Investing Research Articles

Is equity market liquidity useful as an asset allocation signal? In their November 2012 paper entitled “Liquidity-Driven Dynamic Asset Allocation”, James Xiong, Rodney Sullivan and Peng Wang examine the performance of a dynamic stocks-bonds allocation strategy with weightings based on equity market liquidity. For liquidity measurement, they focus on monthly changes in Amihud illiquidity (aggregating individual responses of stock… Keep Reading

Does the S&P 500 implied volatility index (VIX) behave predictably after up or down streaks? To check, we look at next-day percentage changes in VIX after up and down streaks ranging from two to seven trading sessions. To test exploitability, we repeat the analysis on the much shorter sample available for the iPath S&P 500 VIX ST Futures… Keep Reading

What pitfalls face forecasters trying to predict financial markets with economic data series? In their November 2012 preliminary paper entitled “Forecasting through the Rear-View Mirror: Data Revisions and Bond Return Predictability”, Eric Ghysels, Casidhe Horan and Emanuel Moench examine the predictive power of economic data to predict annual returns for U.S. Treasury notes (T-note) with constant… Keep Reading

Wars both consume crude oil and potentially disrupt supplies. Do they reliably drive up oil price? In their November 2012 paper entitled “Crude Oil as a Safe Haven Asset in Times of War”, Tomasz Wisniewski and Ayman Omar examine the behaviors of crude oil price and stock market indexes around severe international crises and wars…. Keep Reading

What lessons do individual investors learn as they gain experience? In their November 2012 paper entitled “Do Stock Traders Learn From Experience? Evidence from an Emerging Market”, John Campbell, Tarun Ramadorai and Benjamin Ranish examine the evolution of performance and trading behaviors with experience among individual investors in Indian stocks. The Indian market has a… Keep Reading

Is there an essential and useful part of investor sentiment independent of any economic and financial indicators that may feed it? In their November 2012 paper entitled “Is ‘Sentiment’ Sentimental?”, Steven Sibley, Yuhang Xing and Xiaoyan Zhang decompose a widely used aggregate investor sentiment index into two components, one related and one unrelated (residual) to common business… Keep Reading

Are European stock market returns predictable? In their September 2012 paper entitled “Forecasting Returns: New European Evidence”, Steven Jordan, Andrew Vivian and Mark Wohar test the ability of fundamental, macroeconomic and technical variables to predict next-month returns in 14 developed and emerging European country stock markets both in-sample and out-of-sample. They consider four fundamental variables (using logarithms): dividend-price ratio; dividend yield; earnings-price… Keep Reading

Does predictable end-of-day rebalancing behavior of leveraged exchange-traded funds (ETF) present trading opportunities? In their October 2012 paper entitled “Intraday Share Price Volatility and Leveraged ETF Rebalancing”, Arthur Rodier, Edgar Haryanto, Pauline Shum and Walid Hejazi examine: (1) the effects of leveraged ETF rebalancing activities on late-day market volatility; and, (2) the profitability of trading strategies designed to… Keep Reading

Does a simple model based on the gap between the stock market earnings yield and an inflation-adjusted Treasury yield usefully predict the equity risk premium (ERP)? In their June 2012 paper entitled “Equities (Still) for the Long Run: A New Look at the Future Equity Premium”, Michael Crook and Brian Nick construct and test a model… Keep Reading

Is price-to-earnings ratio cyclically adjusted via a 10-year average (CAPE, or P/E10) a good predictor of future stock market performance? In his October 2012 paper entitled “The Enhanced Risk Premium Factor Model & Expected Returns”, Javier Estrada examines three simple models that generate 10-year annualized stock market expected return (ER) based on P/E10 and the risk-free… Keep Reading