Are diamonds useful as investment portfolio diversifiers? In their draft papers entitled “An Examination of Diamonds as an Alternative Asset Class: Do They Have What it Takes to Make a Portfolio Sparkle?” of June 2012 and...
Does the tendency of stock market volatility measures to persist offer an exploitable short-term reversion to mean? In other words, can traders win on average by speculating that market volatility spikes will soon reverse? To...
How special is the Fama-French three-factor model (market, size, book-to-market ratio) compared to other possible three-factor models? In their November 2012 paper entitled “Firm Characteristics and Empirical Factor Models: a Data-Mining Experiment”, Leonid Kogan and...
Does combining different portfolio performance enhancement concepts actually improve outcome? In their December 2012 paper entitled “Generalized Momentum and Flexible Asset Allocation (FAA): An Heuristic Approach”, Wouter Keller and Hugo van Putten investigate the effects...
James Weatherall, physicist, mathematician and philosopher, introduces his 2012 book, The Physics of Wall Street: A Brief History of Predicting the Unpredictable, by stating: “This book tells the story of physicists in finance. …It is about how the...
Can investors systematically earn a premium by holding relatively illiquid assets? In their December 2012 paper entitled “The Illiquidity Premium: International Evidence”, Yakov Amihud, Allaudeen Hameed, Wenjin Kang and Huiping Zhang examine the illiquidity premium in...
Prior research indicates that individual stocks with high short interest relative to shares outstanding (short interest ratio) tend to underperform. Do this finding hold for exchange-traded funds (ETF)? In their December 2012 paper entitled “Why Does ETF...
What causes asset price momentum? In his May 2012 paper entitled “Is Momentum a Self-fulfilling Prophecy?”, Steven Jordan presents a simple, abstract model explaining the pervasiveness and robustness of evidence for intermediate-term momentum and long-term...
Andrew Abraham, founder of Abraham Investment Management, introduces his 2012 book, The Trend Following Bible: How Professional Traders Compound Wealth and Manage Risk, by stating: “I want to teach you to think like a successful trend follower....
Does hedging a currency carry trade (long currencies with high interest rates and short currencies with low interest rates) to suppress its volatility enhance performance? In their December 2012 working paper entitled “Carry Trade and...
Does mean-variance optimization enhance the performance of currency carry trades (long currencies with high interest rates and short currencies with low interest rates)? In their November 2012 paper entitled “On the Risk and Return of...
Is there a useful way to measure the combined effects of information push (published supply) and pull (search demand) on investor attention to specific stocks? In his November 2012 paper entitled “The Impact of Information...
When should an investor favor picking individual stocks over holding a stock index fund? In their November 2012 paper entitled “On Diversification”, Ben Jacobsen and Frans de Roon derive from Modern Portfolio Theory simple rules to...
A subscriber suggested review of Empiritrage’s Volatility-Based Allocation (VBA). This strategy applies two monthly signals to an equally weighted portfolio of asset class total return proxies to determine whether to be in each proxy or...
“Trend Factor and Stock Returns” describes a method of extracting information from stock price simple moving averages (SMA) that is more complicated than that used by most traders. Instead of using current price above or below an...
How might the capital gains tax rate affect stock market returns? First, a relatively low (high) rate might encourage (discourage) capital investment and stimulate (depress) economic growth, thereby persistently increasing (decreasing) corporate earnings and stock...
Nassim Taleb introduces his 2012 book, Antifragile, Things That Gain from Disorder, as “…my central work. I’ve had only one master idea, each time taken to the next step, the last step–this book–being more like a big...
A subscriber asked whether limiting choices in the Simple Asset Class ETF Momentum Strategy (SACEMS) to IWB, IWM, RWR, EFA and EEM (TLT, GLD, DBC and Cash) when above (below) the 200-day simple moving average...
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...
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....
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...
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...
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...
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...
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...