Investing Research Articles

Does the limited supply of lendable shares substantially inhibit successful short selling? In the November 2013 draft of their paper entitled “In Short Supply: Equity Overvaluation and Short Selling”, Messod Beneish, Charles Lee and Craig Nichols examine the profitability of shorting U.S. stocks based on the supply of shares available for lending. They note that the… Keep Reading

Does stock pairs trading work reliably in the mature UK market? In their November 2013 paper entitled “Pairs Trading in the UK Equity Market: Risk and Return”, David Bowen and Mark Hutchinson examine the profitability of pairs trading in this market via overlapping portfolios. Each month, they normalize prices for all stocks in the universe… Keep Reading

How fast must attentive investors be to exploit the information in new releases of major sentiment and economic indicators? In their November 2013 paper entitled “Early Peek Advantage?”, Grace Xing Hu, Jun Pan, and Jiang Wang measure the impacts of Michigan Consumer Sentiment Index releases on E-mini S&P 500 futures volume and price with and… Keep Reading

Here is this Friday’s installment of Avoiding Investment Strategy Flame-outs, a short book we are previewing for subscribers. Chapter previews will continue for the next five Fridays. Chapter 4: “Accounting for Implementation Frictions” “Investment frictions (costs) include such burdens as broker transaction fee, bid-ask spread, impact of trading (for large trades), borrowing cost for shorting, cost of… Keep Reading

Is simple momentum the secret sauce of Managed Futures funds? In their 2013 paper entitled “Demystifying Managed Futures”, Brian Hurst, Yao Ooi and Lasse Pedersen examine how well simple trend-following strategies based on time series (intrinsic or absolute) momentum explain the performance of Managed Futures funds. Their simple intrinsic momentum strategy goes long (short) a… Keep Reading

Both “Stock Return Correlations and Retail Trader Herding” and “Stock Return Correlations and Equity Market Stress” imply that extremely high correlations among stock returns accompany severe market declines and may signal market bottoms. Is there some simple way to exploit this implication? Keying on the former item, we investigate the correlation of returns between a large-stock… Keep Reading

Are there easily implementable life cycle investing strategies reliably superior to the conventional glidepath from equities toward bonds? In their June 2013 paper entitled “The Glidepath Illusion… and Potential Solutions”, flagged by a subscriber, Robert Arnott, Katrina Sherrerd and Lillian Wu summarize flaws in the conventional glidepath approach and explore simple alternatives that address some… Keep Reading

Do upside (downside) market volatility surprises scare investors out of (draw investors into) the stock market? In the November 2013 version of his paper entitled “Dynamic Asset Allocation Strategies Based on Unexpected Volatility”, Valeriy Zakamulin investigates the ability of unexpected stock market volatility to predict future market returns. He calculates stock market index volatility for a… Keep Reading

Here is this Friday’s installment of Avoiding Investment Strategy Flame-outs, a short book we are previewing for subscribers. Chapter previews will continue for the next six Fridays. Chapter 3: “Avoiding or Mitigating Snooping Bias” “Snooping bias, also called mining bias and more loosely benefit of hindsight, is a notorious artificial booster of backtest performance. It takes multiple… Keep Reading

Is diversification across stock and bond factors superior to diversification across asset classes? In their August 2013 report entitled “Investing in Systematic Factor Premiums”, Kees Koedijk, Alfred Slager and Philip Stork measure the gross performances of widely used stock and bond factors and pit portfolios diversified across those factors against portfolios diversified across asset classes. For… Keep Reading