Investing Research Articles

Is the term structure of CBOE Volatility Index (VIX) futures useful for timing the underlying stock index? In the February 2012 version of his paper entitled “The Relationship between VIX Futures Term Structure and S&P500 Returns”, Athanasios Fassas relates the VIX futures term structure to both contemporaneous and future S&P500 Index returns. He measures the VIX futures term structure as the… Keep Reading

Can traders exploit a tendency of some investors to over-anticipate good or bad news just before firm earnings announcements? In their 2016 paper entitled “Fear and Greed: a Returns-Based Trading Strategy around Earnings Announcements”, flagged by a subscriber, Ivo Jansen and Andrei Nikiforov investigate post-release reversal of extreme abnormal returns during the week before an earnings announcement. Specifically, they test a trading… Keep Reading

How do the long and short sides of futures trend-following strategies differently affect portfolio riskiness? In their September 2016 paper entitled “The Long and Short of Trend Followers”, Jarkko Peltomaki, Joakim Agerback and Tor Gudmundsen-Sinclair investigate via linear regression behaviors of the long and short sides of commonly used trend-following strategies across equities, bonds, commodities and currency futures/forwards… Keep Reading

Does trading by expert investors boost performance (profitably exploit information), or depress performance (unprofitably exploit information or wastefully churn on noise)? In their September 2016 paper entitled “Trading Frequency and Fund Performance”, Jeffrey Busse, Lin Tong, Qing Tong and Zhe Zhang investigate the relationship between trading frequency and performance among institutional investors (funds). They specify fund daily trading frequency as number of trades… Keep Reading

Is there a straightforward way to incorporate current business/economic climate into equity market valuation ratios? In their September 2016 paper entitled “Generalized Financial Ratios to Predict the Monthly Equity Market Premium”, Andres Algaba and Kris Boudt introduce and test a generalized price-dividend ratio (GDPR) that takes into account recent business and discount rate conditions, as follows: Where P is equity market… Keep Reading

What is the single best performance metric an investor can use to rank performances of competing portfolios (such as mutual funds)? In his September 2016 paper entitled “Measuring Portfolio Performance: Sharpe, Alpha, or the Geometric Mean?”, Moshe Levy compares Sharpe ratio, 5-factor (market, size, book-to-market, profitability, investment) alpha and geometric mean return as portfolio performance metric. The… Keep Reading

Do investors exploiting common stock return anomalies risk extraordinarily large drawdowns during market crashes? In their May 2016 paper entitled “Can Exposure to Aggregate Tail Risk Explain Size, Book-to-Market, and Idiosyncratic Volatility Anomalies?”, Sofiane Aboura and Eser Arisoy investigate whether portfolios based on the size, book-to-market ratio and idiosyncratic volatility effects bear elevated stock market tail risk. They measure… Keep Reading

Do government bond returns worldwide exhibit seasonal effects analogous to those of stock market returns? In their August 2016 draft paper entitled “Seasonality in Government Bond Returns and Factor Premia”, Adam Zaremba and Tomasz Schabek investigate seasonal patterns in government bond returns across countries, focusing on regression tests of January and sell-in-May (May-October versus November-April) effects. They also examine whether… Keep Reading

How (and what) does John Bogle think about the stock and bond markets over the next decade? In their October 2015 article entitled “Occam’s Razor Redux: Establishing Reasonable Expectations for Financial Market Returns”, flagged by a subscriber, John Bogle and Michael Nolan revisit simple models for expected stock market and government bond returns first published in… Keep Reading

Do spot price trends drive commodity futures momentum strategies? In their August 2016 paper entitled “Momentum and Mean-Reversion in Commodity Spot and Futures Markets”, Denis Chaves and Vivek Viswanathan investigate the reasons for the success of cross-sectional (relative) momentum strategies and failure of cross-sectional mean reversion strategies in the commodity futures markets. They specify commodity valuation as the ratio… Keep Reading