Investing Research Articles

Does using after-tax, rather than pre-tax, returns make a big difference in allocating assets based on mean-variance optimization? In their June 2014 paper entitled “What Would Yale Do If It Were Taxable?” Patrick Geddes, Lisa Goldberg and Stephen Bianchi illustrate a three-step approach for adapting the Yale Endowment for investors obligated to pay U.S. taxes: Reverse engineer Yale Endowment allocations by applying… Keep Reading

Risk parity asset strategies generally make large allocations to low-volatility assets such as bonds, which tend to fall in value when interest rates rise. Is risk parity a safe strategy when rates rise? In their June 2014 research note entitled “Risk-Parity Strategies at a Crossroads, or, Who’s Afraid of Rising Yields?”, Fabian Dori, Manuel Krieger, Urs Schubiger and Daniel Torgler examine how the… Keep Reading

What are the main investment behaviors of emerging markets and component stocks? In their January 2014 paper entitled “Studies of Equity Returns in Emerging Markets: A Literature Review”, Yigit Atilgan, Ozgur Demirtas and Koray Simsek survey the stream of research on emerging markets equity return predictability and volatility. This survey covers articles in the top four finance journals (Journal of… Keep Reading

The “Simple Asset Class ETF Momentum Strategy” each month allocates all funds to the one of the following eight asset class exchange-traded funds (ETF), or cash, with the highest total return over the past five months: PowerShares DB Commodity Index Tracking (DBC)iShares MSCI Emerging Markets Index (EEM)iShares MSCI EAFE Index (EFA)SPDR Gold Shares (GLD)iShares Russell 1000 Index (IWB)iShares Russell 2000 Index (IWM)SPDR Dow… Keep Reading

A subscriber suggested an alternative to the “Simple Asset Class ETF Momentum Strategy” that weights asset class ETFs according to five-month past return ranking (such as 35-25-20-10-4-3-2-1) rather than allocating all funds to the winner. Do the diversification benefits of this alternative outweigh the loss of momentum purity? To investigate, we return to the following eight asset class exchange-traded… Keep Reading

We have updated the detail at “Momentum Strategy” to incorporate the historical data changes described in “Simple Asset Class ETF Momentum Strategy Data Changes”. The principal effects are to decrease the performance of the Top 1 portfolio and increase the performance of the Top 2 portfolio. Over the coming week, we will accordingly update much of the supporting… Keep Reading

In reaction to “10-month Versus 40-week Versus 200-day SMA”, a reader inquired whether using measurement intervals of longer than a month to calculate simple moving averages (SMA) would suppress trading compared to monthly intervals and thereby lower trading frictions and improve performance. To check, we compare the performance of simple moving averages based on 12 months (SMA12M),… Keep Reading

Do returns for segments of the normal U.S. stock market trading day (9:30 AM to 4:00 PM Eastern time) exhibit exploitable interactions? In the May 2014 version of their paper entitled “Intraday Momentum: The First Half-Hour Return Predicts the Last Half-Hour Return”, Lei Gao, Yufeng Han and Guofu Zhou investigate intraday U.S. stock market predictability based on half-hour segments. They… Keep Reading

Do individuals who actively reallocate funds within their pension accounts outperform passive counterparts? In the March 2014 update of their paper entitled “Individual Investor Activity and Performance”, Magnus Dahlquist, Jose Vicente Martinez and Paul Soderlind examine the activity and performance of individual participants in Sweden’s Premium Pension System. This system allows individual participants to reallocate among… Keep Reading

Does the return to momentum investing reliably reflect a reward for taking some risk? In the March 2014 version of her paper entitled “Asymmetric Risks of Momentum Strategies”, Victoria Dobrynskaya examines the performance of past winner and loser stocks, stock indexes and currency exchange rates during global equity market advances and declines. She focuses on the difference between downside and… Keep Reading