Investing Research Articles

Can advanced regression techniques identify monthly cross-industry lead-lag return relationships that usefully indicate an industry rotation strategy? In their January 2018 paper entitled “Dynamic Return Dependencies Across Industries: A Machine Learning Approach”, David Rapach, Jack Strauss, Jun Tu and Guofu Zhou examine dynamic relationships between past and future returns (lead-lag) across 30 U.S. industries. To guard against overfitting the data, they… Keep Reading

How do cryptocurrencies work, and how can investors acquire and hold them? In their January 2018 paper entitled “Crypto-Assets Unencrypted”, Seoyoung Kim, Atulya Sarin and Daljeet Virdi survey cryptocurrency history and technology. They summarize cryptocurrency market sizes, trading volumes and volatilities, with comparisons to major fiat currencies and commodities. They further discuss crypto-asset valuation, regulation and the mechanics of… Keep Reading

Are simple moving averages (SMA) useful for timing difficult-to-value Bitcoin? In their January 2018 paper entitled “Bitcoin: Predictability and Profitability Via Technical Analysis”, Andrew Detzel, Hong Liu, Jack Strauss, Guofu Zhou and Yingzi Zhu investigate the use of 5-day, 10-day, 20-day, 50-day or 100-day SMAs to predict Bitcoin returns. Specifically, they test a trading strategy that holds Bitcoins (cash) when… Keep Reading

In his January 2018 retrospective “Richard Thaler and the Rise of Behavioral Economics”, Nicholas Barberis reviews the development of behavioral (less than fully rational) models of economics and finance, with focus on Richard Thaler’s contributions. This retrospective summarizes key models that make psychology-based assumptions about: individual preferences; individual beliefs; and, the process by which individuals make decisions. He further segments… Keep Reading

Does appearance-based masculinity predict hedge fund manager performance? In their January 2018 paper entitled “Do Alpha Males Deliver Alpha? Testosterone and Hedge Funds”, Yan Lu and Melvyn Teo use facial width-to-height ratio (fWHR) as a positively related proxy for testosterone level to investigate the relationship between male hedge fund manager testosterone level and hedge fund performance. They each… Keep Reading

Are financial advisors expert guides for their client investors? In their December 2017 paper entitled “The Misguided Beliefs of Financial Advisors”, Juhani Linnainmaa, Brian Melzer and Alessandro Previtero compare investing practices/results of Canadian financial advisors to those of their clients, including trading patterns, fees and returns. They estimate account alphas via multi-factor models. Using detailed data from two large… Keep Reading

How can machine investors beat humans? In the introductory chapter of his January 2018 book entitled “Financial Machine Learning as a Distinct Subject”, Marcos Lopez de Prado prescribes success factors for machine learning as applied to finance. He intends that the book: (1) bridge the divide between academia and industry by sharing experience-based knowledge in a… Keep Reading

Can a simple set of exchange-traded funds (ETF), weighted judiciously, mimic the behaviors of most financial assets? In their January 2018 paper entitled “Mimicking Portfolios”, Richard Roll and Akshay Srivastava present and test a way of constructing mimicking portfolios using a small set of ETFs as investment factor proxies. They define a mimicking portfolio as a weighted set of… Keep Reading

Want your machine to excel in investing? In his January 2018 paper entitled “The 10 Reasons Most Machine Learning Funds Fail”, Marcos Lopez de Prado examines common errors made by machine learning experts when tackling financial data and proposes correctives. Based on more than two decades of experience, he concludes that:

How should an investor’s view of the equity risk premium vary with investment horizon? In the December 2017 update of their paper entitled “Volatility Lessons”, Eugene Fama and Kenneth French examine how the U.S. equity risk premium (difference in returns between the expected equity market return over some horizon and return on U.S. Treasury instrument of matched… Keep Reading