Investing Research Articles

Can investors use aggregate pairwise return correlations across asset classes to identify and exploit financial market regimes? In the April 2013 draft of their paper entitled “Handling Risk On/Risk Off Dynamics with Correlation Regimes and Correlation Networks”, Jochen Papenbrock and Peter Schwendner describe an approach for discovering market regimes based on pairwise correlations across 25… Keep Reading

A subscriber inquired about the TransDow trading strategy, which seeks to exploit a relationship between the Dow Jones Transportation Average (DJTA) and the Dow Jones Industrial Average (DJIA). Specifically, this strategy: Computes the 10-week simple moving average (SMA) of the ratio of the weekly closes of DJTA to DJIA. Enters (exits) a long position in… Keep Reading

Are high-grade diamonds competitive with conventional asset classes as investments? In his April 2013 paper entitled “The Returns on Investment Grade Diamonds”, Luc Renneboog examines secondary market returns and risks of investment grade gems (white diamonds, colored diamonds and other gems such as sapphires, rubies, and emeralds). He compares their investment performance metrics to those… Keep Reading

Should traders discard boring, rather than exciting (outlier), data? In his February 2013 paper entitled “Filtered Market Statistics and Technical Trading Rules” (the National Association of Active Investment Managers’ 2013 Wagner Award third place winner), George Yang proposes to filter out as noise the cluster of daily stock market returns near zero for technical analysis purposes. Specifically, he suggests… Keep Reading

How can investors use exchange-traded products to exploit equity market volatility? In the April 2013 version of his paper entitled “Easy Volatility Investing” (the National Association of Active Investment Managers’ 2013 Wagner Award runner-up), Tony Cooper explores the rewards and risks of five volatility trading strategies including simple buy-and-hold, price momentum, futures roll yield capture, volatility risk premium capture and dynamic… Keep Reading

Do equity sectors have exploitably measurable relative value? In his February 2013 paper entitled “Equity Sector Rotation via Credit Relative Value” (the National Association of Active Investment Managers’ 2013 Wagner Award winner), Dave Klein outlines a long-only strategy that ranks Standard & Poor’s Select Sector SPDR exchange-traded fund (ETF) based on relative value. The strategy seeks to exploit a belief that… Keep Reading

What works better for currency trading, technical or fundamental analysis? In their April 2013 working paper entitled “Exchange Rate Expectations of Chartists and Fundamentalists”, Christian Dick and Lukas Menkhoff compare the behavior and performance of technical analysts (chartists) and fundamental analysts (fundamentalists) based on monthly surveys of several hundred German professional dollar-euro exchange rate forecasters,… Keep Reading

Is there a portfolio diversification approach that beats widely used mean-variance optimization and risk parity approaches? In their July 2011 paper entitled “Properties of the Most Diversified Portfolio”, Yves Choueifaty, Tristan Froidure and Julien Reynier compare the performance metrics of their Most Diversified Portfolio (MDP) to those of portfolios based on market capitalization (MKT), equal… Keep Reading

Analyses in “Shorting VXX with Crash Protection” suggest that one-month momentum may be a useful signal for trading in and out of a short position in iPath S&P 500 VIX Short-Term Futures ETN (VXX). A subscriber inquired whether a short-term version of this signal is effective. Specifically, how useful is a strategy that goes short VXX… Keep Reading

How do “passive” stock indexes constructed from widely researched allocation rules fare against market capitalization weighting? In their March 2013 paper entitled “An Evaluation of Alternative Equity Indices – Part 1: Heuristic and Optimised Weighting Schemes”, Andrew Clare, Nick Motson and Steve Thomas compare the behaviors of eight alternative stock indexes formed from a common… Keep Reading