Investing Research Articles

Is there a simple way to improve the performance of conventional asset class target allocations by rotating to strength within classes based on Relative Strength Index (RSI)? In his September 2015 paper entitled “Momentum Investing and Asset Allocation”, Drew Knowles seeks to improve the performance of baseline asset class (equity, fixed income, hedge fund) allocations via dynamic intra-class rotation… Keep Reading

Does the rate of change of return momentum (return acceleration) usefully predict stock returns? In their August 2015 paper entitled “The Acceleration Effect and Gamma Factor in Asset Pricing”, Diego Ardila-Alvarez, Zalan Forro and Didier Sornette compare the effectiveness of return acceleration (difference between returns for the last six months and the preceding six months) and return momentum as stock return… Keep Reading

Is there a way to suppress the volatility and drawdowns of a mixed value and momentum stock strategy while retaining most of its benefit? In his September 2015 paper entitled “Learning to Play Offense and Defense: Combining Value and Momentum from the Bottom up, and the Top Down”, Mebane Faber examines the feasibility of a strategy that combines market valuation… Keep Reading

How well do equity index option strategies work during crises? In his October 2015 paper entitled “The Performance of Equity Index Option Strategy Returns during the Financial Crisis”, Dominik Schulte tests the profitability of long and short equity index option strategies during the financial crisis of 2008, including long (as defined) and short (opposite) versions of: Call: buy a… Keep Reading

Is fundamental valuation of stocks an inherently effective investment approach? In their October 2015 paper entitled “Fundamental Analysis Works”, Sohnke Bartram and Mark Grinblatt test whether fundamental valuation usefully predict stock performance. Each month, they estimate the fair value (market capitalization) of each stock based on linear regression versus the 28 most commonly reported firm accounting variables (14 from the balance… Keep Reading

Do stock limit order books tip the direction of stock price? In their October 2015 paper entitled “Enhancing Trading Strategies with Order Book Signals”, Alvaro Cartea, Ryan Donnelly and Sebastian Jaimungal test the use of buying and selling pressures based on limit order book data to predict the direction, depth and magnitude of near-term stock price… Keep Reading

Is the Fama-French five-factor (market, size, book-to-market, profitability, investment) model of stock returns optimal? In the September 2015 draft of their paper entitled “Choosing Factors”, Eugene Fama and Kenneth French investigate potential improvements to the overall predictive power of their five-factor model. Specifically, they examine: Using a profitability factor based on cash rather than operating profit, or substituting a… Keep Reading

Is there a way to predict when beta anomaly arbitrage (long low-beta stocks and short high-beta stocks will work? In the August 2015 version of their paper entitled “The Booms and Busts of Beta Arbitrage”, Shiyang Huang, Dong Lou and Christopher Polk investigate the power of a metric that measures beta arbitrage activity to predict associated returns. They… Keep Reading

Are higher even moments of asset return distributions useful predictors of future returns? In the September 2015 version of her paper entitled “A Low-Risk Strategy based on Higher Moments in Currency Markets”, Claudia Zunft explores an adaptive currency trading strategy that exploits the predictive power of higher even moments of forward currency exchange rate returns. The strategy is each month… Keep Reading

When does it make sense to exercise equity options early? Does it happen frequently? In the September 2015 version of their paper entitled “Early Option Exercise: Never Say Never”, Mads Jensen and Lasse Pedersen investigate the interaction of investment frictions (shorting, trading and funding costs) and early exercise of equity options. They estimate shorting frictions via… Keep Reading