Investing Research Articles

Is simple momentum the secret sauce of Managed Futures funds? In their 2013 paper entitled “Demystifying Managed Futures”, Brian Hurst, Yao Ooi and Lasse Pedersen examine how well simple trend-following strategies based on time series (intrinsic or absolute) momentum explain the performance of Managed Futures funds. Their simple intrinsic momentum strategy goes long (short) a… Keep Reading

Both “Stock Return Correlations and Retail Trader Herding” and “Stock Return Correlations and Equity Market Stress” imply that extremely high correlations among stock returns accompany severe market declines and may signal market bottoms. Is there some simple way to exploit this implication? Keying on the former item, we investigate the correlation of returns between a large-stock… Keep Reading

Are there easily implementable life cycle investing strategies reliably superior to the conventional glidepath from equities toward bonds? In their June 2013 paper entitled “The Glidepath Illusion… and Potential Solutions”, flagged by a subscriber, Robert Arnott, Katrina Sherrerd and Lillian Wu summarize flaws in the conventional glidepath approach and explore simple alternatives that address some… Keep Reading

Do upside (downside) market volatility surprises scare investors out of (draw investors into) the stock market? In the November 2013 version of his paper entitled “Dynamic Asset Allocation Strategies Based on Unexpected Volatility”, Valeriy Zakamulin investigates the ability of unexpected stock market volatility to predict future market returns. He calculates stock market index volatility for a… Keep Reading

Here is this Friday’s installment of Avoiding Investment Strategy Flame-outs, a short book we are previewing for subscribers. Chapter previews will continue for the next six Fridays. Chapter 3: “Avoiding or Mitigating Snooping Bias” “Snooping bias, also called mining bias and more loosely benefit of hindsight, is a notorious artificial booster of backtest performance. It takes multiple… Keep Reading

Is diversification across stock and bond factors superior to diversification across asset classes? In their August 2013 report entitled “Investing in Systematic Factor Premiums”, Kees Koedijk, Alfred Slager and Philip Stork measure the gross performances of widely used stock and bond factors and pit portfolios diversified across those factors against portfolios diversified across asset classes. For… Keep Reading

How should investors assess the credibility of investment strategy backtests? In his October 2013 paper entitled “Telling the Good from the Bad and the Ugly: How to Evaluate Backtested Investment Strategies”, Patrick Beaudan recommends ways to judge investment strategies and backtests based on his years of experience in evaluating, managing and investing in algorithmic strategies. His perspective… Keep Reading

Here is this Friday’s installment of Avoiding Investment Strategy Flame-outs, a short book we are previewing for subscribers. Chapter previews will continue for the next seven Fridays. Chapter 2: “Making the Strategy Logical” “Making an investment/trading strategy logical essentially means making it testable and implementable, with inputs, outputs and rules clearly defined, properly sequenced and inclusive of… Keep Reading

What is the global financial asset allocation? In their November 2013 paper entitled “The Global Multi-Asset Market Portfolio 1959-2012”, Ronald Doeswijk, Trevin Lam and Laurens Swinkels construct the aggregate portfolio of all investors encompassing market capitalizations for eight asset classes: equities, private equity, real estate, high-yield bonds, emerging markets debt, investment-grade credits (corporate bonds and… Keep Reading

Starting today and continuing for the next eight Fridays, we are previewing for subscribers a short book entitled Avoiding Investment Strategy Flame-outs. The initial installments are: “Introduction” “Why do investment/trading strategies that test well on historical data flame out when put to actual use? Are there steps investors can take to improve the odds that strategies… Keep Reading