Investing Research Articles

What is the best way to measure and interpret market reaction to new information? In their October 2010 paper entitled “Measuring Flow Toxicity in a High Frequency World”, David Easley, Marcos López de Prado and Maureen O’Hara introduce a new method to estimate the degree to which trading in financial markets is informed. They name… Keep Reading

Funds of hedge funds (FoF) diversify investments across hedge funds to achieve steady return streams. Some FoFs diversify within a single hedge fund strategy (category), while others diversify both within and across hedge fund categories. Does the latter enhanced approach to diversification outperform the former? In their December 2010 paper entitled “Diversification Strategies and the… Keep Reading

Pairs trading seeks to exploit temporary divergences in price between two assets that historically track very closely, taking long/short positions in the relatively undervalued/overvalued pair member to generate small steady profits at low risk. How profitable is this concept in implementation? In his November 2010 paper entitled “Pairs Trading in the Land Down Under”, Timofei… Keep Reading

Does the relatively illiquid, opaque, retail environment of over-the-counter (OTC) stocks make them behave differently from comparable listed stocks? In their November 2010 paper entitled “The Cross Section of Over-the-Counter Equities”, Andrew Ang, Assaf Shtauber and Paul Tetlock test the abilities of market capitalization, book-to-market ratio, liquidity, return momentum and idiosyncratic volatility to predict OTC… Keep Reading

Evidence indicates that 52-week highs may be effective momentum signals for individual stocks, but probably not for major U.S. indexes. What do 52-week highs indicate for emerging markets? In their paper entitled “Predictability of Future Index Returns Based on the 52-Week High Strategy”, Mirela Malin and Graham Bornholt investigate the predictive power of 52-week highs… Keep Reading

Is the aggregate effect of technical trading visible and exploitable at the equity index level? In his March 2007 paper entitled “The Interaction between the Aggregate Behavior of Technical Trading Systems and Stock Price Dynamics”, Stephan Schulmeister investigates how S&P 500 Index futures prices relate to the aggregate trading signals of 2,580 widely used trend-following… Keep Reading

Is the aggregate effect of technical trading visible and exploitable in currency exchange rate trading? In his 2008 paper entitled “Aggregate Trading Behaviour of Technical Models and the Yen/Dollar Exchange Rate 1976-2007”, Stephan Schulmeister investigates the interaction between the aggregate signaling of 1,024 moving average and momentum rules and the behavior of the yen/dollar exchange… Keep Reading

Is technology driving the profitability of technical rules in financial markets from low-frequency trading to high-frequency trading? In his March 2007 paper entitled “The Profitability of Technical Stock Trading Has Moved from Daily to Intraday Data”, Stephan Schulmeister investigates how well 2,580 widely used trend-following and contrarian technical trading rules (moving average, momentum and relative… Keep Reading

How strongly should investors believe in models of financial markets and asset prices? In his contemplative November 2010 paper entitled “Metaphors, Models & Theories”, Emanuel Derman reflects on the tractability of finance in general and the degree to which financial models are useful. Largely by comparison to theorizing and modeling in physics, he observes that:

Is the size effect broad and dependable, or narrow and erratic (even gone)? In the November 2010 version of his paper entitled “A Literature Review of the Size Effect”, Michael Crain summarizes past research on the size effect in equity returns, with size measured conventionally as market capitalization. Surveying the major papers on this anomaly,… Keep Reading