Investing Research Articles

Does option-implied correlation, a measure of the expected average correlation between a stock index and its components over a specified horizon, predict stock market behavior? In their January 2017 paper entitled “Option-Implied Correlations, Factor Models, and Market Risk”, Adrian Buss, Lorenzo Schoenleber and Grigory Vilkov examine option-implied correlation as a stock market return predictor. They consider expected average… Keep Reading

What drives the low-risk stock return anomaly, wherein low-risk stocks outperform high-risk stocks (contrary to a reward-for-risk view)? In their February 2017 paper entitled “Betting Against Correlation: Testing Theories of the Low-Risk Effect”, Clifford Asness, Andrea Frazzini, Niels Gormsen and Lasse Pedersen investigate several ways to select low-risk stocks and infer from findings what drives low-risk outperformance as represented by… Keep Reading

A subscriber requested a horse race among the following four simple asset class allocation strategies: Seasonal SPY-VFITX – the strategy tested in “Bonds During the Off Season?”, which switches between SPDR S&P 500 (SPY) and Vanguard Intermediate-Term Treasury (VFITX) based on the calendar. This strategy switches between U.S. equity risk and U.S. interest rate risk. SPY:SMA10-VFITX –… Keep Reading

Are there plenty of exchange-traded funds (ETF) offering positive or negative exposures to widely accepted factor premiums? In his February 2017 paper entitled “Are Exchange-Traded Funds Harvesting Factor Premiums?”, David Blitz analyzes the exposures of U.S. equity ETFs to market, size, value, momentum and volatility factors. Specifically, he calculates factor betas (exposures) from a multi-factor regression… Keep Reading

“When to Sell Equity Index Put Options” summarizes research finding that the “insurance” premium from systematically selling equity index out-of-the-money (OTM) put options concentrates during the last few days before expiration. An ancillary finding is that a similar, though weaker and more volatile, pattern holds for selling at-the-month (ATM) put options. To test the general finding,… Keep Reading

Can speculators squeeze the “insurance” premium from shorting equity index put options in just the few days before expiration? In their January 2017 paper entitled “The Timing of Option Returns”, Adriano Tosi and Alexandre Ziegler investigate the timing of returns from shorting out-of-the-money (OTM) S&P 500 Index put options. Specifically, they compute daily excess returns (accruing return on… Keep Reading

Does adjusting stocks-bonds allocations according to trend following rules improve the performance of 30-year retirement portfolios? In their November 2016 paper entitled “Applying a Systematic Investment Process to Distributive Portfolios: A 150 Year Study Demonstrating Enhanced Outcomes Through Trend Following”, Jon Robinson, Brandon Langley, David Childs, Joe Crawford and Ira Ross compare retirement portfolio performances for variations of the following… Keep Reading

Are precious metals effective safe havens, preserving capital when stocks and bonds crash? In their January 2017 paper entitled “Reassessing the Role of Precious Metals as Safe Havens – What Colour is Your Haven and Why?”, Sile Li and Brian Lucey assess whether four precious metals (gold, silver, platinum and palladium) are safe havens relative to stock market… Keep Reading

Does the original 1963-1997 study identifying (Amihud) illiquidity as a stock pricing factor hold in recent data? In their December 2016 paper entitled “Illiquidity and Stock Returns: Cross-Section and Time-Series Effects: A Replication”, Lawrence Harris and Andrea Amato replicate the original research and extend it to 1998-2015 data. As in the prior study, they: (1) each month measure… Keep Reading

Is there an exploitable short-term momentum effect after asset price jumps? In his January 2017 paper entitled “Profitability of Trading in the Direction of Asset Price Jumps – Analysis of Multiple Assets and Frequencies”, Milan Ficura tests the profitability of trading based on continuation of jumps up or down in the price series of each of four currency… Keep Reading