Investing Research Articles

Does combining the wisdom of multiple stock-picking models via ensemble methods, as done in forecasting landfall of hurricanes, improve investment portfolio performance? In their September 2018 paper entitled “Ensemble Active Management”, Alexey Panchekha, Robert Tull and Matthew Bell test the application of ensemble methods to active portfolio management, looking for consensus or near-consensus among multiple, independent stock picking sources. Ensemble… Keep Reading

Below is a weekly summary of our research findings for 10/22/18 through 10/26/18. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs. Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list.

Two major theories of asset pricing include: one based on asset risk (the market compensates inherent riskiness); and, another based on asset illiquidity (the market compensates illiquidity). In his July 2018 paper entitled “Illiquidity and Stock Returns: A Revisit”, Yakov Amihud presents cross-sectional and time series analyses of illiquidity and U.S. stock returns that extend the… Keep Reading

What are the implications of rapid global adoption of factor (smart beta) investing in single-factor, multi-factor and dynamic multi-factor strategies, most notably via equity exchange-traded funds (ETF). In their September 2018 paper entitled “Smart-Beta Herding and Its Economic Risks: Riding the Dragon?”, Eduard Krkoska and Klaus Schenk-Hoppé summarize the current state of smart beta investing, providing a… Keep Reading

Why do simple stock portfolios such as equal weighting and random weighting beat market capitalization weighting over the long run? In their June 2018 paper entitled “Diversification, Volatility, and Surprising Alpha”, Adrian Banner, Robert Fernholz, Vassilios Papathanakos, Johannes Ruf and David Schofield tackle this question by decomposing expected stock portfolio log-return into average growth rate and excess growth rate (EGR). They… Keep Reading

Quantitative investing involves disciplined rule-based approaches to help investors structure optimal portfolios that balance return and risk. How has such investing evolved? In their June 2018 paper entitled “The Current State of Quantitative Equity Investing”, Ying Becker and Marc Reinganum summarize key developments in the history of quantitative equity investing. Based on the body of research, they conclude… Keep Reading

Under what conditions should speculators buy protective equity options when they expect realized stock market volatility to increase? In their September 2018 paper entitled “Being Right is Not Enough: Buying Options to Bet on Higher Realized Volatility”, Roni Israelov and Harsha Tummala analyze the relationship between: (1) long volatility return (delta-hedged options) and same-interval changes in realized… Keep Reading

Does recent research on active mutual fund performance challenge conventional wisdom that: (1) the average fund underperforms passive benchmarks on a net basis; and, (2) individual fund outperformance does not persist. In their September 2018 paper entitled “Challenging the Conventional Wisdom on Active Management: A Review of the Past 20 Years of Academic Literature on… Keep Reading

Do active U.S. equity mutual funds beat their passive counterparts in recent years? In the September 2018 version of his paper entitled “The Historical Record on Active vs. Passive Mutual Fund Performance”, David Nanigian compares risk-adjusted annual performance of active versus passive U.S. equity mutual funds as categorized and monitored in the Morningstar Direct survivorship bias-free database. He measures… Keep Reading

Do crypto-asset trading volumes usefully predict returns? In the August 2018 draft of their paper entitled “Trading Volume in Cryptocurrency Markets”, Daniele Bianchi and Alexander Dickerson investigate the power of crypto-asset trading volumes to predict future returns. They calculate volumes and returns based on either 12-hour or 24-hour intervals. They process these inputs as follows: To detect… Keep Reading