Investing Research Articles

Does the earnings yield (inverse of price-to-earnings ratio, or E/P) usefully predict returns for individual stocks? In their April 2011 paper entitled “Reexamination of the Earnings-Price Anomaly by the Buy-Sell Strategy”, Hsin-Yi Yu and Li-Wen Chen test a long-only strategy that forms monthly value-weighted portfolios based on time-series sorting rather than cross-sectional sorting. Time-series sorting… Keep Reading

Can portfolios exhibit properties not evident from, or even contrary to, average properties of their component assets? In the April 2011 draft of their paper entitled “The Sources of Portfolio Returns: Underlying Stock Returns and the Excess Growth Rate”, Jason Greene and David Rakowski provide a framework for distinguishing two sources of portfolio return: (1)… Keep Reading

…investors may want to consider all these fees, expenses and costs debited from fund assets as evidence of fund manager emphasis on outcomes other than maximizing net return.

“The Industry 52-week High Effect” summarizes findings that the 52-week high effect, the future outperformance (underperformance) of stocks currently near their respective 52-week highs (lows), is stronger and more consistent for 20 industries than for individual stocks. Do findings apply to equity sectors that are somewhat broader than the 20 industries? Specifically, might such a… Keep Reading

Are 52-week highs and lows useful equity price momentum indicators at the industry level? In their March 2011 paper entitled “Industry Information and the 52-Week High Effect”, Xin Hong, Bradford Jordan and Mark Liu compare the 52-week high effect for industries to that for individual stocks. This effect consists of the future outperformance (underperformance) of… Keep Reading

Can investors exploit greed among naive traders by selling them the most lottery-like equity options? In the March 2011 version of their paper entitled “Stock Options as Lotteries”, Brian Boyer and Keith Vorkink investigate the relationship between skewness of expected returns (a measure of prospects for extreme payouts, a proxy for “lotteryness”) and actual future… Keep Reading

Is the accruals anomaly still on solid ground? In their paper entitled “The Accrual Anomaly”, Patricia Dechow, Natalya Khimich, and Richard Sloan review the origin of and subsequent research on the accruals anomaly. They characterize accruals as “the piece of earnings that is ‘made up’ by accountants” as opposed to the balance coming from cash… Keep Reading

Are options for volatile stocks overpriced? In the September 2010 version of their paper entitled “Cross-Section of Option Returns and Stock Volatility”, Jie Cao and Bing Han investigate the relationship between option return and price volatility of the underlying stock. The focus on delta-hedged positions in options and underlying stocks calibrated such that the combination… Keep Reading

Can investors discriminate between lucky and skillful equity fund managers by examining the distribution of returns across fund holdings? In the September 2010 preliminary draft of their paper entitled “Home-Run Sluggers vs. Contact Hitters: Stock Performance Distribution inside Mutual Funds and Fund Managers’ Stock Picking Ability”, Peter Chung and Thomas Kim relate the skewness of… Keep Reading

Do the stocks of firms that get the most bang per research buck tend to outperform? In the March 2011 update of their paper entitled “Innovative Efficiency and Stock Returns”, David Hirshleifer, Po-Hsuan Hsu and Dongmei Li investigate the relationship between innovative efficiency (IE) and future stock returns. They consider three alternative definitions of IE: … Keep Reading