Investing Research Articles

In his 2004 autobiography, My Life as a Quant, Reflections on Physics and Finance, Emanuel Derman recounts his experiences as a physicist driven by the forces of employment supply and demand to redirect his labor toward quantitative financial analysis/strategy. Knowledge and skills critical to his transition are: a sense of how the world works, modeling… Keep Reading

Does value beat growth because: (1) investors/traders irrationally overreact to recent bad (good) news about value (growth) stocks; or, (2) they rationally recognize that value stocks are inherently more risky than growth stocks? In their March 2005 paper entitled “Value versus Growth: Movements in Economic Fundamentals”, Yuhang Xing and Lu Zhang seek to clarify the… Keep Reading

…Regulation FD has helped level the playing field for analysts, and likely also for investors/traders.

…investors/traders should focus first on unexplained volume in a stock, and then on its bid-ask spread, as indicators of future abnormal returns.

…a supply side analysis indicates that stocks will outperform long-term government bonds by an arithmetic average of 6% annually.

In their October 2005 paper entitled “The January Effect”, Mark Haug and Mark Hirschey examine the persistence of the January effect (abnormally high rates of return during the month of January). Using broad samples of value-weighted and equally-weighted returns spanning 1802-2004 for large-capitalization stocks and 1927-2004 for small-capitalization stocks, they conclude that:

…the Dow Theory has generated excess risk-adjusted (but not raw) returns when compared to buy-and-hold over some significant periods by following large trends.

…skillful individual investors exploit market inefficiencies to earn abnormal profits, above and beyond those available from well-known strategies based upon firm size, value or momentum.

…human psychology and sociology can trump the forces of stock market rationalization, at least for a while.

…demographic trends suggest a headwind for U.S. equities over the next 15 years. Baby Boomers may drive P/Es down as they sell to fund retirement.