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Investing Research Articles

3591 Research Articles

Fed Model or P/E Model for Predicting Stock Market Corrections?

Can investors rely on overvaluation signals from the market price-earnings ratio (P/E) and the Fed Model to predict major stock market corrections? Which model works better? In their July 2013 paper entitled “Does the Bond-Stock Earning Yield Differential Model Predict Equity Market Corrections Better Than High P/E Models?”, Sebastien Lleo and William Ziemba test the power of… Keep Reading

Asset Class Future Performance Poll

We are continuing to test interest in a poll regarding which of nine asset classes will perform best during the next calendar month (September 2013). The poll is in the right-hand column on the CXOadvisory.com home page below the “CURRENT MOMENTUM WINNERS” box. Participation and results are open only to CXOadvisory.com subscribers. Our assumption (based on… Keep Reading

Asset Allocation Based on Trends Defined by Moving Averages

Does trading based on simple moving average crossings reliably improve the performance of a portfolio diversified across asset classes? In the February 2013 update of his paper entitled “A Quantitative Approach to Tactical Asset Allocation”, Mebane Faber examines the effects of applying a 10-month simple moving average (SMA10) timing rule separately to each of the… Keep Reading

Future of the Price of Gold

Will increases in central bank and investor holdings of gold drive its price higher? Or, is the price of gold in bubble territory, portending weak future returns? In the May 2013 update of their paper entitled “The Golden Dilemma”, Claude Erb and Campbell Harvey investigate how investors should treat gold in asset allocation. They consider a… Keep Reading

Sorting Out the Idiosyncratic Volatility Anomaly

Does exceptional (idiosyncratic) stock volatility exploitably predict future returns? In her April 2013 paper entitled “Revisiting Idiosyncratic Volatility and Stock Returns”, Fatma Sonmez re-examines the relationship between idiosyncratic volatility and future stock returns. She defines idiosyncratic volatility as the standard deviation of daily residuals from monthly regressions of returns (in excess of the risk-free rate) for… Keep Reading

Diversification Power Failure?

Do the relationships among returns for stocks and the most heavily traded commodities (gold and crude oil) consistently offer risk diversification? In their July 2013 paper entitled “Gold, Oil, and Stocks”, Jozef Baruník, Evzen Kocenda and Lukas Vacha analyze the return relationships among stocks ( the S&P 500 Index), gold and oil (light crude) over… Keep Reading

The Timing Value of John Hussman’s Market Climate Assessments

Do quantitatively-driven mutual fund managers such as John P. Hussman, Ph.D, president of Hussman Investment Trust, successfully time the stock market? He describes his market timing approach as follows: “The key elements in evaluating securities and market conditions are ‘valuations’ and ‘market action.’ Each unique combination of these conditions results in a distinct Market Climate,… Keep Reading

Out-of-Sample Test of What Works on Wall Street (O’Shaughnessy’s Cornerstone Strategies)

How well does stock screening research translate into performance? In the mid-1990s, James O’Shaughnessy identified “cornerstone value” and “cornerstone growth” as best-of-breed equity investment strategies. The former emphasizes dividends among large-capitalization stocks, and the latter momentum/earnings growth for a broader universe. Based on Standard and Poor’s Compustat data, he found that the value (growth) strategy… Keep Reading

Unified Carry Trade Theory

Does the carry trade concept provide a useful framework for valuation of securities within and across all asset classes? In their July 2013 paper entitled “Carry”, Ralph Koijen, Tobias Moskowitz, Lasse Pedersen and Evert Vrugt investigate expected return across asset classes via decomposition into “carry” (expected return assuming price does not change) and expected price appreciation. They… Keep Reading

Asset Class Ranking Subscriber July 2013 Poll Results

The following table summarizes ranking of asset classes by subscribers responding during July 2013 to the following question (via the home page poll): “Which of the following asset classes do you expect to perform best in August 2013?” For comparison, the table also shows ranking of asset classes by momentum as specified in the baseline Momentum Strategy.