Nick Baltas and Dimitris Karyampas examine recent ERP forecasting research, with focus on simple models constrained to positive values. Their baseline model is a… Keep Reading

Do simple ratios such as book-to-market value and earnings-to-market price really identify value stocks? In their January 2016 paper entitled “Facts About Fictional Value Investing”, U-Wen Kok, Jason Ribando and Richard Sloan examine the effectiveness of “value” investing as implemented via sorts on simple fundamental ratios. They investigate interactions of these ratios with firm capitalization and test whether it is the value numerator or the price… Keep Reading

Are moody investors prone to avoid risk on Monday and accept it on Friday? In his January 2016 paper entitled “Day of the Week and the Cross-Section of Returns”, Justin Birru examines how long-short U.S. stock anomaly portfolio returns vary by day of the week. His hypothesis is that pessimistic (optimistic) mood on Monday (Friday) leads to… Keep Reading

Early in the first chapter of their 2015 book, Superforecasting: The Art and Science of Prediction, Philip Tetlock and Dan Gardner state: “…forecasting is not a ‘you have it or you don’t’ talent. It is a skill that can be cultivated. This book will show you how.” Based on the body of research on forecasting (with focus on Philip… Keep Reading

A subscriber suggested testing of the Guardian Indicator, “a proprietary new market-strength indicator designed to enhance risk-adjusted investment returns by identifying long-term directional changes in the stock market.” This indicator tabulates Guard Score (GS) “votes” by U.S. equity sectors to predict the trend of the overall U.S. stock market. Per the paper “Introducing Guardian Indicator: Market Timing… Keep Reading

Mebane Faber states in the first chapter of his 2016 book Invest with the House: Hacking the Top Hedge Funds: “We make two assumptions…: 1. There are active managers that can beat the market… 2. Superior active managers can be identified. …There is a general feeling that the market can’t be beat, and it is tough to get past that belief. A big… Keep Reading