Investing Research Articles

Does the market compensate buyers of illiquid options? In their March 2011 paper entitled “Illiquidity Premia in the Equity Options Market”, Peter Christoffersen, Ruslan Goyenko, Kris Jacobs and Mehdi Karoui investigate the impact of illiquidity of equity options and underlying stocks on option returns. They consider two option expiration horizons, short-term (20 to 70 days)… Keep Reading

Eddie Kwong of TradingMarkets.com requested a review of Larry Connors’ Daily Battle Plan (Battle Plan). TradingMarkets.com presents the Battle Plan service as “a reliable guide for short term traders looking to take advantage of the surge in interest in exchange-traded funds (ETFs) with “a record of more than 80% correct trades. …Larry and his research… Keep Reading

Is there evidence of investor herding in the variation of return correlations for individual stocks? In their January 2011 paper entitled “Asymmetric Correlations”, Tarun Chordia, Amit Goyal and Qing Tong investigate when and why return correlations for individual stocks vary over time. At the end of each month, they calculate average pairwise correlations of stocks… Keep Reading

Hedge fund databases are prone to: (1) self-selection bias (only good performers report); (2) backfill bias (only funds with good recent past performance retroactively report it); (3) survivorship bias (exclusion of dead fund performance); and; (4) liquidation bias (poor performers stop reporting but continue to operate for some period). Do hedge fund indexes therefore inaccurately… Keep Reading

In his 2011 book Super Boom: Why the Dow Will Hit 38,820 and How You Can Profit from It, author Jeffrey Hirsch (editor-in-chief of the Stock Trader’s Almanac) states, regarding the book’s title and a target date of 2025: “…I believe it will happen” and more cautiously “the coming super boom is not only plausible,… Keep Reading

Does the earnings yield (inverse of price-to-earnings ratio, or E/P) usefully predict returns for individual stocks? In their April 2011 paper entitled “Reexamination of the Earnings-Price Anomaly by the Buy-Sell Strategy”, Hsin-Yi Yu and Li-Wen Chen test a long-only strategy that forms monthly value-weighted portfolios based on time-series sorting rather than cross-sectional sorting. Time-series sorting… Keep Reading

Can portfolios exhibit properties not evident from, or even contrary to, average properties of their component assets? In the April 2011 draft of their paper entitled “The Sources of Portfolio Returns: Underlying Stock Returns and the Excess Growth Rate”, Jason Greene and David Rakowski provide a framework for distinguishing two sources of portfolio return: (1)… Keep Reading

…investors may want to consider all these fees, expenses and costs debited from fund assets as evidence of fund manager emphasis on outcomes other than maximizing net return.

“The Industry 52-week High Effect” summarizes findings that the 52-week high effect, the future outperformance (underperformance) of stocks currently near their respective 52-week highs (lows), is stronger and more consistent for 20 industries than for individual stocks. Do findings apply to equity sectors that are somewhat broader than the 20 industries? Specifically, might such a… Keep Reading

Are 52-week highs and lows useful equity price momentum indicators at the industry level? In their March 2011 paper entitled “Industry Information and the 52-Week High Effect”, Xin Hong, Bradford Jordan and Mark Liu compare the 52-week high effect for industries to that for individual stocks. This effect consists of the future outperformance (underperformance) of… Keep Reading