Investing Research Articles

Investors typically employ backtests to estimate future performance of investment strategies. Two approaches to assess in-sample optimization bias in such backtests are: Reserve (hold out) some of the historical data for out-of-sample testing. However, surreptitious direct use or indirect use (as in strategy construction based on the work of others) of hold-out data may contaminate its independence…. Keep Reading

Should investors worry that investment strategies available in the marketplace may derive from optimization via intensive backtesting? In the September 2013 update of their paper entitled “Backtest Overfitting and Out-of-Sample Performance”, David Bailey, Jonathan Borwein, Marcos Lopez de Prado and Qiji Zhu examine the implications of overfitting investment strategies via multiple backtest trials. Using Sharpe ratio as… Keep Reading

Which individual stock pickers beat the market? In their September 2013 paper entitled “The Information Content of Investors’ Expectations for Risk and Return”, Thomas Berry and Keith Jacks Gamble examine the performance of the most recent stock picks of members of the American Association of Individual Investors (AAII) who participated in an online survey. They… Keep Reading

Do low-risk bonds, like low-risk stocks, tend to outperform their high-risk counterparts? In their September 2013 paper entitled “Low-Risk Anomalies in Global Fixed Income: Evidence from Major Broad Markets”, Raul Leote de Carvalho, Patrick Dugnolle, Xiao Lu and Pierre Moulin investigate whether low-risk beats high-risk for different measures of risk and different bond segments. They… Keep Reading

How does wine perform as a long-term investment? In the September 2013 version of their paper entitled “The Price of Wine”, Elroy Dimson, Peter Rousseau and Christophe Spaenjers examine the performance of wine as a long-term investment, with focus on the impact of aging. They employ long price histories for five long-established Bordeaux wines constructed… Keep Reading

Are stocks so attractive over the long run that they crowd bonds and cash out of the optimal portfolio? In their September 2013 paper entitled “Optimal Portfolios for the Long Run”, David Blanchett, Michael Finke and Wade Pfau relate optimal portfolio equity allocation to investment horizon worldwide to determine whether stocks universally exhibit time diversification… Keep Reading

Should long-term investors focus on terminal wealth and ignore interim volatility? In his August 2013 paper entitled “Rethinking Risk”, Javier Estrada compares distributions of terminal wealths for $100 initial investments in stocks or bonds over investment horizons of 10, 20 or 30 years. He utilizes mean, median, tail (extreme 1%, 5% and 10%) and risk-adjusted performance… Keep Reading

Does purifying stock return rankings of any dependence on Fama-French three-factor model risk factors enhance momentum strategy performance? In an update of their August 2009 paper entitled “Residual Momentum”, David Blitz, Joop Huij and Martin Martens suppress exposures of a conventional stock momentum strategy to market, size and book-to-market ratio risk factors by ranking stocks on residual returns… Keep Reading

Are collectibles good long-term investments? In their September 2013 paper entitled “The Investment Performance of Emotional Assets”, Elroy Dimson and Christophe Spaenjers estimate long-term returns for selected collectibles and review the risks associated with such investments. They focus on art, stamps and violins, and also consider wine and diamonds. Using repeat sales histories and catalog prices for… Keep Reading

Does combining past return rankings at long (multi-year) and short (3-12 months) intervals offer a means of boosting momentum strategy returns? In their August 2013 paper entitled “Price Momentum Components: Evidence from International Market Indices”, Graham Bornholt and Mirela Malin compare strategies based on the interplay of short-term continuation and long-term reversal as applied to… Keep Reading