January 5, 2017 - Volatility Effects
Does the S&P 500 implied volatility index (VIX) exhibit reliable intraday and day-of-week patterns? In their December 2016 paper entitled “The Intraday Properties of the VIX and the VXO”, Adrian Fernandez-Perez, Bart Frijns, Alireza Tourani-Rad and Robert Webb investigate daily and intraday properties of VIX and its predecessor, the S&P 100 implied volatility index (VXO). VIX maintains constant… Keep Reading
January 4, 2017 - Economic Indicators
Do specific stocks react differently to economic uncertainty? In their December 2016 paper entitled “Is Economic Uncertainty Priced in the Cross-Section of Stock Returns?”, Turan Bali, Stephen Brown and Yi Tang investigate the role of economic uncertainty in the cross-sectional pricing of individual stocks. They measure economic uncertainty monthly as an aggregation of the volatilities of the unpredictable components… Keep Reading
January 3, 2017 - Animal Spirits, Fundamental Valuation
Do investors treat stock dividends as part of total returns, or do they view them as a separate income stream? In their December 2016 paper entitled “The Dividend Disconnect”, Samuel Hartzmark and David Solomon investigate whether trading and pricing of stocks exhibit a “free dividend” fallacy (disregard for the fact that dividends directly debit stock price… Keep Reading
December 30, 2016 - Animal Spirits, Mutual/Hedge Funds
Do hedge fund managers who seek excitement as indicated by choice of cars invest differently from those who do not? In their December 2016 paper entitled “Sensation Seeking, Sports Cars, and Hedge Funds”, Yan Lu, Sugata Ray and Melvyn Teo investigate the relationship between hedge fund manager personal car selection (body style, maximum horsepower, maximum torque, passenger volume… Keep Reading
December 29, 2016 - Big Ideas, Equity Premium, Volatility Effects
How should investors balance expected return and expected risk in allocating between risky and risk-free assets? In their short December 2016 paper entitled “Optimal Trade Sizing in a Game with Favourable Odds: The Stock Market”, Victor Haghani and Andrew Morton apply a simple rule of thumb related to mean-variance optimization to estimate the optimal allocation to risky assets…. Keep Reading
December 27, 2016 - Fundamental Valuation
Is the relationship between Cyclically Adjusted Price to Earnings Ratio (CAPE, or P/E10) and future long-term stock market returns evidence of market inefficiency? In other words, can investors exploit P/E10 to beat the market? In their November 2016 paper entitled “Shiller’s CAPE: Market Timing and Risk”, Valentin Dimitrov and Prem Jain examine whether investors with a 10-year investment… Keep Reading
December 23, 2016 - Investing Expertise, Mutual/Hedge Funds
Are there material average performance differences between hedge funds that emphasize systematic rules/algorithms for portfolio construction versus those that do not? In their December 2016 paper entitled “Man vs. Machine: Comparing Discretionary and Systematic Hedge Fund Performance”, Campbell Harvey, Sandy Rattray, Andrew Sinclair and Otto Van Hemert compare average performances of systematic and discretionary hedge funds… Keep Reading
December 22, 2016 - Volatility Effects
Do equity market volatility behaviors predict financial crises? In their October 2016 paper entitled “Learning from History: Volatility and Financial Crises”, Jon Danielsson, Marcela Valenzuela and Ilknur Zer investigate linkages among stock market volatility, risk-taking and financial market crises over the very long run. Their volatility measurement methodology is: Measure volatility annually as standard deviation of 12 monthly returns (July through… Keep Reading
December 21, 2016 - Calendar Effects, Volatility Effects
Does the S&P 500 implied volatility index (VIX) exhibit predictable behaviors around holidays? If so, is the predictability exploitable? To check, we look at percentage changes in VIX from three trading days before to three trading days after the following annual holidays: New Year’s Day, Super Bowl, Good Friday, Memorial Day, 4th of July, Labor Day, Thanksgiving… Keep Reading
December 20, 2016 - Big Ideas
How can investors, large or small, overcome what appear to be obvious shortcomings in risk management, as occasionally indicated by portfolio crashes? In his November 2016 paper entitled “Managing Risks in Institutional Portfolios”, Andrea Malagoli critiques conventional investment portfolio risk management methodologies and offers precepts for robust risk management. He relies on a few empirical observations… Keep Reading