Investing Research Articles

Do implications of equity option prices predict returns for underlying stocks? In their December 2013 paper entitled “Option-Implied Volatility Measures and Stock Return Predictability” Xi Fu, Eser Arisoy, Mark Shackleton and Mehmet Umutlu compare the abilities of various option-implied volatility metrics to predict returns for individual stocks at horizons of one to three months. Specifically, they… Keep Reading

How do gold and gold miner stocks interact? In his February 2014 presentation package entitled “A Golden Bet: Gold Miner Equities versus Gold”, Claude Erb examines the long-run relationship between gold and a gold miner stock indexes. He relies mostly on in-sample regressions over a 20-year sample period. Using monthly gold price and gold miner… Keep Reading

A subscriber flagged an apparently very attractive exchange-traded fund (ETF) momentum-volatility-correlation strategy that, as presented, generates a optimal compound annual growth rate of 45.7% with modest maximum drawdown. The strategy chooses from among the following seven ETFs: ProShares Ultra S&P500 (SSO) SPDR EURO STOXX 50 (FEZ) iShares MSCI Emerging Markets (EEM) iShares Latin America 40… Keep Reading

Are currency traders the last ones to know? In the February 2014 draft of their paper entitled “Cross-Asset Return Predictability: Carry Trades, Stocks and Commodities”, Helen Lu and Ben Jacobsen investigate whether commodity and stock index returns predict currency carry trade performance. They consider equally weighted carry trade strategies that each month buy (sell) one-month forward… Keep Reading

Are there parallels at the country stock market level of the size, value and momentum effects observed for individual stocks? In their January 2014 paper entitled “Value, Size and Momentum across Countries”, Adam Zaremba and Przemysław Konieczka investigate country-level value, size and momentum premiums. They measure these factors at the country level as: Value (V): book-to-market ratio of country… Keep Reading

…evidence suggests that investors may be able to boost returns by incorporating a liquidity style into stock selection.

A reader observed: “One of the problems with simple moving average (SMA) crossing rules is the churning from random price movements across the average. Lars Kestner proposes improvements to SMA crossing rules that signal: BUY when: (1) the close crosses over an SMA of the highs (rather than the closes); and, (2) the SMA of… Keep Reading

Does a stronger stock price trend, up or down, indicate a bigger momentum effect? In their February 2014 paper entitled “Trend Salience, Investor Behaviors and Momentum Profitability”, Paul Docherty and Gareth Hurst test variations of a conventional stock momentum strategy that consider both past returns and rate of change of past returns relative to other… Keep Reading

Pairs traders often use a normalized price gap threshold of two standard deviations to generate signals for opening trades. Is there a better metric for generating these signals? In the January 2014 version of their paper entitled “Pairs Trading with Copulas”, Wenjun Xie, Qi Rong Liew, Yuan Wu and Xi Zou compare the performances of… Keep Reading

Do economic indicators usefully predict government bond returns? In the January 2014 version of their paper entitled “What Drives the International Bond Risk Premia?”, Guofu Zhou and Xiaoneng Zhu examine whether OECD-issued leading economic indicators predict government bond returns at a one-month horizon. They focus on a four-country (U.S., UK, Japan and Germany) aggregate leading economic… Keep Reading