Investing Research Articles

Does the variation of individual stock returns with liquidity support an investment style? In the January 2014 update of their paper entitled “Liquidity as an Investment Style”, Roger Ibbotson and Daniel Kim examine the viability and distinctiveness of a liquidity investment style and investigate the portfolio-level performance of liquidity in combination with size, value and momentum styles…. Keep Reading

A reader observed: “One of the problems with simple moving average (SMA) crossing rules is the churning from random price movements across the average. Lars Kestner proposes improvements to SMA crossing rules that signal: BUY when: (1) the close crosses over an SMA of the highs (rather than the closes); and, (2) the SMA of… Keep Reading

Does a stronger stock price trend, up or down, indicate a bigger momentum effect? In their February 2014 paper entitled “Trend Salience, Investor Behaviors and Momentum Profitability”, Paul Docherty and Gareth Hurst test variations of a conventional stock momentum strategy that consider both past returns and rate of change of past returns relative to other… Keep Reading

Pairs traders often use a normalized price gap threshold of two standard deviations to generate signals for opening trades. Is there a better metric for generating these signals? In the January 2014 version of their paper entitled “Pairs Trading with Copulas”, Wenjun Xie, Qi Rong Liew, Yuan Wu and Xi Zou compare the performances of… Keep Reading

Do economic indicators usefully predict government bond returns? In the January 2014 version of their paper entitled “What Drives the International Bond Risk Premia?”, Guofu Zhou and Xiaoneng Zhu examine whether OECD-issued leading economic indicators predict government bond returns at a one-month horizon. They focus on a four-country (U.S., UK, Japan and Germany) aggregate leading economic… Keep Reading

Is the conventional wisdom that traders can scalp part of cash dividends by buying stocks just before ex-dividend day and selling just after reliable across exchanges? In their January 2014 paper entitled “Ex-Dividend Day Stock Price Behavior – the NASDAQ Evidence”, Shishir Paudel and Sabatino Silveri investigate whether dividend-paying NASDAQ stocks exhibit ex-dividend day price… Keep Reading

Under what conditions is periodic rebalancing a successful “volatility harvesting” strategy? In his February 2014 paper entitled “Disentangling Rebalancing Return”, Winfried Hallerbach analyzes the return from periodic portfolio rebalancing by decomposing its effects into a volatility return and a dispersion discount. He defines: Rebalancing return as the difference in (geometric) growth rates between periodically rebalanced… Keep Reading

Has easy access to commodity allocations via exchange-traded instruments (financialization) changed the way commodity prices interact with the economy? In his February 2014 paper entitled “Macroeconomic Determinants of Commodity Returns in Financialized Markets”, Adam Zaremba investigates relationships between commodity returns and economic conditions in pre-financialization (before 2004) and post-financialization (2004 and after) environments. He defines… Keep Reading

Does the cost of borrowing shares of a stock for shorting predict its future returns? In their January 2014 paper entitled “The Shorting Premium and Asset Pricing Anomalies”, Itamar Drechsler and Qingyi (Freda) Drechsler investigate shorting fees as a predictor of stock returns. For analysis, they sort stocks at the end of each month into… Keep Reading

What drives the performance of risk parity asset allocation, and on what asset classes does it therefore work best? In their January 2014 paper entitled “Inter-Temporal Risk Parity: A Constant Volatility Framework for Equities and Other Asset Classes”, Romain Perchet, Raul Leote de Carvalho, Thomas Heckel and Pierre Moulin employ simulations and backtests to explore the… Keep Reading