Investing Research Articles

Do stock return anomalies exhibit January and month-of-quarter (first, second or third, excluding January) effects? In his February 2015 paper entitled “Seasonalities in Anomalies”, Vincent Bogousslavsky investigates whether the following 11 widely cited U.S. stock return anomalies exhibit these effects: Market capitalization (size) – market capitalization last month. Book-to-market – book equity (excluding stocks with negative values) divided by market… Keep Reading

Does the average mutual fund investor accrue the average fund performance, or do investor timing practices alter the equation? In their July 2014 paper entitled “Timing Poorly: A Guide to Generating Poor Returns While Investing in Successful Strategies“, Jason Hsu, Brett Myers and Ryan Whitby compare the average dollar-weighted and buy-and-hold returns of different U.S. equity mutual fund styles, with focus… Keep Reading

Does optimal asset allocation, as measured by Sharpe ratio, depend on investment horizon? In their January 2015 paper entitled “Optimal Asset Allocation Across Investment Horizons”, Ronald Best, Charles Hodges and James Yoder explore the optimal (highest Sharpe ratio) mix of long-term U.S. corporate bonds and large-capitalization U.S. common stocks across investment horizons from one to 25 years. They test portfolios… Keep Reading

A reader suggested looking at Rydex asset ratios as stock market sentiment indicators. The reasoning for these indicators is that a high (low) ratio of assets in bullish funds to assets in bearish funds indicates an overbought (oversold) market. Are these indicators useful? The most timing-intensive traders arguably use leveraged funds, suggesting that a bull-bear… Keep Reading

What is the best mix of stocks and bonds to hold during retirement worldwide? In his January 2015 paper entitled “The Retirement Glidepath: An International Perspective”, Javier Estrada compares outcomes for different stocks-bonds allocation strategies during retirement from a global perspective. He considers declining equity, rising equity and static glidepaths with an annual withdrawal rate of 4% (of the portfolio value at retirement) and annual… Keep Reading

Given the conflicting evidence about the import of the size effect, is there a way investors can extract a reliable premium from small stocks? In their January 2015 draft paper entitled “Size Matters, If You Control Your Junk”, Clifford Asness, Andrea Frazzini, Ronen Israel, Tobas Moskowitz and Lasse Pedersen examine whether controlling for firm quality mitigates the following seven unfavorable empirical… Keep Reading

A subscriber inquired whether the “Simple Asset Class ETF Momentum Strategy” (SACEMS) is a good diversifier of the U.S. stock market. This strategy allocates funds at the end of each month to the one (Top 1), equally weighted two (EW Top 2) or equally weighted three (EW Top 3) of the following asset class exchange… Keep Reading

Is use of long-term stock index call options effective for those approaching retirement with desires of limiting exposure to crashes without sacrificing all benefit of equity exposure? In his January 2015 paper entitled “Individuals Approaching Retirement Have Options (Literally) to Secure a Comfortable Retirement”, Bryan Foltice proposes retirement strategies that employ stock index options during the five years before retirement (when… Keep Reading

Does adding profitability and asset growth (investment) factors improve the performance of the widely used Fama-French three-factor (market, size, book-to-market) model of stock returns? In the September 2014 version of their paper entitled “A Five-Factor Asset Pricing Model” Eugene Fama and Kenneth French assess whether extensions of their three-factor model to include profitability and investment… Keep Reading

Are overnight trading motivations systematically different from those that drive trading during normal trading hours? In the January 2015 version of their paper entitled “Tug of War: Overnight Versus Intraday Expected Returns”, flagged by a subscriber, Dong Lou, Christopher Polk and Spyros Skouras (1) decompose abnormal returns associated with well-known stock return predictors into overnight and intraday… Keep Reading