Investing Research Articles

How should financial education incorporate the experience of the 2007-2009 financial crisis? In their May 2014 publication entitled Investment Management: A Science to Teach or an Art fo Learn?, Frank Fabozzi, Sergio Focardi and Caroline Jonas summarize the current approach to teaching finance theory and examine post-crisis criticisms and defenses of this approach via review of textbooks and studies and through interviews with finance professors, asset managers and other… Keep Reading

Can investors exploit the combination of unusual changes in hedge fund long positions and unusual changes in short interest for individual stocks? In the February 2015 version of their paper entitled “Arbitrage Trading: The Long and the Short of It”, Yong Chen, Zhi Da and Dayong Huang examine the power of three variables to predict stock returns:… Keep Reading

Does accounting for the difficulty of covering short positions enhance the power of short interest to predict stock returns? In the February 2015 draft of their paper entitled “Days to Cover and Stock Returns”, Harrison Hong, Weikai Li, Sophie Ni and Jose Scheinkman examine days-to-cover short interest (DTC) of individual stocks as a return predictor. Their basic metric for DTC… Keep Reading

A subscriber hypothesized that combining short-term reversal with intermediate-term momentum would enhance momentum strategy performance. To investigate, we test a modification of the “Simple Asset Class ETF Momentum Strategy”, which each month allocates all funds at the end of each month to the one of the following asset class exchange-traded funds (ETF) or Cash with the highest… Keep Reading

Do lottery traders create the low-volatility (betting-against-beta) effect by overpricing high-beta stocks? In the December 2014 version of their paper entitled “Betting against Beta or Demand for Lottery”, Turan Bali, Stephen Brown, Scott Murray and Yi Tang investigate whether demand for lottery-like stocks drives the empirically low (high) abnormal returns of stocks with high (low)… Keep Reading

Is the reward for holding risky bonds material and distinct from the reward for holding stocks and the reward for holding longer term bonds? In their February 2015 paper entitled “Credit Risk Premium: Its Existence and Implications for Asset Allocation”, Attakrit Asvanunt and Scott Richardson measure and explore the predictability and diversification power of the credit (or default) risk premium… Keep Reading

Is there a more precise way to measure the premium available to investors willing to bear volatility risk than overall return variance? In their January 2015 paper entitled “Downside Variance Risk Premium”, Bruno Feunou, Mohammad Jahan-Parvar and Cedric Okou investigate the usefulness of  (1) decomposing the variance risk premium (the difference between option-implied and realized variance)… Keep Reading

Are short sellers on average well-informed, such that aggregate equity short interest usefully predicts stock market returns? In the January 2015 draft of their paper entitled “Short Interest and Aggregate Stock Returns”, David Rapach, Matthew Ringgenberg and Guofu Zhou investigate the relationship between aggregate equity short interest and future stock market performance. They aggregate short interest as the equally… Keep Reading

A subscriber requested corroboration of the findings in “Simple Debt Class Mutual Fund Momentum Strategy” with a universe restricted to a family of bond funds (such as Fidelity) to enable low-cost fund switching. We therefore apply the strategy to the following ten Fidelity mutual funds: Investment Grade Bond (FBNDX) Intermediate Bond (FTHRX) Government Income (FGOVX) Mortgage Securities (FMSFX) GNMA (FGMNX) Short-Term… Keep Reading

Are stock return anomalies strongest when investor sentiment is highest or liquidity lowest? In the January 2015 draft version of his paper entitled “What Explains the Dynamics of 100 Anomalies?”, Heiko Jacobs  addresses these questions. He first identifies, categorizes and replicates 100 well-known or recently discovered long-short stock return anomalies related to: violations of the law of… Keep Reading