Investing Research Articles

Is the finding in “Expected Stock Market Volatility and the Size Effect” that the size effect concentrates in intervals after months of very high stock market volatility robustly evident from liquid exchange-traded funds (ETF)? To investigate, we define the size effect as the difference in returns between iShares Russell 2000 (IWM) and iShares Russell 1000 (IWB)… Keep Reading

Is the size effect (small stocks tend to outperform large stocks) related to level of market risk as indicated by expected stock market volatility? In their September 2016 paper entitled “High Risk Episodes and the Equity Size Premium”, Naresh Bansal, Robert Connolly and Chris Stivers investigate the relationship between the size effect and two measures of expected stock… Keep Reading

Does adjusting leverage based on lagged strategy volatility protect an industry momentum strategy from crashes? In their September 2016 paper entitled “Risk-Managed Industry Momentum and Momentum Crashes”, Klaus Grobys, Joni Ruotsalainen and Janne Aijo investigate the profitability of risk-managed industry momentum strategies. Their asset universe consists of the 49 Fama-French value-weighted industry portfolios. They focus on a conventional momentum strategy that… Keep Reading

Do stock return anomalies weaken after discovery? If so, why? In the February 2016 update of their paper entitled “Does Academic Research Destroy Stock Return Predictability?”, David McLean and Jeffrey Pontiff examine out-of-sample and post-publication performance of 97 predictors of the cross section of stock returns published in peer-reviewed finance, accounting and economics journals. For each predictor, published confidence in… Keep Reading

Can stop-loss rules solve the stock momentum crash problem? In the September 2016 update of their paper entitled “Taming Momentum Crashes: A Simple Stop-loss Strategy”, Yufeng Han, Guofu Zhou and Yingzi Zhu test the effectiveness of a somewhat complex stop-loss rule in limiting the downside risk of a stock momentum strategy. Each month, they rank stocks into… Keep Reading

Does the stock market perform poorly in a deflationary environment? In the September 2016 version of his paper entitled “Deflation and Stock Prices”, Michael Clemens explores relationships between change in the Consumer Price Index (CPI) and each of stock market return and stock market valuation. He defines four deflation/inflation regimes based on ranges of annualized average monthly… Keep Reading

Does identification of trends in the CBOE Volatility Index (VIX) via simple moving averages (SMA) support effective timing of the U.S. stock market or VIX futures exchange-traded notes (ETN)? to investigate we consider timing four asset pairs: SPDR S&P 500 (SPY) – ProShares Short S&P500 (SH) since SH inception on 6/21/06. SPY – iShares 1-3… Keep Reading

Is the term structure of CBOE Volatility Index (VIX) futures useful for timing the underlying stock index? In the February 2012 version of his paper entitled “The Relationship between VIX Futures Term Structure and S&P500 Returns”, Athanasios Fassas relates the VIX futures term structure to both contemporaneous and future S&P500 Index returns. He measures the VIX futures term structure as the… Keep Reading

Can traders exploit a tendency of some investors to over-anticipate good or bad news just before firm earnings announcements? In their 2016 paper entitled “Fear and Greed: a Returns-Based Trading Strategy around Earnings Announcements”, flagged by a subscriber, Ivo Jansen and Andrei Nikiforov investigate post-release reversal of extreme abnormal returns during the week before an earnings announcement. Specifically, they test a trading… Keep Reading

How do the long and short sides of futures trend-following strategies differently affect portfolio riskiness? In their September 2016 paper entitled “The Long and Short of Trend Followers”, Jarkko Peltomaki, Joakim Agerback and Tor Gudmundsen-Sinclair investigate via linear regression behaviors of the long and short sides of commonly used trend-following strategies across equities, bonds, commodities and currency futures/forwards… Keep Reading