Investing Research Articles

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

How should investors assess the credibility of investment strategy backtests? In his October 2013 paper entitled “Telling the Good from the Bad and the Ugly: How to Evaluate Backtested Investment Strategies”, Patrick Beaudan recommends ways to judge investment strategies and backtests based on his years of experience in evaluating, managing and investing in algorithmic strategies. His perspective… 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 seven Fridays. Chapter 2: “Making the Strategy Logical” “Making an investment/trading strategy logical essentially means making it testable and implementable, with inputs, outputs and rules clearly defined, properly sequenced and inclusive of… Keep Reading

What is the global financial asset allocation? In their November 2013 paper entitled “The Global Multi-Asset Market Portfolio 1959-2012”, Ronald Doeswijk, Trevin Lam and Laurens Swinkels construct the aggregate portfolio of all investors encompassing market capitalizations for eight asset classes: equities, private equity, real estate, high-yield bonds, emerging markets debt, investment-grade credits (corporate bonds and… Keep Reading

Starting today and continuing for the next eight Fridays, we are previewing for subscribers a short book entitled Avoiding Investment Strategy Flame-outs. The initial installments are: “Introduction” “Why do investment/trading strategies that test well on historical data flame out when put to actual use? Are there steps investors can take to improve the odds that strategies… Keep Reading

Motivation to avoid being “burned by the turn” tempts trend followers to increase measurement frequency and/or use stop-losses. Do these approaches help momentum players jump the turn? In their October 2013 paper entitled “The Significance of Trading Frequency and Stop Loss in Trend Following Strategies”, Farzine Hachemian, Sebastien Tavernier and Anne-Sophie Van Royen assess whether… Keep Reading

Are implied volatility futures good diversifiers of underlying indexes? Do implied volatility futures for different indexes represent a reliable pair trading opportunity? In their November 2013 paper entitled “Investment Strategies with VIX and VSTOXX Futures”, Silvia Stanescu and Radu Tunaru update the case for hedging conventional stock and stock-bond portfolios with near-term implied volatility futures for… Keep Reading

Have investors overwhelmed commercial traders in commodity futures markets, thereby depressing the value of commodity futures as a diversifier of stocks and bonds? In his November 2013 papers entitled “Implications of Financialization for Commodity Investors: The Case of Roll Yields” and “Implications of Financialization for Strategic Asset Allocation: The Case of Correlations”, Adam Zaremba examines the effects… Keep Reading

How can retirees optimally segregate reliable income from risky growth? In their November 2011 paper entitled “The Floor-Leverage Rule for Retirement”, flagged by a subscriber, Jason Scott and John Watson examine a retirement allocation strategy that strictly segregates safe income-generating assets (“riskless” bonds) from potentially income-boosting risky assets (stocks). They designate the safe allocation as… Keep Reading