Investing Research Articles

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

Do analysts who work for hedge funds make good calls? In their November 2011 paper entitled “Do Buy-side Recommendations Have Investment Value?”, Steven Crawford, Wesley Gray, Bryan Johnson and Richard Price III profile analysts employed by mutual funds, hedge funds and other investment firms and examine whether these experts make good trading recommendations. Using personal data and… Keep Reading

Is risk avoidance by itself a good tactical asset allocation strategy? In their November 2011 paper entitled “A Risk Based Approach to Tactical Asset Allocation”, Dario Brandolini and Stefano Colucci propose a purely risk-based asset allocation framework designed to buffer effects of volatility clusters. Their critical allocation variable is expected shortfall, estimated each week to adjust the… Keep Reading

Do real estate investments protect investors from inflation? In their November 2011 paper entitled “Inflation and Real Estate Investments”, Bradford Case and Susan Wachter examine whether real estate investment returns protect consumers from loss of purchasing power. They focus on publicly traded stocks of U.S. equity real estate investment trusts (REIT) as the most transparent source of real estate… Keep Reading

Do the poor returns and high volatility of the “buy-and-hold-is-dead” U.S. stock market since the beginning of 2000 represent a tailwind for market timers? In other words, is buy-and-hold effective as a benchmark for distinguishing between market timer luck and skill in recent years? To check, we measure the performances of various simple monthly market… Keep Reading

Research on the U.S. equity market indicates that “old” or intermediate momentum (12 months ago to 7 months ago) is much more important than “new” or recent momentum (6 months ago to two months ago, incorporating a skip-month to avoid short-term reversal) in predicting future stock returns. Do other equity markets confirm this finding? In their September… Keep Reading

Are the least developed markets also the least efficient, and therefore the best places to look for alpha? Two recent papers address this question for large, sophisticated investors (institutional funds). In the October 2011 version of their paper entitled “Does Active Management Pay? New International Evidence”, Alexander Dyck, Karl Lins and Lukasz Pomorski examine the performance… Keep Reading

James O’Shaughnessy (Chairman and CEO of O’Shaughnessy Asset Management) introduces his 2011 book, What Works on Wall Street (Fourth Edition): the Classic Guide to the Best-Performing Investment Strategies of All Time, by stating: “…investors seem programmed by nature to fail at investing, forever chasing the asset class that has turned in the best performance recently and heavily… Keep Reading