Investing Research Articles

Do certain types of news about specific stocks reliably predict risk-adjusted returns of those stocks? In their March 2017 paper entitled “Using Natural Language Processing Techniques for Stock Return Predictions”, Ming Li Chew, Sahil Puri, Arsh Sood and Adam Wearne investigate relationships between financial news headlines and stock returns stripped of non-news risks. They use natural language processing… Keep Reading

What are the ins and outs of crash risk measurement via Value at Risk (VaR)? In their March 2017 paper entitled “A Gentle Introduction to Value at Risk”, Laura Ballotta and Gianluca Fusai provide an introduction to VaR in financial markets, with examples mainly from commodity markets. They address problems related to VaR estimation and backtesting at single asset… Keep Reading

Is there a straightforward way to interpret the state of the yield curve as a manifestation of how efficiently the economy is processing information? In his March 2017 paper entitled “Simple New Method to Predict Bear Markets (The Entropic Linkage between Equity and Bond Market Dynamics)”, Edgar Parker Jr. presents and tests a way to understand… Keep Reading

Is option-implied volatility a useful predictor of returns for commodity futures? In her March 2017 paper entitled “Commodity Option Implied Volatilities and the Expected Futures Returns”, Lin Gao tests the power of option-implied volatilities (with 12-month detrending) for commodities to predict commodity futures returns. Specifically, she each month buys (sells) the fourth of commodities with the lowest (highest)… Keep Reading

Is the conventional wisdom that equity index put options are effective tail risk hedges for a stock portfolio correct? In his March 2017 paper entitled “Pathetic Protection: The Elusive Benefits of Protective Puts”, Roni Israelov compares the hedging properties of put protection strategies with those of daily rebalanced stocks-cash (divested) portfolios that generate the same compound… Keep Reading

How are the asset allocations of the largest university endowments, conventionally accepted as among the best investors, evolving? In their December 2016 paper entitled “The Evolution of Asset Classes: Lessons from University Endowments”, John Mulvey and Margaret Holen summarize recent public reports from large U.S. university endowments, focusing on asset category definitions and allocations. Using… Keep Reading

Should investors shun mutual funds with high fees? In their February 2017 paper entitled “Cheaper is Not Better: On the Superior Performance of High-Fee Mutual Funds”, Jinfei Sheng, Mikhail Simutin and Terry Zhang re-examine the conventionally accepted negative relationship between expense ratio and future net performance of actively managed equity mutual funds. They measure fund performance as alpha from each… Keep Reading

Does disentangling measures of stock illiquidity and market capitalization (size) support belief in an illiquidity premium (a reward for holding illiquid assets)? In the December 2016 version of their paper entitled “The Value of True Liquidity”, Robin Borcherding and Michael Stein investigate this question by controlling the most widely used stock illiquidity metric for size. Specifically they… Keep Reading

Do momentum and reversal stock anomalies stripped of market, size and book-to-market risks (residual anomalies) outperform their conventional forms? In their March 2017 paper entitled “Residual Momentum and Reversal Strategies Revisited”, Joop Huij and Simon Lansdorp compare performances of residual and conventional momentum (using returns from 12 months ago to one month ago) and reversal (using last-month… Keep Reading

Should market timers use moving averages of different lengths for trading uptrends and downtrends? In his January 2017 paper entitled “Asymmetry between Uptrend and Downtrend Identification: A Tale of Moving Average Trading Strategy”, flagged by a subscriber, Carlin chun-fai Chu investigates whether the use of different (asymmetric) moving average lookback intervals for uptrends and downtrends outperforms… Keep Reading