Investing Research Articles

In the preface to the 2015 Third Edition of Irrational Exuberance, author Robert Shiller states: “…evidence of bubbles has accelerated since the [2007-2009 world financial] crisis. Valuations in the stock and bond markets have reached high levels in the United States and some other countries, and valuations in the housing market have been increasing rapidly in many countries. …The… Keep Reading

Do equity option traders really bear the relatively large quoted bid-ask spreads as trading frictions? In their March 2015 paper entitled “Option Trading Costs Are Lower Than You Think”, Dmitriy Muravyev and Neil Pearson examine whether the predictability of changes in quoted option prices enables sophisticated investors to suppress option trading frictions. Instead of the bid-ask midpoint, they use… Keep Reading

Which stock momentum return predictor works best? In his March 2015 paper entitled “Momentum Crash Management”, Mahdi Heidari compares the crash protection effectiveness of seven stock momentum return predictors, categorized into two groups:  Overall stock market statistics: prior-month market return; change in monthly market return; volatility of market returns (standard deviation of weekly returns for the past 52 weeks);… Keep Reading

Are positive carry and positive trend conditions consistently favorable across asset classes? In their March 2015 paper entitled “Carry and Trend in Lots of Places”, Vineer Bhansali, Josh Davis, Matt Dorsten and Graham Rennison employ futures prices to investigate whether the adages “don’t pay too much to hold an investment” and “don’t fight the trend” actually work across four major asset classes:… Keep Reading

Do variable retirement spending strategies offer greater utility than fixed-amount or fixed-percentage strategies? In his March 2015 paper entitled “Making Sense Out of Variable Spending Strategies for Retirees”, Wade Pfau compares via simulation ten retirement spending strategies based on a common set of assumptions. He classifies these strategies into two categories: (1) those based on decision rules (such as… Keep Reading

Does a factor (style) premium model identify exploitable abnormal corporate bond returns? In their March 2015 paper entitled “Investing with Style in Corporate Bonds”, Ronen Israel, Johnny Kang and Scott Richardson investigate the usefulness of four bond return factors: Carry – the fixed spread that must be added to the U.S. Treasuries yield curve such that the discounted payments of the… Keep Reading

In the introduction to his 2015 book entitled The 3% Signal: The Investing Technique that Will Change Your Life, author Jason Kelly states: “Ideas count for nothing; opinions are distractions. The only thing that matters is the price of an investment and whether it’s below a level indicating a good time to buy or above a level indicating a… Keep Reading

Why and how should investors pursue investment premiums associated with factors that explain performance differences among related assets (like common stocks)? In the January 2015 version of his paper entitled “Better Investing Through Factors, Regimes and Sensitivity Analysis”, Cristian Homescu summarizes recent research on: (1) factor-based investing; (2) enhancement of factor-based investing via regime switching models; and, (3) strategy robustness testing. Factor… Keep Reading

Is there an exploitable interaction between a stock’s market capitalization and its price? In their February 2015 paper entitled “Nominal Prices Matter”, Vijay Singal and Jitendra Tayal examine the relationship between stock prices and returns after: (1) controlling for market capitalization (size); (2) isolating the month of January; and, (3) excluding very small stocks. They each year perform double-sorts… Keep Reading

Does fourth quarter global economic data set the stage for asset class returns the next year? In their February 2015 paper entitled “The End-of-the-year Effect: Global Economic Growth and Expected Returns Around the World”, Stig Møller and Jesper Rangvid examine relationships between level of global economic growth and future asset class returns, focusing on growth at the end… Keep Reading