Investing Research Articles

Do equity sectors have exploitably measurable relative value? In his February 2013 paper entitled “Equity Sector Rotation via Credit Relative Value” (the National Association of Active Investment Managers’ 2013 Wagner Award winner), Dave Klein outlines a long-only strategy that ranks Standard & Poor’s Select Sector SPDR exchange-traded fund (ETF) based on relative value. The strategy seeks to exploit a belief that… Keep Reading

What works better for currency trading, technical or fundamental analysis? In their April 2013 working paper entitled “Exchange Rate Expectations of Chartists and Fundamentalists”, Christian Dick and Lukas Menkhoff compare the behavior and performance of technical analysts (chartists) and fundamental analysts (fundamentalists) based on monthly surveys of several hundred German professional dollar-euro exchange rate forecasters,… Keep Reading

Is there a portfolio diversification approach that beats widely used mean-variance optimization and risk parity approaches? In their July 2011 paper entitled “Properties of the Most Diversified Portfolio”, Yves Choueifaty, Tristan Froidure and Julien Reynier compare the performance metrics of their Most Diversified Portfolio (MDP) to those of portfolios based on market capitalization (MKT), equal… Keep Reading

Analyses in “Shorting VXX with Crash Protection” suggest that one-month momentum may be a useful signal for trading in and out of a short position in iPath S&P 500 VIX Short-Term Futures ETN (VXX). A subscriber inquired whether a short-term version of this signal is effective. Specifically, how useful is a strategy that goes short VXX… Keep Reading

How do “passive” stock indexes constructed from widely researched allocation rules fare against market capitalization weighting? In their March 2013 paper entitled “An Evaluation of Alternative Equity Indices – Part 1: Heuristic and Optimised Weighting Schemes”, Andrew Clare, Nick Motson and Steve Thomas compare the behaviors of eight alternative stock indexes formed from a common… Keep Reading

How should investors view illiquid assets? In the January 2013 draft of his book chapter titled “Illiquid Asset Investing”, Andrew Ang summarizes the characteristics of investments in illiquid assets. Illiquid investments typically exhibit infrequent trading, small trades (in terms of number of units) and low turnover. Examples are hedge funds (to some degree), real estate and… Keep Reading

Why do optimal portfolios derived from Modern Portfolio Theory (MPT) often lose to simple equal-weight portfolios? In the March 2013 version of their paper entitled “Why Optimal Diversification Cannot Outperform Naive Diversification: Evidence from Tail Risk Exposure”, Stephen Brown, Inchang Hwang and Francis In explore why mean-variance optimal diversification (giving more weight to those assets driving mean-variance… Keep Reading

Is intrinsic (time series) momentum effective in managing risk across asset classes? In his April 2013 paper entitled “Absolute Momentum: a Simple Rule-Based Strategy and Universal Trend-Following Overlay”, Gary Antonacci examines an intrinsic (absolute or time-series) momentum strategy that each month holds a risky asset (U.S. Treasury bills) when the return on the risky asset… Keep Reading

Should investors consider a broader framework to encompass trend-following/momentum investing strategies? In his March 2013 paper entitled “Asset Price Trend Theory: Reframing Portfolio Theory from the Ground Up”, Robert Dubois presents a portfolio allocation strategy that explicitly includes an assumption that asset prices trend (exhibit return autocorrelation or intrinsic momentum). His approach augments risk management by… Keep Reading

Is there a good short-cut for constructing a low-beta portfolio? In their March 2013 paper entitled “Country and Sector Drive Low-Volatility Investing in Global Equity Markets”, Sanne de Boer, Janet Campagna and James Norman investigate the role of country and sector effects in low-volatility investing across global stock markets. They construct country-sector capitalization-weighted sub-indexes (for… Keep Reading