April 25, 2011 - Mutual/Hedge Funds
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
April 21, 2011 - Big Ideas
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
April 21, 2011 - Fundamental Valuation
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
April 20, 2011 - Big Ideas, Size Effect, Value Premium, Volatility Effects
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
April 19, 2011 - Mutual/Hedge Funds
…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.
April 19, 2011 - Momentum Investing, Technical Trading
“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
April 18, 2011 - Momentum Investing, Technical Trading
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
April 14, 2011 - Equity Options
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
April 13, 2011 - Fundamental Valuation
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
April 12, 2011 - Equity Options, Volatility Effects
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