Investing Research Articles

Do any of the various U.S. stock market size and value/growth styles systematically lead or lag the overall market, perhaps because of some underlying business/economic cycle? To investigate, we consider the the following six exchange-traded funds (ETF) that cut across capitalization (large, medium and small) and value versus growth: iShares Russell 1000 Value Index (IWD)… Keep Reading

Readers have suggested three alternative metrics for the strategy tested in the “Simple Sector ETF Momentum Strategy Performance”: (1) Sharpe Ratio over the past six months; (2) slope of price over the past six months; and, (3) average of three-month, six-month and 12-month past returns. Do these metrics outperform past six-month return in a momentum… Keep Reading

In the preface to the eleventh (2015) edition of his book entitled A Random Walk Down Wall Street: The Time-Tested Strategy for Successful Investing, author Burton Malkiel states: “The message of the original edition was a very simple one: Investors would be far better off buying and holding an index fund than attempting to buy and sell individual securities… Keep Reading

In an effort to generate more responsive exchange-traded fund (ETF) momentum switching, a subscriber proposed a version of the “Simple Asset Class ETF Momentum Strategy” (SACEMS) that measures ETF returns from the lowest daily close within the momentum measurement interval rather than the monthly close at the beginning of the momentum measurement interval. To investigate, we… Keep Reading

Does a cross-asset class, momentum-driven, simplified version of Modern Portfolio Theory (MPT) offer reliably strong performance over the long run? In their December 2014 paper entitled “A Century of Generalized Momentum; From Flexible Asset Allocations (FAA) to Elastic Asset Allocation (EAA)”, Wouter Keller and Adam Butler present an asset allocation strategy based on five concepts: MPT is a sound framework for… Keep Reading

Does diversification into alternative asset class investments, which may carry high management fees, help on a net basis? In the December 2014 version of their paper entitled “Fees Eat Diversification’s Lunch”, William Jennings and Brian Payne examine the diversification benefits of different asset classes after accounting for associated investment management fees. They focus on fees relative to allocation alpha, the expected return… Keep Reading

Does interest in, or concern about, financial markets as expressed in Internet searches predict stock market behavior? In the December 2014 revision of their paper entitled “Can We Predict the Financial Markets Based on Google’s Search Queries?”, Marcelo Perlin, Joao Caldeira, Andre Santos and Martin Pontuschka investigate whether changes in Google search frequency for finance-related words predict… Keep Reading

Does the currency carry trade, financing short-term deposits in currencies with high interest rates with short-term loans in currencies with low interest rates (or being long and short forward contracts in currencies with high and low interest rates) generate a reliably attractive return? In the November 2014 version of their paper entitled “Empirical Evidence on the… Keep Reading

Is firm profitability trend, or momentum, a useful indicator of future stock returns? In their December 2014 paper entitled “The Trend in Firm Profitability and the Cross Section of Stock Returns”, Ferhat Akbas, Chao Jiang and Paul Koch investigate the relationship between trend in firm profitability and stock returns, while controlling for level of profitability. They calculate gross profit quarterly as… Keep Reading

Should investors expect mutual fund managers to generate value via timely trades? In their November 2014 paper entitled “Do Funds Make More When They Trade More?”, Lubos Pastor, Robert Stambaugh and Lucian Taylor investigate the relationship between mutual fund turnover and performance. They measure mutual fund performance at a monthly frequency as gross fund return minus the return… Keep Reading