Investing Research Articles

Should investors strategically diversify across widely known equity market anomalies? In the October 2011 version of his paper entitled “Strategic Allocation to Premiums in the Equity Market”, David Blitz investigates whether investors should treat anomaly portfolios (size, value, momentum and low-volatility) as diversifying asset classes and how they can implement such a strategy.  To ensure implementation is… Keep Reading

Do the size effect, value premium and momentum effect derive from common firm/stock characteristics other than size, book-to-market ratio and past return? In the October 2011 version of their paper entitled “Which Firms Are Responsible for Characteristic Anomalies? A Statistical Leverage Analysis”, Kevin Aretz and Marc Aretz statistically isolate and analyze the small minority of firms… Keep Reading

How long does it take stock markets to revert to their long-run means? In their April 2010 paper entitled “Mean Reversion in International Stock Markets: An Empirical Analysis of the 20 th Century”, Laura Spierdijk, Jacob Bikker and Pieter van den Hoek analyze mean reversion in 17 developed countries (Australia, Belgium, Canada, Denmark, France, Germany, Ireland, Italy,… Keep Reading

An upward (downward) trend in implied volatilities with option maturity indicates that investors expect volatility to increase (decrease) over time. Do such expectations reliably predict future stock options prices? In his October 2011 paper entitled “Volatility Term Structure and the Cross-Section of Option Returns”, Aurelio Vasquez investigates whether the implied volatility term structure (measured as slope of… Keep Reading

Is selling insurance against stock market volatility reliably profitable? In the December 2010 version of his paper entitled “Variance Trading and Market Price of Variance Risk”, Oleg Bondarenko examines payoffs from synthesized variance swap contracts, derived from the difference between realized and contract-specified variances over a given interval, during a 20-years period. He constructs the hypothetical swap contracts… Keep Reading

Do relatively high trading frictions in the least developed equity markets offset associated diversification benefits? In the October 2011 version of their paper entitled “Frontier Market Diversification and Transaction Costs”, Ben Marshall, Nhut Nguyen and Nuttawat Visaltanachoti examine this trade-off in 19 frontier stock markets (Argentina, Bahrain, Bulgaria, Croatia, Estonia, Jordan, Kuwait, Lebanon, Lithuania, Oman, Pakistan,… Keep Reading

Do futures day traders make money? In the March 2011 version of their paper entitled “Overconfident Individual Day Traders: Evidence from a Natural Experiment”, Wei-Yu Kuo and Tse-Chun Lin investigate overconfidence and performance of day traders in the Taiwan futures market. They identify day trades as those committed to close on the same day as a condition of enjoying… Keep Reading

Is science making progress in deconstructing the animal spirits at play in financial markets? In the October 2011 draft of his chapter entitled “Fear, Greed, and Financial Crises: A Cognitive Neurosciences Perspective”, Andrew Lo explores the neuroscientific underpinnings of those human behaviors most relevant to financial system risk. Citing a range of uncontrolled (opportunistic) and controlled experiments… Keep Reading

Most momentum investing strategies employ cross-sectional or relative strength by taking long (short) positions in assets exhibiting medium-term price strength (weakness). Is momentum also exploitable intrinsically, wherein an investor estimates momentum of an asset relative to its own medium-term history (time series)? In their August 2010 paper entitled “Time Series Momentum”, flagged by a reader, Tobias Moskowitz,… Keep Reading

How do individual investors respond to an offer of free, unbiased investment advice? In their August 2010 paper entitled “Is Unbiased Financial Advice To Retail Investors Sufficient? Answers from a Large Field Study”, Utpal Bhattacharya, Andreas Hackethal, Simon Kaesler, Benjamin Loos and Steffen Meyer evaluate the responses of 8,195 randomly selected active and likely self-directed… Keep Reading