Investing Research Articles

Do narratives (stories) sometimes trump rationality in financial markets? In his January 2017 paper entitled “Narrative Economics”, Robert Shiller considers the epidemiology (spread, mutation and fading) of stories as related to economic fluctuations. He explores the 1920-21 depression, the Great Depression of the 1930s, the Great Recession of 2007-9 and the political-economic situation of today as… Keep Reading

Do accounting-based stock return anomalies exist in samples that precede and follow those in which researchers discover them? In their November 2016 paper entitled “The History of the Cross Section of Stock Returns”, Juhani Linnainmaa and Michael Roberts examine the robustness of 36 accounting-based stock return anomalies, with initial focus on profitability and investment factors. Anomalies tested… Keep Reading

Does suppressing unrelated risks from stock factor portfolios improve performance? In their January 2017 paper entitled “Diversify and Purify Factor Premiums in Equity Markets”, Raul Leote de Carvalho, Lu Xiao, François Soupé and Patrick Dugnolle investigate how to improve the capture of four types of stock factor premiums: value (12 measures); quality (16 measures); low-risk (two measures); and, momentum (10 measures). They… Keep Reading

Are trend in stock fundamentals and stock price momentum mutually reinforcing return predictors? In their January 2017 paper entitled “Dual Momentum”, Dashan Huang, Huacheng Zhang and Guofu Zhou combine a measure of fundamentals trend and past return to form a U.S. stock portfolio designed to exploit the powers of both to select outperforming stocks. To construct their measure… Keep Reading

How can the financial markets research community shed biases that exaggerate predictability and associated expected performance of investment strategies? In his January 2017 paper entitled “The Scientific Outlook in Financial Economics”, Campbell Harvey assesses the conventional approach to empirical research in financial economics, sharing insights from other fields. He focuses on the meaning of p-value, its limitations and… Keep Reading

A reader commented and asked: “Ned Davis Research calculates a time cycle composite. How good is an equal weighting of the annual seasonal cycle, the Presidential term cycle and the decennial cycle at predicting the direction of the market?” To check, we forecast return for a given month by averaging: (1) the average return for… Keep Reading

Do individual stocks react differently and persistently to aggregate investor mood changes? In their December 2016 paper entitled “Mood Beta and Seasonalities in Stock Returns”, David Hirshleifer, Danling Jiang and Yuting Meng investigate whether some stocks have higher sensitivities to investor mood changes (higher mood betas) than others, thereby inducing calendar effects in the cross-section of returns…. Keep Reading

“Cross-asset Class Intrinsic Momentum” summarizes research finding that past country stock index (government bond index) returns relate positively (positively) to future country stock market index returns and negatively (positively) to future country government bond index returns. Is this finding useful for specifying a simple strategy using exchange-traded fund (ETF) proxies for the U.S. stock market and… Keep Reading

Are stock and bond markets mutually reinforcing with respect to time series (intrinsic or absolute return) momentum? In their December 2016 paper entitled “Cross-Asset Signals and Time Series Momentum”, Aleksi Pitkajarvi, Matti Suominen and Lauri Vaittinen examine a strategy that times each of country stock and government bond (constant 5-year maturity) indexes based on past returns for both…. Keep Reading

Do supply chain (trade network) dynamics explain intermediate-term momentum in industry stock returns? In their December 2016 paper entitled “Feedback Loops in Industry Trade Networks and the Term Structure of Momentum Profits”, Ali Sharifkhani and Mikhail Simutin examine whether industry trading network activities create feedback that induces intermediate-term autocorrelation (echo) in associated stock returns. They apply graph… Keep Reading