Investing Research Articles

Do widely acknowledged U.S. equity market anomalies exist in other stock markets? If so, why? In his November 2011 paper entitled “Equity Anomalies Around the World”, Steve Fan investigates whether a number of equity market anomalies found among U.S. stocks (asset growth, book-to-market ratio, investment-to-assets ratio, six-month momentum with skip-month, net stock issuance, size and… Keep Reading

How can an investor decide whether a new strategy or new asset class (more generally, a stream of returns), is better than those currently in a portfolio? In their February 2012 paper entitled “The Sharpe Ratio Indifference Curve”, David Bailey and Marcos Lopez de Prado introduce a process for assessing addition of a new strategy (return… Keep Reading

Some experts use the mean-variance analysis of Modern Portfolio Theory (MPT), which penalizes large upside volatility, to measure portfolio efficiency. Others use Second-order Stochastic Dominance (SSD) analysis, purer mathematically than MPT but open to unrealistic investor behavior. Is there a better way? In the February 2012 version of his paper entitled “The Passive Stock Market Portfolio is Highly… Keep Reading

How overconfident are individual investors, and how does overconfidence affect their investing practices? In his November 2011 paper entitled “Financial Overconfidence Over Time | Foresight, Hindsight, and Insight of Investors”, Christoph Merkle examines relationships between the return/risk expectations of affluent, self-directed private investors and their trading activity, diversification and risk taking. To frame the relationships, he considers… Keep Reading

Are option traders market leaders, such that information gleaned from options trading anticipates equity returns? In the December 2011 draft of their paper entitled “Exploiting Option Information in the Equity Market”, Guido Baltussen, Bart Van der Grient, Wilma De Groot, Weili Zhou and Erik Hennink examine whether information publicly available from the option market exploitably predicts… Keep Reading

What is the best way to include the least developed (frontier) stock markets for portfolio diversification? In his December 2011 paper entitled “Frontier Markets: Punching Below their Weight? A Risk Parity Perspective on Asset Allocation”, Jorge Chan-Lau compares the diversification effects of frontier markets within a world equity portfolio based on risk parity and market capitalization… Keep Reading

It is arguable that many stock momentum strategy tests derive more from logical/programming simplicity than common portfolio management practices. Does momentum work for portfolios of U.S. stocks when melded with the latter? In the January 2012 update of his paper entitled “Relative Strength and Portfolio Management”, John Lewis tests individual stock momentum in the context of real-world… Keep Reading

How do pension funds, arguably representative of sophisticated and conservative investors, use real estate as an alternative investment? In their January 2012 paper entitled “Value Added From Money Managers in Private Markets? An Examination of Pension Fund Investments in Real Estate”, Aleksandar Andonov, Piet Eichholtz and Nils Kok investigate the allocation, costs and performance of pension… Keep Reading

Can investors usefully predict the short-term direction of the stock market by contrasting the outlooks implied by out-of-the-money (OTM) and at-the-money (ATM) market index options. In the October 2011 update of their paper entitled “Implied Volatility Spreads and Expected Market Returns”, Turan Bali, Ozgur Demirtas and Yigit Atilgan investigate the relationship between stock market index… Keep Reading

Does the effectiveness of simple moving average (SMA) crossing signals vary with stock volatility? In the August 2011 update of their paper entitled “A New Anomaly: The Cross-Sectional Profitability of Technical Analysis”, Yufeng Han, Ke Yang and Guofu Zhou investigate the application of SMAs to portfolios of stocks sorted based on realized volatility. Specifically, each… Keep Reading