Investing Research Articles

Do behaviors of commodity futures over the past decade require updating of beliefs based on earlier research? In their August 2015 paper entitled “Conquering Misperceptions about Commodity Futures Investing”, Claude Erb and Campbell Harvey update and interpret research on returns from a passive, continuous investment in commodity futures. They focus on: Relative contributions of price return and income… Keep Reading

What qualifiers can enhance the performance of a small value stock strategy? In their August 2015 paper entitled “Leveraged Small Value Equities”, Brian Chingono and Daniel Rasmussen devise and test a strategy to refine a portfolio of small capitalization value stocks of firms that with relatively high financial leverage. Specifically, their target universe at the end of each year… Keep Reading

What indicator works best to mitigate stock momentum strategy crashes? In his March 2015 paper entitled “Momentum Crash Management”, Mahdi Heidari compares performances of seven indicators for avoiding conventional stock momentum strategy crashes: (1) prior-month market return; (2) change in prior-month market return: (3) market volatility (standard deviation of 52 weekly returns); (4) dispersion (variance) of daily returns… Keep Reading

Does combining the outputs of many methods of estimating the equity risk premium (ERP) produce a useful result? In their February 2015 paper entitled “The Equity Risk Premium: A Review of Models”, Fernando Duarte and Carlo Rosa estimate ERP via principal component analysis of 20 models, which they assign to five categories: (1) predictors based solely on historical average return; (2) dividend… Keep Reading

Is implied volatility of implied volatility, interpretable as a measure of changes in investor fear level, a useful indicator of future stock market returns or VIX futures returns? To investigate, we examine relationships between the CBOE VVIX Index, a measure of the expected volatility of the 30-day forward level of the S&P 500 Implied Volatility Index (VIX) derived… Keep Reading

Does the new Fama-French five-factor model of stock returns explain a wider range of anomalies than the workhorse Fama-French three-factor model. In the June 2015 update of their paper entitled “Dissecting Anomalies with a Five-Factor Model”, Eugene Fama and Kenneth French examine the power of their five-factor model of stock returns to explain five anomalies not explicitly related to the five factors… Keep Reading

Does the set of variables that have the strongest correlations with subsequent U.S. stock market returns over the prior decade usefully predict market returns out-of-sample? In the July 2015 draft of their paper entitled “A Practitioner’s Defense of Return Predictability”, Blair Hull and Xiao Qiao apply this correlation screening approach to a set of 20 published stock market forecasting variables encompassing… Keep Reading

Where is the price of gold headed? In their August 2015 paper entitled “The Golden Constant”, Claude Erb and Campbell Harvey apply a “golden constant” hypothesis (inflation is the principal driver of the price of gold) to project the future price of gold. Specifically, they explore implications of mean reversion of the real price of gold. Using the monthly… Keep Reading

Is there an easy way to avoid unfavorable positions within a currency carry trade strategy (long currencies with high interest rates and short those with low)? In their July 2015 paper entitled “Conditioning Carry Trades: Less Risk, More Return!”, Arjen Mulder and Ben Tims examine a carry trade strategy that avoids currencies for which exchange rate return is likely to offset interest rate… Keep Reading

What does a large online repository of research on financial markets say about community interactions? In the August 2015 version of his article entitled “Recent Trends in Empirical Finance”, Marcos Lopez de Prado measures trends in level of research activity, topical emphasis, level of interest as measured by downloads and level of collaboration. Based on data for 128,897 research… Keep Reading