Investing Research Articles

Does focusing on downside risk (volatility or beta) consistently produce more accurate forecasts of asset returns? In their July 2018 paper entitled “Tail Risk in the Cross Section of Alternative Risk Premium Strategies”, Bernd Scherer and Nick Baltas investigate how well downside risk explains cross-sectional returns of 260 risk factor strategies spanning asset classes and investment styles… Keep Reading

How do the major crypto-assets (Bitcoin, Ripple, and Ethereum) stack up against conventional asset classes? In their August 2018 paper entitled “Risks and Returns of Cryptocurrency”, Yukun Liu and Aleh Tsyvinski apply standard tools of asset pricing to measure crypto-asset exposures to: 160 equity factors. Macroeconomic factors (non-durable consumption growth, durable consumption growth, industrial production growth, and… Keep Reading

A subscriber asked whether applying a filter that restricts monthly asset selections of the “Simple Asset Class ETF Momentum Strategy” (SACEMS) to those currently at an intermediate-term high improves performance. This strategy each month reforms a portfolio of winners from the following universe based on total return over a specified lookback interval: PowerShares DB Commodity Index… Keep Reading

Do stock dividends exhibit exploitable risk premiums? In their July 2018 paper entitled “A Model-Free Term Structure of U.S. Dividend Premiums”, Maxim Ulrich, Stephan Florig and Christian Wuchte construct a term structure of the dividend risk premium and test strategies to time this premium at specific horizons. They specify dividend risk premium as the spread between: Expected dividend growth… Keep Reading

From a purely statistical perspective, how many factors are optimal for explaining both time series and cross-sectional variations in stock anomaly/stock returns, and how do these statistical factors relate to stock/firm characteristics? In their July 2018 paper entitled “Factors That Fit the Time Series and Cross-Section of Stock Returns”, Martin Lettau and Markus Pelger search for the… Keep Reading

Larry Connors introduces his 2018 book, Buy the Fear, Sell the Greed: 7 Behavioral Quant Strategies for Traders, by stating in Chapter 1 that the book shows when, where and how: “…to trade directly against traders and investors who are having…feelings of going crazy and impending doom. …The goal of this book is to make you aware of… Keep Reading

A reader proposed: “I recently found something interesting while analyzing the ratio of the equal-weighted S&P 500 Index to its market capitalization-weighted counterpart. Whenever this ratio declines (out of an uptrend), the market crashes (July 2007, September-October 2008, July 2011). Also, when this ratio starts rising, the recovery commences (April 2009). The indicator seems to… Keep Reading

In the June 2018 draft of their paper entitled “An Information Factor: Can Informed Traders Make Abnormal Profits?”, Matthew Ma, Xiumin Martin, Matthew Ringgenberg and Guofu Zhou construct and test a long-short information factor (INFO) based on observed trading of firm insiders, short sellers and option traders. Specifically, the INFO portfolio: Is each month long the 10% (decile) of… Keep Reading

Patrick Donohoe introduces his 2018 book, Heads I Win, Tails You Lose: A Financial Strategy to Reignite the American Dream, by stating that the book: “…will teach you many of the principles and strategies to help discover your own path to financial freedom. Most importantly, it will show you the mindset required to carry out a successful… Keep Reading

Should investors consider Bitcoin as a safe haven from turbulent financial markets? In their June 2018 paper entitled “Bitcoin as a Safe Haven: Is It Even Worth Considering?”, Lee Smales and Dirk Baur assess the potential for Bitcoin as a safe haven, focusing on considerations beyond its low return correlations with other assets during times of market… Keep Reading