Investing Research Articles

Do hedge fund managers who seek excitement as indicated by choice of cars invest differently from those who do not? In their December 2016 paper entitled “Sensation Seeking, Sports Cars, and Hedge Funds”, Yan Lu, Sugata Ray and Melvyn Teo investigate the relationship between hedge fund manager personal car selection (body style, maximum horsepower, maximum torque, passenger volume… Keep Reading

How should investors balance expected return and expected risk in allocating between risky and risk-free assets? In their short December 2016 paper entitled “Optimal Trade Sizing in a Game with Favourable Odds: The Stock Market”, Victor Haghani and Andrew Morton apply a simple rule of thumb related to mean-variance optimization to estimate the optimal allocation to risky assets…. Keep Reading

Is the relationship between Cyclically Adjusted Price to Earnings Ratio (CAPE, or P/E10) and future long-term stock market returns evidence of market inefficiency? In other words, can investors exploit P/E10 to beat the market? In their November 2016 paper entitled “Shiller’s CAPE: Market Timing and Risk”, Valentin Dimitrov and Prem Jain examine whether investors with a 10-year investment… Keep Reading

Are there material average performance differences between hedge funds that emphasize systematic rules/algorithms for portfolio construction versus those that do not? In their December 2016 paper entitled “Man vs. Machine: Comparing Discretionary and Systematic Hedge Fund Performance”, Campbell Harvey, Sandy Rattray, Andrew Sinclair and Otto Van Hemert compare average performances of systematic and discretionary hedge funds… Keep Reading

Do equity market volatility behaviors predict financial crises? In their October 2016 paper entitled “Learning from History: Volatility and Financial Crises”, Jon Danielsson, Marcela Valenzuela and Ilknur Zer investigate linkages among stock market volatility, risk-taking and financial market crises over the very long run. Their volatility measurement methodology is: Measure volatility annually as standard deviation of 12 monthly returns (July through… Keep Reading

Does the S&P 500 implied volatility index (VIX) exhibit predictable behaviors around holidays? If so, is the predictability exploitable? To check, we look at percentage changes in VIX from three trading days before to three trading days after the following annual holidays: New Year’s Day, Super Bowl, Good Friday, Memorial Day, 4th of July, Labor Day, Thanksgiving… Keep Reading

How can investors, large or small, overcome what appear to be obvious shortcomings in risk management, as occasionally indicated by portfolio crashes? In his November 2016 paper entitled “Managing Risks in Institutional Portfolios”, Andrea Malagoli critiques conventional investment portfolio risk management methodologies and offers precepts for robust risk management. He relies on a few empirical observations… Keep Reading

Do retail investors tend to underprice equity options in monthly series when the interval between expirations from third Friday to third Friday is five weeks instead of the more frequent (65% versus 35%) four weeks? In their November 2016 paper entitled “Inattention in the Options Market”, Assaf Eisdorfer, Ronnie Sadka and Alexei Zhdanov examine differences in U.S…. Keep Reading

Does a simple volatility-based risk management approach substantially enhance performance of a Betting-Against-Beta (BAB) strategy (long stocks with low market beta and short stocks with high market beta)? In their November 2016 paper entitled “Managing the Risk of the ‘Betting-Against-Beta’ Anomaly: Does It Pay to Bet Against Beta?”, Pedro Barroso and Paulo Maio examine a BAB risk management strategy… Keep Reading

Is there pervasive yield momentum among U.S. corporate bonds? In their November 2016 paper entitled “Is Momentum Spanned Over Corporate Bonds of Different Ratings?”, Hai Lin, Chunchi Wu and Guofu Zhou investigate whether momentum exists in all segments of the U.S. corporate bond market. Their approach to momentum measurement is unconventional, involving cross-sectional regression of bond returns on… Keep Reading