Investing Research Articles

What approaches to global diversification work best? In their July 2011 paper entitled “What Matters in International Equity Diversification? “, Chun-hung Chen, Tom Goodwin, and Wenling Lin use mean-variance spanning and optimization tests of indexes to compare benefits of alternative approaches to global diversification of the equity portion of an investor’s portfolio. Specifically, they investigate potential… Keep Reading

As suggested by a reader, we evaluate here the public stock market forecasts of Peter Eliades since late 2002. Evaluated predictions/recommendations come indirectly via MarketWatch columns, which have reported his commentary sporadically in recent years. Peter Eliades is editor of Stock Market Cycles. His “approach to the market is based on the theory that stock prices… Keep Reading

Many studies rely on the first moment (mean) of historical asset return distributions and/or the second moment (variance or standard deviation) to predict future returns. Are the third (skewness, indicating left-right tail asymmetry) and fourth (kurtosis, indicating fat-tailedness) moments of return distributions useful for predicting returns? In the July 2011 update of their paper  entitled “Do Realized… Keep Reading

A reader commented and asked: “One of the most read investing books in the U.S. is Joel Greenblatt’s The Little Book that Beats the Market, which reveals the ‘magic formula’. What do you think of it?” In response, rather than review the book, we examine the U.S. Value Direct Composite returns at Formula Investing. These returns… Keep Reading

…while mid-single digits may be a reasonable rough estimate for the equity risk premium, there is not a generally accepted value for it or method of estimating it.

“With Thomson Reuters News Analytics, computers can not only read the news – they can interpret it too. The results can enhance your investment and trading strategies, helping you to spot new opportunities and generate alpha. And for the humans among us, news sentiment analysis offers meaningful insight to drive trading and investment decisions.” Is… Keep Reading

“Overview of Financial Market Regime Change” states that researchers often use return volatility to discriminate financial market regimes (intervals of persistent behavior). Investors often use some variation of simple moving average (SMA) crossovers to determine market regime. Do these perspectives intersect? To investigate, we examine realized volatility (standard deviation of daily returns) and frequency of… Keep Reading

Financial markets sometimes switch states (regimes), with key investment decision statistics (such as average return and volatility of returns) shifting dramatically for extended intervals. A simple example of financial market regimes is the designation of bull and bear stock market states, estimated (for example) by a broad index being above or below its long-interval simple… Keep Reading

A reader inquired about the complex strategy for trading stock index proxies and futures described in the March 2010 paper “MR Swing: A quantitative System for Mean‐reversion and Swing Trading in Market Regimes” by David Abrams and Scott Walker. This strategy posits that: The stock market switches between bull and bear states, with the bull or bear state in effect when current… Keep Reading

Do individual experts whose U.S. stock market forecasting records are good (bad) gain (lose) attention? The “pro” argument is that investors (and online intermediaries) eventually flock to good forecasters and ignore bad ones in search of a market timing edge. The “con” arguments are that loud noise (for example, marketing-related or entertainment-driven) swamps information, and/or… Keep Reading