Investing Research Articles

Do strategies modeled using major indexes translate cleanly to the exchange-traded funds (ETF) that track them? ETF returns may deviate from underlying index levels because: (1) ETFs incorporate trading frictions from rebalancing and management fees; (2) ETF composition may differ slightly from that of the underlying index due to trading cost considerations; (3) ETFs accumulate… Keep Reading

Are there differences in implied volatilities (option pricing) between major indexes and the exchange-traded funds (ETF) that track them? In their 2011 paper entitled “The Implied Volatility of ETF and Index Options”, Stoyu Ivanov, Jeff Whitworth and Yi Zhang compare implied volatilities of SPDR Dow Jones Industrial Average (DIA), SPDR S&P 500 (SPY) and PowerShares… Keep Reading

Do active exchange-traded funds (ETF), which realistically incorporate management costs and trading frictions, offer value to investors? In his June 2011 paper entitled “Active ETFs and Their Performance vis-à-vis Passive ETFs, Mutual Funds and Hedge Funds”, Panagiotis Schizas examines the returns and risks of the first active ETFs, including comparisons with alternative passive ETFs, mutual… Keep Reading

What does the body of academic research say about the stock trading behaviors and outcomes for individual investors? In their June 2011 paper entitled “The Behavior of Individual”, Brad Barber and Terrance Odean survey four areas of empirical research on the behavior of individual investors trading individual stocks: (1) performance, (2) the disposition effect, (3)… Keep Reading

A reader suggested Condor Options as a guru for review. To conduct a review, we evaluate the Condor Options Newsletter Performance table of iron condor trades (with a few hedging trades) available via the Condor Options Performance self-assessment. This table includes entry and exit dates, trade duration, specific positions/strike prices, initial value (credit), total amount… Keep Reading

Do stocks around the world tend to perform better around the time of annual earnings announcements by respective firms than during the rest of the year? In the June 2011 draft of their paper entitled “The Earnings Announcement Premium Around the Globe”, Brad Barber, Emmanuel De George, Reuven Lehavy and Brett Trueman investigate whether the… Keep Reading

Does the claim that “credit anticipates and equity confirms” support a trading strategy? In his June 2011 paper entitled “Credit-Informed Tactical Asset Allocation”, David Klein tests a stocks-cash allocation strategy that derives signals from relative valuation of the Bank of America/Merrill Lynch High Yield B index (converted to a default probability) and the Russell 2000… Keep Reading

Howard Marks introduces his 2011 book, The Most Important Thing: Uncommon Sense for the Thoughtful Investor, by stating: “…I have built this book around the idea of the most important things–each is a brick in what I hope will be a solid wall, and none is dispensable. …I consider it my creed, and in the… Keep Reading

As suggested by a reader, we evaluate here Gary Savage’s outlooks for the U.S. stock market since May 2007 as extracted from his current Smart Money Tracker blog (since March 2010) and its predecessor site. While Gary Savage states that his “main goal…for the next few years will be to keep investors focused on riding… Keep Reading

“The Fourth Quadrant: No Realm for the Normal” summarizes Nassim Taleb’s description of the realm of the Black Swan, concluding that in this realm “normal” statistical metrics and associated risk management methods do not work and that redundancy, not optimization, is key to risk management. This Fourth Quadrant encompasses return distributions that have infrequent, large,… Keep Reading