Investing Research Articles

Can investors exploit greed among naive traders by selling them the most lottery-like equity options? In the March 2011 version of their paper entitled “Stock Options as Lotteries”, Brian Boyer and Keith Vorkink investigate the relationship between skewness of expected returns (a measure of prospects for extreme payouts, a proxy for “lotteryness”) and actual future… Keep Reading

Is the accruals anomaly still on solid ground? In their paper entitled “The Accrual Anomaly”, Patricia Dechow, Natalya Khimich, and Richard Sloan review the origin of and subsequent research on the accruals anomaly. They characterize accruals as “the piece of earnings that is ‘made up’ by accountants” as opposed to the balance coming from cash… Keep Reading

Are options for volatile stocks overpriced? In the September 2010 version of their paper entitled “Cross-Section of Option Returns and Stock Volatility”, Jie Cao and Bing Han investigate the relationship between option return and price volatility of the underlying stock. The focus on delta-hedged positions in options and underlying stocks calibrated such that the combination… Keep Reading

Can investors discriminate between lucky and skillful equity fund managers by examining the distribution of returns across fund holdings? In the September 2010 preliminary draft of their paper entitled “Home-Run Sluggers vs. Contact Hitters: Stock Performance Distribution inside Mutual Funds and Fund Managers’ Stock Picking Ability”, Peter Chung and Thomas Kim relate the skewness of… Keep Reading

Do the stocks of firms that get the most bang per research buck tend to outperform? In the March 2011 update of their paper entitled “Innovative Efficiency and Stock Returns”, David Hirshleifer, Po-Hsuan Hsu and Dongmei Li investigate the relationship between innovative efficiency (IE) and future stock returns. They consider three alternative definitions of IE: … Keep Reading

In his 2011 book Investing and the Irrational Mind: Rethink Risk, Outwit Optimism, and Seize Opportunities Others Miss, author Robert Koppel posits that investing has “less to do with the science of computation and more to do the art of managing one’s outlook, emotions, and consciousness.” He seeks to explain “how to overcome debilitating emotions,… Keep Reading

Are there reliable ways to exploit differences in asset class returns under Democratic and Republican U.S. presidents? In his April 2011 paper entitled “Is the 60-40 Stock-Bond Pension Fund Rule Wise?”, William Ziemba examines relationships between the U.S. presidential election cycle and long-run returns for several asset classes. Specifically, he investigates the differential performance of… Keep Reading

Do individual investors truly benefit from using full service brokers? In the February 2011 draft of their paper entitled “What is the Impact of Financial Advisors on Retirement Portfolio Choices and Outcomes?”, John Chalmers and Jonathan Reuter compare outcomes for those Oregon University System’s Optional Retirement Plan participants who choose a firm that uses brokers… Keep Reading

Does aggregate investor sentiment affect the strength of well-known U.S. stock return anomalies? In their January 2011 paper entitled “The Short of It: Investor Sentiment and Anomalies”, Robert Stambaugh, Jianfeng Yu and Yu Yuan explore the interaction of aggregate investor sentiment with 11 cross-sectional stock return anomalies. Their approach reflects expectations that: (1) overpricing of… Keep Reading

Do individual investors actually trade on their stated beliefs? In their February 2011 paper entitled “Do Investors Put Their Money Where Their Mouth Is? Stock Market Expectations and Trading Behavior”, Christoph Merkle and Martin Weber compare quarterly risk and return expectation survey responses to actual trading data and portfolio holdings for a group of self-directed… Keep Reading