Investing Research Articles

Different strategic allocation strategies employ different ways of: (1) estimating future values of key asset variables (return, volatility, correlation); and, (2) combining these variables to set future allocations. Each strategy thus produces a distinct return stream. Does it therefore make sense to diversify across strategies? In his February 2012 paper entitled “Diversifying Diversication Strategies: Model… Keep Reading

Can investors rely on the power of commodity futures to diversify equities, or have growth in industrial hedging and general financialization of commodities permanently changed correlations? In the November 2011 version of their paper entitled “Correlation in Commodity Futures and Equity Markets Around the World: Long-Run Trend and Short-Run Fluctuation”, Xiao-Ming Li, Bing Zhang and Zhijie… Keep Reading

How does the effectiveness of safe havens vary over time? In the February 2012 draft of their paper entitled “Safe Haven Assets and Investor Behaviour under Uncertainty”, Dirk Baur and Thomas McDermott examine the roles of gold and U.S. Treasury instruments as safe haven assets during times of financial markets uncertainty. They define a safe haven asset as… Keep Reading

How fast must traders move to operate efficiently in the high-frequency arena? In their February 2012 paper entitled “High-Frequency Technical Trading: The Importance of Speed”, Martin Scholtus and Dick van Dijk investigate execution speed sensitivity of technical trading rule performance for three highly liquid exchange-traded funds (ETF). They consider 27,424 variations of five price-based and two volume-based types of trading… Keep Reading

Do market capitalization (size) and book-to-market ratio systematically affect intermediate-term momentum and long-term reversal for individual stocks? In their February 2012 paper entitled “Momentum and Reversal: Does What Goes Up Always Come Down?”, Jennifer Conrad and Deniz Yavuz examine whether size and book-to-market ratio interact with momentum portfolio performance over intervals of 0-6, 6-12, 12-24 and 24-36 months… Keep Reading

Dollar cost averaging (DCA) is a very simple and intuitive way to buy more (less) of an asset when its price is low (high), thereby achieving some cost efficiency. Is there a simple and reliable way to enhance DCA? In their December 2011 paper entitled “Building a Better Mousetrap: Enhanced Dollar Cost Averaging”, Lee Dunham and… Keep Reading

Does the S&P 500 implied volatility index (VIX) exhibit systematic behaviors by day of the week? In their February 2012 paper entitled “Day of the Week Effect on the VIX: A Parsimonious Representation”, Maria Gonzalez-Perez and David Guerrero apply methodologies that minimize sensitivity to outliers to examine VIX day-of-the-week patterns. Using daily closes of VIX and the S&P 500… Keep Reading

…evidence suggests that investors may be able to gain an edge from the power of changes in implied volatilities to predict returns for individual stocks, and the power of stock returns to predict future changes in implied volatilities.

Generally, when stocks go up (down), iPath S&P 500 VIX Short Term Futures (VXX) goes down (up). A reader asked what happens after stocks and VXX move in the same direction. Is this unusual behavior a useful signal? Using daily returns of SPDR S&P 500 (SPY) and VXX from the inception of the latter on 1/30/09 through 2/17/12… Keep Reading

Have researchers unfairly treated actively managed mutual funds by using non-investable benchmarks? In their February 2012 paper entitled “Another Look at the Performance of Actively Managed Equity Mutual Funds”, David Blitz and Joop Huij evaluate the performance of actively managed equity mutual funds against a set of passively managed market, small capitalization, growth and value index funds… Keep Reading