September 25, 2012 - Commodity Futures
In mid-2008, a reader speculated and asked: “You have probably heard of the historical 6:1 crude oil/natural gas price ratio. This relationship is said to be mean reverting based on the thermal equivalence of the two commodities. Does this ratio have any predictive power for the future prices of oil or natural gas? If there… Keep Reading
September 24, 2012 - Investing Expertise
Are there certain kinds of insider trades that are more exploitable than others? In their August 2012 paper entitled “Insider Trading Patterns”, David Cicero and Babajide Wintoki define and examine two kinds of insider trading: (1) isolated trades (no trades in prior or subsequent months; and, (2) sequenced trades (occurring in successive months). They hypothesize that… Keep Reading
September 21, 2012 - Individual Investing, Investing Expertise
Are investment advisors worth the price? In the August 2012 version of their paper entitled “The Impact of Financial Advisors on the Stock Portfolios of Retail Investors”, Marc Kramer and Robert Lensink investigate the impact of financial advisors on individual investor portfolio returns, risk, trading frequency and diversification. For sampled investors, the sponsoring bank standardizes strategic asset allocation… Keep Reading
September 21, 2012 - Individual Investing
Does experience improve individual investing performance? In the August 2012 version of their paper entitled “Do Individual Investors Learn from Their Mistakes?”, Maximilian Koestner, Steffen Meyer and Andreas Hackethal examine whether investors learn to avoid portfolio underdiversification, overconfidence (overtrading) and the disposition effect (selling winners and holding losers). They consider three measures of investor experience: cumulative… Keep Reading
September 20, 2012 - Gold, Strategic Allocation
Has increasing use of gold as a portfolio diversifier changed the response of its price to crises? In their August 2012 paper entitled “The Destruction of a Safe Haven Asset?”, Dirk Baur and Kristoffer Glover examine the potential of investor behavior to extinguish the safe haven property of gold. Specifically, they consider how widespread inclusion of… Keep Reading
September 19, 2012 - Commodity Futures, Sentiment Indicators
The zero-sum S&P 500 futures/options market involves three groups of traders: (1) commercial hedgers; (2) non-commercial traders (large speculators); and, (3) non-reportable traders (small or retail speculators) representative of the public. The Commodity Futures Trading Commission (CFTC) collects and publishes aggregate positions (short, long and spread) for each group in a weekly Commitment of Traders… Keep Reading
September 18, 2012 - Strategic Allocation, Volatility Effects
Risk-focused asset allocation strategies derive from evidence that forecasting asset return volatility is easier than forecasting average return. Is there a best risk-focused strategy? In his September 2012 paper entitled “A Small Survey of Quantitative Models that Discard Estimation of Expected Returns for Portfolio Construction”, Stefano Colucci compares asset allocation strategies that rely on forecasted asset… Keep Reading
September 17, 2012 - Momentum Investing
The model “Simple Asset Class ETF Momentum Strategy” (SACEMS) explores combinations of diversification and momentum as applied to exchange-traded fund (ETF) proxies for asset classes. As introduced, this strategy employed a baseline momentum ranking interval (six-month lagged ETF total return) to the following asset class ETFs, plus cash: PowerShares DB Commodity Index Tracking (DBC) iShares MSCI… Keep Reading
September 13, 2012 - Bonds, Momentum Investing
What does price momentum of stocks, whether total or risk-adjusted, imply about future returns of associated corporate bonds? In their August 2012 paper entitled “Residual Equity Momentum for Corporate Bonds”, Daniel Haesen, Patrick Houweling and Jeroen Van Zundert compare the predictive powers of total stock price momentum and risk-adjusted (residual) stock price momentum to predict returns of same-firm… Keep Reading
September 11, 2012 - Investing Expertise
“CFOs vs. CEOs as Inside Traders” describes research finding that, based on data from before the Sarbanes-Oxley Act (SOX), investors should assume that Chief Financial Officers (CFO) are better inside traders than Chief Executive Officers (CEO). Does this finding hold after SOX? In the August 2012 update of their paper entitled “CEOs, CFOs, and COOs: Why Are… Keep Reading