Investing Research Articles

Are there opportunities to trade S&P 500 Index additions in the current market environment? In her May 2017 paper entitled “The Diminished Effect of Index Rebalances”, Konstantina Kappou examines returns for S&P 500 Index additions before and after the 2008 financial crisis. She focuses on additions because deletions generally involve confounding information such as restructuring, bankruptcy or… Keep Reading

Which firm profitability metric best predicts stock returns? In their May 2017 paper entitled “Alternative Profitability Measures and Cross Section of Expected Stock Returns: International Evidence”, Nusret Cakici, Sris Chatterjee and Yi Tang compare abilities of 12 profitability ratios to predict stock returns across four regions (North America, Europe, Japan and Asia-Pacific). They consider three measures of profitability:… Keep Reading

Does a carry trade derived from roll yields of futures/forward contracts work within asset classes (undiversified) and across asset classes (iversified)? In his May 2017 paper entitled “Optimising Cross-Asset Carry”, Nick Baltas explores the profitability of cross-sectional (relative) and time-series (absolute) carry strategies within and across futures/forward markets for currencies, stock indexes, commodities and government bonds. He… Keep Reading

Do investors view (mechanical) smart beta returns from mutual funds as (skillful) alpha? In the April 2017 update of their paper entitled “Fake Alpha”, Marcel Müller, Tobias Rosenberger and Marliese Uhrig-Homburg investigate the conflation of smart beta (“fake alpha”) and true alpha (incremental to smart beta and generated by skill) by mutual fund managers and investors. In estimating smart beta… Keep Reading

Does “sell-in-May” interact with the U.S. election cycle? In the April 2017 update of their paper entitled “Buy Equities in Winter and Sell in May in Pre-Election Years: Market Premiums and Political Uncertainty in the Presidential Cycle”, Kam Fong Chan and Terry Marsh examine interactions between seasonal (May-October versus April-November) and U.S. election cycle effects on U.S. Stock… Keep Reading

Are equity sector and factor investing complementary? In their May 2017 paper entitled “Factors vs. Sectors in Asset Allocation: Stronger Together?”, Marie Briere and Ariane Szafarz compare efficient sector investing (diversifying economic risks) and efficient factor investing (diversifying across risk factors) for U.S. stocks, and then assess advantages of combining the two approaches. They first construct two efficient… Keep Reading

What modifications must investors make to minimum variance portfolios to make them more attractive than equal weighting? In their April 2017 paper entitled “Asset Allocation with Correlation: A Composite Trade-Off”, Rachael Carroll, Thomas Conlon, John Cotter and Enrique Salvador assess conditions under which a minimum variance portfolio (requiring only estimates of asset covariances) beats an equally weighted portfolio. In particular, they… Keep Reading

Has availability of liquid exchange-traded funds (ETF) designed to exploit predictive stock market factors (smart beta ETFs) affected the mutual fund industry? In their May 2017 paper entitled “How Do Smart Beta ETFs Affect the Asset Management Industry? Evidence from Mutual Fund Flows”, Jie Cao, Jason Hsu, Zhanbing Xiao and Xintong Zhan examine the impact of ETFs that do… Keep Reading

How accurate are consensus firm earnings forecasts worldwide at a 12-month horizon? In his May 2016 paper entitled “An Empirical Study of Financial Analysts Earnings Forecast Accuracy”, Andrew Stotz measures accuracy of consensus 12-month earnings forecasts by financial analysts for the companies they cover around the world. He defines consensus as the average for analysts coverings… Keep Reading

Does relative demand for crowd-sourced information about a stock compared to other information (such as financial statements and analyst estimates) predict its performance? In their March 2017 paper entitled “Investor Reliance on the Crowd”, Alastair Lawrence, James Ryans, Estelle Sun and Akshay Soni investigate interactions between reliance on crowd-sourced information (Yahoo Finance message board page views) versus other information… Keep Reading