Investing Research Articles

Are there technical trading rules that persist in profitability, or does the market adapt to extinguish them? In their January 2011 paper entitled “Technical Analysis in the Foreign Exchange Market”, Christopher Neely and Paul Weller review research on technical trading returns in the foreign exchange market during the era of floating exchange rates. They focus… Keep Reading

A reader suggested that we review the stock market commentary of Abby Joseph Cohen, partner and chief U.S. investment strategist at Goldman Sachs. Her public record, available most robustly via MarketWatch and Bloomberg.com, focuses on her year-end forward forecasts for the levels of major stock market indexes, such as the S&P 500 Index. She seems… Keep Reading

If you believe inflation is coming, should you shift assets toward commodities-oriented assets? In their November 2010 paper entitled “Are Commodities a Good Hedge Against Inflation? A Comparative Approach”, Laura Spierdijk and Zaghum Umar compare five measures of inflation hedging capacity as applied to commodities for investment horizons ranging from one month to ten years…. Keep Reading

Do stocks trading on Over-the-Counter (OTC) markets, generally off limits for institutional traders, present in aggregate a good opportunity for individual investors? In their December 2010 paper entitled “Do Investors Overpay for Stocks with Lottery-Like Payoffs? An Examination of the Returns on OTC Stocks”, Bjørn Eraker and Mark Ready examine returns on U.S. OTC Bulletin… Keep Reading

A reader interested in the gap between time-weighted equity returns and actual dollar-weighted returns experienced by investors flagged critiques of prior studies described in: “Returns for Investors (Rather Than Markets)”: “…the actual aggregate (timing) experience of equity investors is inferior to passive buy-and-hold stock market returns. An active approach of buying after pronounced capital outflows… Keep Reading

Have regulatory changes, such as the reduction in lag time for reporting insider trades specified by the 2002 Sarbanes-Oxley Act (SOX) from up to 40 calendar days to two business days, improved the informativeness of insider trading data? In his December 2010 paper entitled “Has the Informativeness of Insider Filing Changed Post Sox? Has the… Keep Reading

Why does some prior research find that double sorts, first on some non-return variable and then on past returns, enhance momentum strategy performance? Are the enhancements truly distinct from momentum, or do they just pick higher momentum stocks? In their December 2010 paper entitled “One Effect or Many: Sources of Momentum Profits and Pitfalls of… Keep Reading

Many asset class allocation, asset valuation/selection and asset return anomaly studies ignore or treat lightly the implications of liquidity constraints. What are those implications and how serious are they? In his December 2010 paper entitled “Comatose Markets: What If Liquidity is Not the Norm?”, Aswath Damodaran examines how introducing illiquidity into decision processes affects investors… Keep Reading

Is company financial leverage a useful indicator of future stock returns? In their October 2010 paper entitled “Would You Follow MM or a Profitable Trading Strategy?”, Brian Baturevich and Gulnur Muradoglu test company leverage (gearing ratio) as a predictor of stock outperformance, controlling for market capitalization, price-to-earnings ratio, market-to-book value ratio and beta. At the… Keep Reading

Information technology has lowered barriers for creating/operating financial asset exchanges (venues for matching supply and demand). Proliferation of low-cost venues elevates competition for investor dollars and tends to depress transaction fees. Automated, broadened supply/demand matching tends to depress bid-ask spreads. This evolving market ecology attracts high-frequency traders (HFT), enabled by new technology to exploit short-term… Keep Reading