Investing Research Articles

Here is this Friday’s installment of Avoiding Investment Strategy Flame-outs, a short book we are previewing for subscribers. Chapter previews will continue for the next three Fridays. Chapter 6: “Modeling at the Portfolio Level” “Evaluating strategies based only on trade-level performance, as often presented by trading advisory (“education”) services, may mislead. Some strategies concentrate opportunities, at times… Keep Reading

Do firm efforts to pay shareholders directly (via dividends) and indirectly (via share repurchases and paydown of debt) translate to stock outperformance? In their May 2012 paper entitled “Enhancing the Investment Performance of Yield-Based Strategies”, flagged by a subscriber, Wesley Gray and Jack Vogel compare aggregate performance statistics of stocks ranked by the following four progressively… Keep Reading

How do value and momentum interact with each other and with size, economic and liquidity factors worldwide? In the November 2013 version of their paper entitled “Size, Value, and Momentum in Developed Country Equity Returns: Macroeconomic and Liquidity Exposures”, Nusret Cakici and Sinan Tan address this question for developed markets. They use long-short, factor-sorted portfolios to measure… Keep Reading

Here is this Friday’s installment of Avoiding Investment Strategy Flame-outs, a short book we are previewing for subscribers. Chapter previews will continue for the next four Fridays. Chapter 5: “Checking for Market Adaptation” “The market is a complex system with many interacting parts, and external influences. As in other social settings, there are two aspects to market… Keep Reading

Does the limited supply of lendable shares substantially inhibit successful short selling? In the November 2013 draft of their paper entitled “In Short Supply: Equity Overvaluation and Short Selling”, Messod Beneish, Charles Lee and Craig Nichols examine the profitability of shorting U.S. stocks based on the supply of shares available for lending. They note that the… Keep Reading

Does stock pairs trading work reliably in the mature UK market? In their November 2013 paper entitled “Pairs Trading in the UK Equity Market: Risk and Return”, David Bowen and Mark Hutchinson examine the profitability of pairs trading in this market via overlapping portfolios. Each month, they normalize prices for all stocks in the universe… Keep Reading

How fast must attentive investors be to exploit the information in new releases of major sentiment and economic indicators? In their November 2013 paper entitled “Early Peek Advantage?”, Grace Xing Hu, Jun Pan, and Jiang Wang measure the impacts of Michigan Consumer Sentiment Index releases on E-mini S&P 500 futures volume and price with and… Keep Reading

Here is this Friday’s installment of Avoiding Investment Strategy Flame-outs, a short book we are previewing for subscribers. Chapter previews will continue for the next five Fridays. Chapter 4: “Accounting for Implementation Frictions” “Investment frictions (costs) include such burdens as broker transaction fee, bid-ask spread, impact of trading (for large trades), borrowing cost for shorting, cost of… Keep Reading

Is simple momentum the secret sauce of Managed Futures funds? In their 2013 paper entitled “Demystifying Managed Futures”, Brian Hurst, Yao Ooi and Lasse Pedersen examine how well simple trend-following strategies based on time series (intrinsic or absolute) momentum explain the performance of Managed Futures funds. Their simple intrinsic momentum strategy goes long (short) a… Keep Reading

Both “Stock Return Correlations and Retail Trader Herding” and “Stock Return Correlations and Equity Market Stress” imply that extremely high correlations among stock returns accompany severe market declines and may signal market bottoms. Is there some simple way to exploit this implication? Keying on the former item, we investigate the correlation of returns between a large-stock… Keep Reading