August 11, 2011 - Volatility Effects
What happens to the S&P 500 Implied Volatility Index (VIX) after days when it changes dramatically? To ensure that a trader could have identified the days selected in real time and to accommodate volatility regime changes, we define a dramatic change as an advance or decline of at least four standard deviations of the daily… Keep Reading
August 10, 2011 - Fundamental Valuation
Can investors apply forensic accounting principles (searching for inconsistencies, irregularities and other signs of trouble) to help forecast stock returns? In their July 2011 paper entitled “To Catch a Thief: Can Forensic Accounting Help Predict Stock Returns?”, Messod Beneish, Charles Lee and Craig Nichols investigate the ability of an earnings manipulation model to predict stock returns and detect fraud…. Keep Reading
August 8, 2011 - Strategic Allocation
What approaches to global diversification work best? In their July 2011 paper entitled “What Matters in International Equity Diversification? “, Chun-hung Chen, Tom Goodwin, and Wenling Lin use mean-variance spanning and optimization tests of indexes to compare benefits of alternative approaches to global diversification of the equity portion of an investor’s portfolio. Specifically, they investigate potential… Keep Reading
August 5, 2011 - Individual Gurus - Guru Accuracy: 34%
As suggested by a reader, we evaluate here the public stock market forecasts of Peter Eliades since late 2002. Evaluated predictions/recommendations come indirectly via MarketWatch columns, which have reported his commentary sporadically in recent years. Peter Eliades is editor of Stock Market Cycles. His “approach to the market is based on the theory that stock prices… Keep Reading
August 4, 2011 - Technical Trading
Many studies rely on the first moment (mean) of historical asset return distributions and/or the second moment (variance or standard deviation) to predict future returns. Are the third (skewness, indicating left-right tail asymmetry) and fourth (kurtosis, indicating fat-tailedness) moments of return distributions useful for predicting returns? In the July 2011 update of their paper entitled “Do Realized… Keep Reading
August 3, 2011 - Fundamental Valuation
A reader commented and asked: “One of the most read investing books in the U.S. is Joel Greenblatt’s The Little Book that Beats the Market, which reveals the ‘magic formula’. What do you think of it?” In response, rather than review the book, we examine the U.S. Value Direct Composite returns at Formula Investing. These returns… Keep Reading
August 2, 2011 - Equity Premium
…while mid-single digits may be a reasonable rough estimate for the equity risk premium, there is not a generally accepted value for it or method of estimating it.
July 27, 2011 - Sentiment Indicators
“With Thomson Reuters News Analytics, computers can not only read the news – they can interpret it too. The results can enhance your investment and trading strategies, helping you to spot new opportunities and generate alpha. And for the humans among us, news sentiment analysis offers meaningful insight to drive trading and investment decisions.” Is… Keep Reading
July 26, 2011 - Volatility Effects
“Overview of Financial Market Regime Change” states that researchers often use return volatility to discriminate financial market regimes (intervals of persistent behavior). Investors often use some variation of simple moving average (SMA) crossovers to determine market regime. Do these perspectives intersect? To investigate, we examine realized volatility (standard deviation of daily returns) and frequency of… Keep Reading
July 25, 2011 - Big Ideas
Financial markets sometimes switch states (regimes), with key investment decision statistics (such as average return and volatility of returns) shifting dramatically for extended intervals. A simple example of financial market regimes is the designation of bull and bear stock market states, estimated (for example) by a broad index being above or below its long-interval simple… Keep Reading