Investing Research Articles

Stock return anomaly studies based on firm accounting variables generally employ annually reformed portfolios that are long (short) the tenth of stocks expected to perform well (poorly). Does adding monthly portfolio updates based on technical stock price trend measurements boost anomaly portfolio performance? In the June 2015 version of their paper entitled “Anomalies Enhanced: The Use… Keep Reading

We have made three changes to the “Simple Asset Class ETF Value Strategy” (SACEVS) based on results of  robustness tests and subscriber comments: To employ fresher data, we decrease the SACEVS S&P 500 Index level and bond/bill yield measurement interval from quarterly to monthly. S&P 500 Index operating earnings updates are still quarterly. To employ fresher data, we… Keep Reading

Which is better, sector-based or factor-based stock investing? In their June 2015 paper entitled “Factor-Based v. Industry-Based Asset Allocation: The Contest”, Marie Briere and Ariane Szafarz compare the attractiveness of sector-based and factor-based U.S. stock allocations. From Kenneth French’s data library, they extract return series for 10 sectors and five factors (size, value, profitability, investment and momentum). They expand the factor set to 10… Keep Reading

Do equity style mutual funds look more attractive when benchmarked to matched style stock indexes than to more theoretical factor models of stock returns? In their April 2015 paper entitled “On Luck versus Skill When Performance Benchmarks are Style-Consistent”, Andrew Mason, Sam Agyei-Ampomah, Andrew Clare and Steve Thomas compare alphas for U.S. equity style mutual funds as calculated with conventional factor models… Keep Reading

“Simple Asset Class ETF Value Strategy” (SACEVS) tests a simple relative value strategy that each quarter allocates funds to one or more of the following three asset class exchange-traded funds (ETF), plus cash, based on degree of undervaluation of measures of the term risk, credit risk and equity risk premiums: 3-month Treasury bills (Cash)iShares 7-10 Year Treasury Bond (IEF)iShares… Keep Reading

How does growth in capitalization-weighted equity index investing affect the stock market? In the December 2014 update of their paper entitled “Indexing and Stock Price Efficiency”, Nan Qin and Vijay Singal examine the relationship between equity index investing (driven passively by liquidity trading and index changes, not actively by information) and stock price efficiency. They… Keep Reading

What is the best stock pairs trading method? In their June 2015 paper entitled “The Profitability of Pairs Trading Strategies: Distance, Cointegration, and Copula Methods”, Hossein Rad, Rand Kwong Yew Low and Robert Faff compare performances of three pairs trading methods as applied to U.S. stocks. Distance – Select the 20 stock pairs with the smallest sum of squared differences… Keep Reading

There are many leveraged exchange-traded funds (ETF) designed to track multiples of short-term (daily) changes in popular indexes. Over longer holding periods, these ETFs tend to veer off track. The cumulative tracking error can be large. How well do leveraged ETFs track benchmarks over a multi-year period? What return metric drives the degree to which they fail to achieve… Keep Reading

Is it misleading to view factor risk premiums (such as for market, size and value) as constant over time? In his June 2015 paper entitled “Dynamic Risk Premia and Asset Pricing Puzzles”, Andy Jia-Yuh Yeh generates time-varying (dynamic) risk premiums for the Fama-French five-factor asset pricing model and explores whether widely accepted asset pricing anomalies exist after accounting for premium dynamics. Specifically, he applies a filter… Keep Reading

Which works best, strategies comparing past returns among assets (relative or cross-sectional) or strategies requiring positive past raw/excess returns (intrinsic or absolute or time series)? In their May 2015 paper entitled “Cross-Sectional and Time-Series Tests of Return Predictability: What is the Difference?”, Amit Goyal and Narasimhan Jegadeesh investigate differences between relative and intrinsic past return strategies, focusing on individual U.S. common… Keep Reading