Investing Research Articles

Do central banks predictably influence the price of gold? In the July 2016 revision of his paper entitled “Central Banks and Gold”, Dirk Baur examines interactions of central bank gold reserves, gold carry trade profitability and gold price. Using monthly data for central bank gold reserves and gold prices since 1968 and for 1-month and 6-month gold lease… Keep Reading

As summarized in “Twisting Buffett’s Preferred Stocks-bonds Allocation”: (1) Warren Buffett’s preferred fixed asset allocation of 90% stocks and 10% short‐term government bonds (90-10), rebalanced annually, is sensible for U.S. markets; and, (2) investors may be able to beat this allocation modestly by adding simple annual dynamics. Are findings similar internationally? In his July 2016 paper entitled “Global Asset Allocation in Retirement:… Keep Reading

Is recent weakness in the stock return momentum anomaly, perhaps representing market adaptation to widespread anomaly exploitation, permanent or transitory? In their July 2016 paper entitled “Where Has the Trend Gone? An Update on Momentum Returns in the U.S. Stock Market”, Steven Dolvin and Bryan Foltice explore recent profitability of stock return momentum trading in the U.S. market. They… Keep Reading

Do global equity market behaviors support the hypothesis that intermediate-term momentum drives stock prices beyond fundamental values, thereafter driving long-term reversion? In their June 2016 paper entitled “Overreaction and the Cross-Section of Returns: International Evidence”, Douglas Blackburn and Nusret Cakici investigate whether long-term reversion is evident in global equity markets allocated to four regions: North America, Europe, Japan and Asia. They define long-term… Keep Reading

Does the Fama-French five-factor model of stock returns (employing market, size, book-to-market, investment and profitability factors) explain the outperformance of low-volatility stocks. In their July 2016 paper entitled “The Profitability of Low Volatility”, David Blitz and Milan Vidojevic examine whether: (1) any of several models expose a conventional return-for-risk market beta effect for stocks; and, (2) the low-volatility effect is… Keep Reading

What are the principal strategies for exploiting the volatility and volatility skew risk premiums? In his May 2016 workshop presentation package entitled “Volatility Modelling and Trading”, Artur Sepp provides an overview of systematic volatility risk premium capture strategies. He focuses on simple rule-based strategies with monthly reformation suitable for an investable index or a proprietary strategy. He covers delta-hedged strategies for… Keep Reading

Can hedge fund managers reliably time eight factors explaining multi-class asset returns: equity market; size; bond market; credit spread; trend-following for bonds, currencies and commodities; and, emerging markets? In their July 2016 paper entitled “Timing is Money: The Factor Timing Ability of Hedge Fund Managers”, Bart Osinga, Marc Schauten and Remco Zwinkels study the magnitude, determinants and persistence of factor… Keep Reading

Can investors avoid strategy flame-outs associated with overly enthusiastic backtesting (overfitting)? In his July 2016 paper entitled “Limitations of Quantitative Claims About Trading Strategy Evaluation”, Michael Harris presents two examples that demonstrate a key limitation of trading strategy backtesting: U.S. stock market trend following. U.S. stock market mean reversion. Specifically, he compares performances of such strategies before… Keep Reading

Do stock returns during extended market hours (4:00PM-8:00PM and 4:00AM-9:30AM) reliably predict subsequent returns during normal market hours? In their July 2016 paper entitled “Are Extended Hours Prices Predictive of Subsequent Stock Returns?”, Shai Levi, Joshua Livnat, Li Zhang and Xiao-Jun Zhang investigate whether extended hours stock returns predict returns the next day and over subsequent longer drift intervals. They… Keep Reading

Extended stock market index winning and losing streaks elicit speculation about pending reversals. Does evidence support the what-goes-up-must-come-down view that likelihood of reversal grows with streak duration and magnitude? To check, we examine the “modern” (since 1990) behaviors of the S&P 500 Index and NASDAQ Composite Index during the one and two trading days after… Keep Reading