Investing Research Articles

In reaction to “Combine Market Trend and Economic Trend Signals?”, a subscriber suggested adding an interest rate trend signal to those for the U.S. stock market and U.S. unemployment rate for the purpose of timing the S&P 500 Index (SP500). To investigate, we look at combining: The 10-month simple moving average (SMA10) for the SP500. The… Keep Reading

Is value investing particularly profitable when the price spread between cheap and expensive assets (the value spread) is extremely large (deep value)? In their November 2017 paper entitled “Deep Value”, Clifford Asness, John Liew, Lasse Pedersen and Ashwin Thapar examine how the performance of value investing changes when the value spread is in its largest fifth (quintile). They consider… Keep Reading

Do investors underestimate the adverse import of large left tails for future stock returns? In their November 2017 paper entitled “Left-Tail Momentum: Limited Attention of Individual Investors and Expected Equity Returns”, Yigit Atilgan, Turan Bali, Ozgur Demirtas and Doruk Gunaydin investigate the relationship between left-tail risk and next-month returns for U.S. and international stocks. They measure left-tail risk at the… Keep Reading

As described in “Quantifying Snooping Bias in Published Anomalies”, anomalies published in leading journals offer substantial opportunities for exploitation on a gross basis. What profits are left after accounting for portfolio maintenance costs? In their November 2017 paper entitled “Accounting for the Anomaly Zoo: A Trading Cost Perspective”, Andrew Chen and Mihail Velikov examine the combined… Keep Reading

Is data snooping bias a material issue for cross-sectional stock return anomalies published in leading journals? In the September 2017 update of their paper entitled “Publication Bias and the Cross-Section of Stock Returns”, Andrew Chen and Tom Zimmermann: (1) develop an estimator for anomaly data snooping bias based on noisiness of associated returns; (2) apply it to replications… Keep Reading

Is volatility dangerously oversold? In their November 2017 paper entitled “Everybody’s Doing it: Short Volatility Strategies and Shadow Financial Insurers”, Vineer Bhansali and Lawrence Harris survey strategies that directly or indirectly short volatility, including: Relevant strategies (selling options, buying and selling products linked to volatility indexes, risk parity, risk premium harvesting and volatility targeting). Types of investors… Keep Reading

Can investors refine portfolio rebalancing while capturing a volatility risk premium (VRP) by systematically shorting options matched to target allocations of the underlying asset? In their October 2017 paper entitled “An Alternative Option to Portfolio Rebalancing”, Roni Israelov and Harsha Tummala explore multi-asset class portfolio rebalancing via an option selling overlay. The overlay sells out-of-the-money options such… Keep Reading

What firm/asset/market conditions signal mispricing? In the November 2017 version of their paper entitled “Bonds, Stocks, and Sources of Mispricing”, Doron Avramov, Tarun Chordia, Gergana Jostova and Alexander Philipov investigate drivers of U.S. corporate stock and bond mispricing based on interactions among asset prices, financial distress of associated firms and investor sentiment. They measure financial distress via Standard & Poor’s… Keep Reading

Do firms that acquire patents in similar technologies persistently perform similarly? In the October 2017 draft of their paper entitled “Technology and Return Predictability”, Jiaping Qiu, Jin Wang and Yi Zhou examine monthly performance persistence of stocks grouped by similarity in recent firm patent activity. Specifically, they: Record the patent activity of each firm by patent class over the… Keep Reading

Do strongly accelerating firm earnings identify future outperforming stocks? In the October 2017 revision of their paper entitled “Earnings Acceleration and Stock Returns”, Shuoyuan He and Ganapathi Narayanamoorthy investigate the power of earnings acceleration (quarter-over-quarter change in earnings growth, which is year-over-year change in quarterly earnings) to predict abnormal stock returns. They test a hedged trading strategy that… Keep Reading