September 23, 2011 - Big Ideas
The conventional binary animal metaphor for markets is bull (good returns, low volatility) and bear (poor returns, high volatility). Does rigorous analysis of empirical evidence support belief in (just) two market states? In their September 2011 paper entitled “The Number of Regimes Across Asset Returns: Identification and Economic Value”, Mathieu Gatumel and Florian Ielpo apply a regime-switching model and Monte… Keep Reading
September 22, 2011 - Gold
Do the different ways of investing in gold produce similar outcomes? In their September 2011 paper entitled “A Comparative Analysis of the Investment Characteristics of Alternative Gold Assets”, Tim Pullen, Karen Benson and Robert Faff examine the diversification, hedging and safe haven properties of gold bullion, ten gold stocks, 11 gold mutual funds and two gold… Keep Reading
September 21, 2011 - Volatility Effects
In their September 2011 paper entitled “The Impact of Asymmetry on Expected Stock Returns: An Investigation of Alternative Risk Measures”. Stephen Huffman and Cliff Moll investigate the relation between various measures of lagged total, downside and upside risk and future daily stock returns. Specifically, they consider the following 12 alternative risk measured over rolling intervals of… Keep Reading
September 19, 2011 - Commodity Futures
What is the best way to incorporate commodities into a diversified portfolio? In her August 2011 paper entitled “Long-Short Commodity Investing: Implications for Portfolio Risk and Market Regulation”, Joelle Miffre studies the performance of long-short commodity strategies and their hedging properties with respect to traditional asset classes (proxied by the S&P 500 Index and Barclays Capital… Keep Reading
September 15, 2011 - Mutual/Hedge Funds, Technical Trading
A reader suggested reviewing the detailed track record of SweetSpot Investments LLC, consisting of 29 closed trades over the past 12 years. The basic SweetSpot strategy posits market-beating three-year reversion of the three least popular “sectors” out of 100 formed from 500 non-diversified mutual funds and exchange-traded funds (ETF). Popularity is a function of fund assets and prior-year… Keep Reading
September 14, 2011 - Strategic Allocation
Do sophisticated asset allocation strategies beat simple ones? In the December 2010 version of their paper entitled “Risk Parity Portfolio vs. Other Asset Allocation Heuristic Portfolios”, Denis Chaves, Jason Hsu Feifei Li and Omid Shakernia conduct a horse race among six asset allocation weighting strategies applied to nine asset classes: 60/40: 60% S&P 500 Index/40% Barclays Capital… Keep Reading
September 13, 2011 - Equity Options
In his 2011 book entitled The Market Taker’s Edge: Insider Strategies from the Options Trading Floor, author Dan Passarelli “offers lessons from the trading pits from the perspective of a professional trader turned options evangelist for the benefit of both aspiring professional traders and nonprofessional traders alike.” According to the book’s foreword: “What the trading industry has needed is… Keep Reading
September 12, 2011 - Animal Spirits
Do investors in aggregate respond to “staged” CEO visibility? In the August 2011 update of their paper entitled “CEO Interviews on CNBC”, Felix Meschke and Andy Kim investigate whether planned interviews with CEOs on financial television systematically affect associated stock prices over the days before and after the interview. The authors focus on the interval… Keep Reading
September 9, 2011 - Momentum Investing
What is the state of momentum investing? In their January 2011 paper entitled “Momentum”, Narasimhan Jegadeesh and Sheridan Titman summarize equity price momentum research and discuss explanations for the momentum anomaly. Specifically, they address equity momentum investing performance during 1990 through 2009, and the firm characteristics and market conditions that affect momentum returns. Based on a review of… Keep Reading
September 8, 2011 - Mutual/Hedge Funds
Do hedge funds rely on off-the-beaten-track (illiquid) positions to fuel performance? In his April 2011 paper entitled “Hedge-Fund Performance and Liquidity Risk”, Ronnie Sadka investigates aggregate market liquidity as a predictor of hedge fund performance. His calculates liquidity based on trade-by-trade price impact estimated monthly for individual stocks and aggregated by averaging. Using net monthly returns… Keep Reading