October 23, 2014 - Big Ideas, Strategic Allocation
What’s the latest research on portfolio construction and risk management? In the the introduction to the July 2014 version of his (book-length) paper entitled “Many Risks, One (Optimal) Portfolio”, Cristian Homescu states: “The main focus of this paper is to analyze how to obtain a portfolio which provides above average returns while remaining robust to most risk… Keep Reading
October 20, 2014 - Technical Trading
A reader inquired about the validity of Martin Zweig’s Four Percent Model, which states (from pages 93-94 of the 1994 version of Martin Zweig’s Winning on Wall Street): “The Four Percent Model for the stock market works as follows. First, It uses the Value Line Composite Index…an unweighted price index of approximately seventeen hundred stocks…… Keep Reading
October 15, 2014 - Animal Spirits
Do U.S. television events that draw large attentive audiences have an effect on the stock prices of main corporate sponsors? In the September 2014 version of his paper entitled “Investor Attention and Stock Prices: Evidence from a Natural Experiment”, Erik Mayer investigates whether main sponsorship of NCAA Division I college football bowl games affects sponsor stock prices during… Keep Reading
October 14, 2014 - Momentum Investing, Strategic Allocation
In the preface to his 2015 book entitled Dual Momentum Investing: An Innovative Strategy for Higher Returns with Lower Risk, author Gary Antonacci states: “We need a way to earn long-term above-market returns while limiting our downside exposure. This book shows how momentum investing can make that desirable outcome a reality. …the academic community now accepts momentum as the… Keep Reading
October 13, 2014 - Commodity Futures
How do commodity futures behave in the post-financialization era, with commodities easily accessible via exchange-traded instruments and futures? In their September 2014 paper entitled “Factor Structure in Commodity Futures Return and Volatility”, Peter Christoffersen, Asger Lunde and Kasper Olesen analyze commodity return and volatility dynamics since financialization (after deregulation of commodity markets in the early 2000s). They consider 15 contract series… Keep Reading
October 8, 2014 - Commodity Futures, Gold
Is there a simple way to tell whether a commodity is overvalued or undervalued? In his May 2014 presentation package entitled “Commodity ‘CAPE Ratios’”, Claude Erb looks at long-term real commodity prices as valuation “crutches” to estimate when commodities are overvalued and undervalued. He provides examples relating real commodity prices to future long-term (10-year) real commodity returns. He… Keep Reading
October 7, 2014 - Equity Options, Volatility Effects
S&P 500 Index options data imply expected S&P 500 Index volatility (VIX) over the next month. In turn, VIX futures options data imply expected volatility of VIX (VVIX) over the next month. Does VVIX predict stock index option and VIX option returns? In their September 2014 paper entitled “Volatility-of-Volatility Risk”, Darien Huang and Ivan Shaliastovich investigate whether… Keep Reading
October 6, 2014 - Mutual/Hedge Funds
Do hedge fund-like mutual funds work like hedge funds? In his September 2014 paper entitled “Hedge Funds versus Mutual Funds (2): An Examination of Multialternative Mutual Funds”, David McCarthy evaluates mutual funds categorized by Morningstar as “multialternative” after further subcategorizing them as: Global Asset Allocation (active asset allocation across a broad set of global markets); Multistrategy (investing across distinct investment… Keep Reading
October 2, 2014 - Fundamental Valuation, Strategic Allocation
Does adjusting an asset allocation retirement glidepath according to a stock market valuation metric such as Shiller’s cyclically adjusted price-earnings ratio (CAPE ratio or P/E10) improve the outcome? In their September 2014 paper entitled “Retirement Risk, Rising Equity Glidepaths, and Valuation-Based Asset Allocation”, Michael Kitces and Wade Pfau investigate the interaction of pre-determined allocation glidepaths and P/E10 valuation… Keep Reading
October 1, 2014 - Calendar Effects
“Intraday U.S. Stock Market Behavior” examines behavior of the S&P 500 Index at 15-minute intervals over the trading day during each of 2007 (bullish year) and 2008 (bearish year), finding slight tendencies for market weakness during mid-afternoon and market volatility at the beginning and the end of the trading day. Does recent data confirm these… Keep Reading