October 16, 2012 - Size Effect
“Market Capitalization Concentration as Stock Market Predictor” summarizes research finding that the change in the level of concentration of total market capitalization in the largest firms may be a useful predictor of stock market returns. Does a simple trading strategy based on this finding beat the market? To investigate, we examine the ratio of the S&P… Keep Reading
October 16, 2012 - Size Effect
Do changes in total market capitalization shares of large-capitalization and small-capitalization stocks predict future equity returns? In their September 2012 paper entitled “Davids, Goliaths, and Business Cycles”, Jefferson Duarte and Nishad Kapadia investigate whether a predictor based on concentration of market valuation predicts market returns. Specifically, they test the power of annual change in the logarithm of… Keep Reading
October 15, 2012 - Fundamental Valuation
Does market-driven deviation of the price of an exchange-traded fund (ETF) from its net asset value (NAV) predict an exploitable future return? In the September 2012 draft of their paper entitled “Reading Tomorrow’s Newspaper: Predictability in ETF Returns”, Jon Fulkerson and Bradford Jordan examine the relationship between price-to-NAV ratio and next-day return for ETFs. Using daily opening and closing… Keep Reading
October 12, 2012 - Calendar Effects
Is the outperformance of stocks during November-April compared to May-October pervasive worldwide and over time? In their October 2012 paper entitled “The Halloween Effect: Everywhere and All the Time”, Ben Jacobsen and Cherry Zhang test the “Halloween” or “Sell-in-May” effect for all stock markets worldwide using the full histories of indexes available for these markets (excluding dividends). Using 55,425… Keep Reading
October 11, 2012 - Momentum Investing, Size Effect, Strategic Allocation, Value Premium, Volatility Effects
How do specialized stock indexes relate to commonly used equity risk factors? In his February 2012 paper entitled “Evaluating Alternative Beta Strategies”, Xiaowei Kang examines risk exposures (betas), construction methodologies and historical performances of alternative stock indexes such as those based on value, low-volatility and diversification strategies. He considers five risk factors: (1) market, representing excess return… Keep Reading
October 9, 2012 - Technical Trading
What are the parameters of profitable stock pairs trading in European equity markets? In their June 2011 paper entitled “European Equity Pairs Trading: The Effect of Data Frequency on Risk and Return”, Michael Lucey and Don Walshe examine the effects of both price measurement frequency (daily, weekly or monthly) and magnitude of pair price divergence… Keep Reading
October 8, 2012 - Commodity Futures, Strategic Allocation
Are commodities effective diversifiers for stocks and bonds? In his September 2012 paper entitled “Commodity Investments: The Missing Piece of the Portfolio Puzzle?”, Xiaowei Kang examines the diversification properties of commodity indexes relative to stock and bond indexes. He focuses on the widely used S&P GSCI, composed of 24 commodities with liquid futures markets weighted by… Keep Reading
October 3, 2012 - Commodity Futures, Mutual/Hedge Funds, Strategic Allocation
Are managed futures programs good portfolio diversifiers? In his September 2012 paper entitled “Revisiting Kat’s Managed Futures and Hedge Funds: A Match Made in Heaven”, Thomas Rollinger updates prior research exploring the diversification effects of adding managed futures to traditional portfolios of stocks and bonds and to portfolios including stocks, bonds and hedge funds. His proxies… Keep Reading
October 1, 2012 - Mutual/Hedge Funds, Volatility Effects
Does a low-beta strategy work for mutual funds? In his September 2012 paper entitled “Capitalizing on the Greatest Anomaly in Finance with Mutual Funds”, David Nanigian examines portfolios of funds sorted on lagged beta to determine whether mutual fund investors can capitalize on outperformance of low-beta assets. He calculates rolling betas for each mutual fund based… Keep Reading
September 28, 2012 - Volatility Effects
Does the S&P 500 options-implied volatility index (VIX) exhibit predictable daily, overnight and intraday tendencies? In their September 2012 paper entitled “What Makes the VIX Tick?”, Warren Bailey, Lin Zheng and Yinggang Zhou employ high-frequency data to investigate patterns in VIX behavior and measure relationships between VIX and various financial fundamentals, economic announcements and investor… Keep Reading