Investing Research Articles

...the disposition effect may serve as the bootstrap of momentum investing by retarding the impact of good (bad) news for stocks with large unrealized capital gains (losses).

...a very good introduction to a range of investment styles for new (but diligent) investors and a refresher for experienced ones.

...momentum investing works, driven partly by reward for the risk of the unusual but transitory sensitivity of high-momentum stocks to overall economic growth.

...stock analysts exhibit predictable underreactions in revising earnings forecasts. The degree of underreaction increases with the earnings forecast dispersion.

...momentum investing works, and abnormalities in the distribution of returns for momentum-driven portfolios may partly explain why.

...research results indicate that Regulation FD has leveled the playing field for all investors, and reduced the accuracy of sell-side analyst earnings forecasts.

...company-specific news tends to decouple stock price behavior from the market, while the absence of news promotes co-movement.

...stock pickers tend to be optimists who should focus on objectivity in assessing the outcomes of their stock picking.

...the active management component of broadly diversified (closet index) mutual funds is generally expensive and ineffective. In comparison, hedge funds with 100% active management are not that pricey.

...individual investors tend to limit buying consideration, detrimentally, to those stocks that grab their attention via unusual trading or other news.

...good (bad) macroeconomic news is bad (good) for broad stock indices during expansions and good (bad) during recessions.

...informed traders prefer price certainty over execution certainty unless the value of their private information is about to expire.

...the stock market shows significant predictability (rather than perfect efficiency) in its reactions to news.

In his March 2005 paper entitled “Reconciling Efficient Markets with Behavioral Finance: The Adaptive Markets Hypothesis”, Andrew Lo presents a framework for unifying the Efficient Markets Hypothesis (EMH) and Behavioral Finance. The paper is thoughtful...

...expect single-digit long-term returns from stocks.

...investor sentiment tends to "predict" the past.

...very recent data suggests that short sellers may have lost their ability to predict bad news and stock price declines.

...mutual funds may function mostly as passive vehicles through which active individual investors (reallocators) voluntarily transfer wealth to public corporations. By doing the opposite of these individuals, one can construct a portfolio with high returns....

...front-running the predictable effects of unusual mutual fund inflows and outflows on stocks held in common offers significant excess returns.

...situations involving herded traders and/or a small number of shareholders are good candidates for producing mispriced stocks.

...expertise does not mitigate bias. Even highly experienced investors/traders should consider measuring their estimation errors for related tasks to calibrate their judgments.

...portfolio changes after achieving the Morningstar 5-star rating hurt fund performance, and investors should be cautious about using this rating as the principal means of selecting mutual funds. Handling large cash inflows attracted by the...

If your crystal ball has not been working so well...

In their March 2005 paper entitled “Do Sell-Side Analysts Exhibit Differential Target Price Forecasting Ability?”, Mark Bradshaw and Lawrence Brown test the accuracy of 12-month stock price targets both for individual analysts and for analysts...

...short sellers throw in the towel (throw more punches) when stock prices move against (with) their positions.