June 8, 2017 - Commodity Futures, Momentum Investing
Does average sign of recent returns work as well as recent cumulative return as a momentum metric? In their May 2017 paper entitled “Returns Signal Momentum”, Fotis Papailias, Jiadong Liu and Dimitrios Thomakos introduce and test a momentum strategy (RSM) based on the equally weighted average signs (1 for positive and 0 for negative) of past returns over a… Keep Reading
June 7, 2017 - Calendar Effects, Equity Premium
Are there opportunities to trade S&P 500 Index additions in the current market environment? In her May 2017 paper entitled “The Diminished Effect of Index Rebalances”, Konstantina Kappou examines returns for S&P 500 Index additions before and after the 2008 financial crisis. She focuses on additions because deletions generally involve confounding information such as restructuring, bankruptcy or… Keep Reading
June 6, 2017 - Fundamental Valuation
Which firm profitability metric best predicts stock returns? In their May 2017 paper entitled “Alternative Profitability Measures and Cross Section of Expected Stock Returns: International Evidence”, Nusret Cakici, Sris Chatterjee and Yi Tang compare abilities of 12 profitability ratios to predict stock returns across four regions (North America, Europe, Japan and Asia-Pacific). They consider three measures of profitability:… Keep Reading
June 5, 2017 - Commodity Futures, Currency Trading, Strategic Allocation, Value Premium
Does a carry trade derived from roll yields of futures/forward contracts work within asset classes (undiversified) and across asset classes (iversified)? In his May 2017 paper entitled “Optimising Cross-Asset Carry”, Nick Baltas explores the profitability of cross-sectional (relative) and time-series (absolute) carry strategies within and across futures/forward markets for currencies, stock indexes, commodities and government bonds. He… Keep Reading
June 1, 2017 - Mutual/Hedge Funds
Do investors view (mechanical) smart beta returns from mutual funds as (skillful) alpha? In the April 2017 update of their paper entitled “Fake Alpha”, Marcel Müller, Tobias Rosenberger and Marliese Uhrig-Homburg investigate the conflation of smart beta (“fake alpha”) and true alpha (incremental to smart beta and generated by skill) by mutual fund managers and investors. In estimating smart beta… Keep Reading
May 31, 2017 - Calendar Effects
Does “sell-in-May” interact with the U.S. election cycle? In the April 2017 update of their paper entitled “Buy Equities in Winter and Sell in May in Pre-Election Years: Market Premiums and Political Uncertainty in the Presidential Cycle”, Kam Fong Chan and Terry Marsh examine interactions between seasonal (May-October versus April-November) and U.S. election cycle effects on U.S. Stock… Keep Reading
May 30, 2017 - Equity Premium
Are equity sector and factor investing complementary? In their May 2017 paper entitled “Factors vs. Sectors in Asset Allocation: Stronger Together?”, Marie Briere and Ariane Szafarz compare efficient sector investing (diversifying economic risks) and efficient factor investing (diversifying across risk factors) for U.S. stocks, and then assess advantages of combining the two approaches. They first construct two efficient… Keep Reading
May 26, 2017 - Strategic Allocation, Volatility Effects
What modifications must investors make to minimum variance portfolios to make them more attractive than equal weighting? In their April 2017 paper entitled “Asset Allocation with Correlation: A Composite Trade-Off”, Rachael Carroll, Thomas Conlon, John Cotter and Enrique Salvador assess conditions under which a minimum variance portfolio (requiring only estimates of asset covariances) beats an equally weighted portfolio. In particular, they… Keep Reading
May 25, 2017 - Mutual/Hedge Funds
Has availability of liquid exchange-traded funds (ETF) designed to exploit predictive stock market factors (smart beta ETFs) affected the mutual fund industry? In their May 2017 paper entitled “How Do Smart Beta ETFs Affect the Asset Management Industry? Evidence from Mutual Fund Flows”, Jie Cao, Jason Hsu, Zhanbing Xiao and Xintong Zhan examine the impact of ETFs that do… Keep Reading
May 24, 2017 - Fundamental Valuation, Investing Expertise
How accurate are consensus firm earnings forecasts worldwide at a 12-month horizon? In his May 2016 paper entitled “An Empirical Study of Financial Analysts Earnings Forecast Accuracy”, Andrew Stotz measures accuracy of consensus 12-month earnings forecasts by financial analysts for the companies they cover around the world. He defines consensus as the average for analysts coverings… Keep Reading