Investing Research Articles

…global integration is rapidly shifting the balance of diversification power from countries to industries (for investors who adhere to modern portfolio theory).

…neither change in aggregate earnings nor the inflation rate alone is a good concurrent indicator for the overall stock market returns on a quarterly basis. However, because earnings growth and inflation are interrelated, they may together help forecast stock market behavior.

…this evidence suggests that the average day trader breaks even and that the most active traders may be the most successful.

…diversification produces “peak” performance by collapsing the probability of performance around the mean. With it, you will seldom fly high, or crash and burn.

Investors and traders face three hurdles on the track to success…

…the idiosyncratic volatility premium is closely related to the value premium, with low volatility and high value stocks tending to outperform. Insensitivity to discount rate (inflation, interest rates) shocks is the common underlying factor.

…capturing the value premium means focusing on stocks with the lowest institutional ownership.

…some industries (such as financial and retail positively, and petroleum and metals negatively) lead the overall stock market. However, the indications are not economically significant for traders.

…firms sell (buy back) company financial assets when their stocks are overvalued (undervalued), and analysts misinterpret or underreact to these actions. Investors should focus on the actions of corporate executives and not the forecasts of analysts.

…investors can enhance returns by combining value and momentum styles, leaning toward momentum when the yield curve is normal and value when the yield curve is inverted.