Investing Research Articles

Are the relatively placid financial markets of the American Century evolving to a high-volatility regime in a more evenly competitive world? In his December 2011 paper entitled “Adaptive Markets and the New World Order”, Andrew Lo examines the implications of the Adaptive Markets Hypothesis (AMH), wherein “markets are not always efficient, but they are usually highly competitive… Keep Reading

A subscriber suggested applying a simple momentum trading strategy to a set of leveraged equity style (size, value-growth) exchanged-traded funds (ETF), including leveraged long and leveraged short counterparts to exploit both positive and negative markets. It seems plausible that leverage may make funds react quickly and strongly to business cycle shifts that affect style performance. However, the costs… Keep Reading

An update to the “What Works Best?” page makes the discussion more expansive (to address strategic asset allocation), shifts emphasis and adds references.

How many commodity sectors are relevant for portfolio diversification planning, and how do their behaviors differ? In their December 2011 paper entitled “How Many Commodity Sectors Are There, and How Do They Behave?”, Geetesh Bhardwaj and Adam Dunsby examine the statistical properties of commodity futures prices to discover natural sectors and investigate how returns for these… Keep Reading

Do stock analysts elected to All-American (AA) status by institutional voters (via Institutional Investor magazine) reliably out-pick other analysts? In the December 2011 update of their paper entitled “Are Stars’ Opinions Worth More? The Relation Between Analyst Reputation and Recommendation Values”, Lily Fang and Ayako Yasuda examine the average performance of stock recommendations of AA… Keep Reading

Is strategic asset class allocation or active management paramount for U.S. university endowment investment performance? In the October 2011 draft of their paper entitled “Do (Some) University Endowments Earn Alpha?”, Brad Barber and Guojun Wang explore the investment performance of U.S. university endowments with regard to overall alpha, performance persistence and sources of superior performance. They… Keep Reading

An updated Investing Demons now includes relevant research summary statements from the past year. This section provides a broad perspective on the content of CXOadvisory.com.

Which widely used valuation metric is best for picking individual stocks? In their November 2011 paper entitled “Analyzing Valuation Measures: A Performance Horse-Race over the past 40 Years”, Wesley Gray and Jack Vogel compare the performances of five annually reformed portfolios sorted on different valuation ratios: earnings-to-market capitalization (E/M); earnings before interest, taxes, depreciation and amortization-to-total enterprise… Keep Reading

A subscriber suggested applying simple momentum trading strategies to a set of leveraged equity style (size, value-growth) funds. It seems plausible that leverage may make funds react quickly and strongly to business cycle shifts that affect style performance. However, the costs of maintaining leverage are countervailing. Historical data for leveraged style funds is very limited, so we… Keep Reading

Should investors believe in the superiority of stocks for the long run and bonds for the short run? In his December 2011 paper entitled “Stocks, Bonds, Risk, and the Holding Period: An International Perspective”, Javier Estrada examines how the absolute and relative risks of stocks and bonds evolve as investment horizon grows (time diversification). Considering… Keep Reading