Investing Research Articles

Can sacrificing little goals satisfy bigger ones? In the March 2018 draft of their paper entitled “Pulling the Goalie: Hockey and Investment Implications”, Clifford Asness and Aaron Brown ponder when a losing hockey coach should pull the goalie as a metaphor for focusing on portfolio-level return and portfolio-level risk management. Based on statistical analysis of hockey scenarios… Keep Reading

Does adding international equity exposure and an escape to “cash” enhance performance of a relative momentum strategy that switches between stock and U.S. Treasury bond exchange-traded funds (ETF)? In his February 2018 paper entitled “Simple and Effective Market Timing with Tactical Asset Allocation Part 2 – Choices”, Lewis Glenn updates and considers two extensions to… Keep Reading

What methods are available to suppress data snooping bias derived from testing multiple strategies/strategy variations on the same set of historical data? Which methods are best? In their March 2018 paper entitled “Systematic Testing of Systematic Trading Strategies”, Kovlin Perumal and Emlyn Flint survey statistical methods for suppressing data snooping bias and compare effectiveness of these methods on simulated… Keep Reading

Is the strong gain in the U.S. stock market following the November 2016 national election rational or irrational? In their February 2018 paper “Why Has the Stock Market Risen So Much Since the US Presidential Election?”, flagged by a subscriber, Olivier Blanchard, Christopher Collins, Mohammad Jahan-Parvar, Thomas Pellet and Beth Anne Wilson examine sources of the 25% U.S. stock market advance during November… Keep Reading

What is the historical relationship between U.S. stock market earnings yield (E/P) and U.S. government bond yield (Y)? In their February 2018 paper entitled “Stock Earnings and Bond Yields in the US 1871 – 2016: The Story of a Changing Relationship”, Valeriy Zakamulin and Arngrim Hunnes examine the relationship between E/P Y over the long run, with focus… Keep Reading

How can investment advisors apply historical asset performance data to address client views regarding future market/economic conditions? In their February 2018 paper entitled “Matching Market Views and Strategies: A New Risk Framework for Optimal Selection”, Adil Reghai and Gaël Riboulet present an approach for quantitatively relating historical asset return statistics to investor views. They intend this approach to… Keep Reading

A subscriber requested review of a finding that deviation of 10-year constant maturity U.S. Treasury note (T-note) yield from an intermediate-term linear trend predicts U.S. stock market return. Specifically, when weekly yield is more than one standard deviation of weekly trend divergences below (above) a weekly 70-week linear extrapolation, next-week S&P 500 Index return is… Keep Reading

Do technical trend trading/intrinsic momentum strategies work for widely used equity factors such as size (small minus big market capitalizations), value (high minus low book-to-market ratios), profitability (robust minus weak), investment (conservative minus aggressive) and momentum (winners minus losers)? In their January 2018 paper entitled “What Goes up Must Not Come Down – Time Series… Keep Reading

Is shorting pairs of leveraged exchange-traded funds (ETF) reliably profitable? In their December 2017 paper entitled “Shorting Leveraged ETF Pairs”, Christopher Hessel, Jouahn Nam, Jun Wang, Xing Cunyu and Ge Zhang examine monthly returns from shorting a pair of leveraged and inverse leveraged ETFs for the same index. They first investigate what circumstances make this strategy profitable. They then test… Keep Reading

Can advanced regression techniques identify monthly cross-industry lead-lag return relationships that usefully indicate an industry rotation strategy? In their January 2018 paper entitled “Dynamic Return Dependencies Across Industries: A Machine Learning Approach”, David Rapach, Jack Strauss, Jun Tu and Guofu Zhou examine dynamic relationships between past and future returns (lead-lag) across 30 U.S. industries. To guard against overfitting the data, they… Keep Reading