“Option-implied Correlation as Stock Market Return Predictor” finds that implied correlation for a broad stock market index relative to its components may be useful for predicting equity market returns. To corroborate, we look at the...
Does option-implied correlation, a measure of the expected average correlation between a stock index and its components over a specified horizon, predict stock market behavior? In their January 2017 paper entitled “Option-Implied Correlations, Factor Models, and...
What drives the low-risk stock return anomaly, wherein low-risk stocks outperform high-risk stocks (contrary to a reward-for-risk view)? In their February 2017 paper entitled “Betting Against Correlation: Testing Theories of the Low-Risk Effect”, Clifford Asness, Andrea Frazzini, Niels...
A subscriber requested a horse race among the following four simple asset class allocation strategies: Seasonal SPY-VFITX – the strategy tested in “Bonds During the Off Season?”, which switches between SPDR S&P 500 (SPY) and Vanguard Intermediate-Term...
Are there plenty of exchange-traded funds (ETF) offering positive or negative exposures to widely accepted factor premiums? In his February 2017 paper entitled “Are Exchange-Traded Funds Harvesting Factor Premiums?”, David Blitz analyzes the exposures of U.S....
“When to Sell Equity Index Put Options” summarizes research finding that the “insurance” premium from systematically selling equity index out-of-the-money (OTM) put options concentrates during the last few days before expiration. An ancillary finding is that...
Can speculators squeeze the “insurance” premium from shorting equity index put options in just the few days before expiration? In their January 2017 paper entitled “The Timing of Option Returns”, Adriano Tosi and Alexandre Ziegler investigate the...
Does adjusting stocks-bonds allocations according to trend following rules improve the performance of 30-year retirement portfolios? In their November 2016 paper entitled “Applying a Systematic Investment Process to Distributive Portfolios: A 150 Year Study Demonstrating...
Are precious metals effective safe havens, preserving capital when stocks and bonds crash? In their January 2017 paper entitled “Reassessing the Role of Precious Metals as Safe Havens – What Colour is Your Haven and...
Does the original 1963-1997 study identifying (Amihud) illiquidity as a stock pricing factor hold in recent data? In their December 2016 paper entitled “Illiquidity and Stock Returns: Cross-Section and Time-Series Effects: A Replication”, Lawrence Harris and Andrea Amato...
Is there an exploitable short-term momentum effect after asset price jumps? In his January 2017 paper entitled “Profitability of Trading in the Direction of Asset Price Jumps – Analysis of Multiple Assets and Frequencies”, Milan Ficura...
Are there profitable intraday stock price momentum and/or reversal strategies? In his January 2017 paper entitled “Intra-Day Momentum”, Oleg Komarov examines the profitability of intraday times series (intrinsic or absolute) and cross-sectional stock price momentum and...
Do attention-grabbing recent returns reliably indicate overvalued and undervalued stocks? In their December 2016 paper entitled “Salience Theory and Stock Prices: Empirical Evidence”, Mathijs Cosemans and Rik Frehen test the effectiveness of salience theory for predicting stock returns....
How frequent, deep and long are currency carry trade (buying currencies with high interest rates and selling currencies with low interest rates) drawdowns, and how can traders mitigate them? In their January 2017 paper entitled...
“Equity Market and Treasuries Variance Risk Premiums as Return Predictors” reports a finding, among others, that the variance risk premium for 10-year U.S. Treasury notes (T-note) predicts near-term returns for those notes (as manifested via futures)....
Do bonds, like equity markets, offer a variance risk premium (VRP)? If so, does the bond VRP predict bond returns? In their January 2017 paper entitled “Variance Risk Premia on Stocks and Bonds”, Philippe Mueller, Petar Sabtchevsky, Andrea...
Do narratives (stories) sometimes trump rationality in financial markets? In his January 2017 paper entitled “Narrative Economics”, Robert Shiller considers the epidemiology (spread, mutation and fading) of stories as related to economic fluctuations. He explores the...
Do accounting-based stock return anomalies exist in samples that precede and follow those in which researchers discover them? In their November 2016 paper entitled “The History of the Cross Section of Stock Returns”, Juhani Linnainmaa and Michael...
Does suppressing unrelated risks from stock factor portfolios improve performance? In their January 2017 paper entitled “Diversify and Purify Factor Premiums in Equity Markets”, Raul Leote de Carvalho, Lu Xiao, François Soupé and Patrick Dugnolle investigate how to improve...
Are trend in stock fundamentals and stock price momentum mutually reinforcing return predictors? In their January 2017 paper entitled “Dual Momentum”, Dashan Huang, Huacheng Zhang and Guofu Zhou combine a measure of fundamentals trend and past return to...
How can the financial markets research community shed biases that exaggerate predictability and associated expected performance of investment strategies? In his January 2017 paper entitled “The Scientific Outlook in Financial Economics”, Campbell Harvey assesses the conventional...
A reader commented and asked: “Ned Davis Research calculates a time cycle composite. How good is an equal weighting of the annual seasonal cycle, the Presidential term cycle and the decennial cycle at predicting the...
Do individual stocks react differently and persistently to aggregate investor mood changes? In their December 2016 paper entitled “Mood Beta and Seasonalities in Stock Returns”, David Hirshleifer, Danling Jiang and Yuting Meng investigate whether some stocks have...
“Cross-asset Class Intrinsic Momentum” summarizes research finding that past country stock index (government bond index) returns relate positively (positively) to future country stock market index returns and negatively (positively) to future country government bond index returns....
Are stock and bond markets mutually reinforcing with respect to time series (intrinsic or absolute return) momentum? In their December 2016 paper entitled “Cross-Asset Signals and Time Series Momentum”, Aleksi Pitkajarvi, Matti Suominen and Lauri Vaittinen examine a...