Investing Research Articles

Do brokers who accept payments for order flow (PFOF) pass this income through to customers in the form of cheaper trade execution? In his June 2022 paper entitled “Price Improvement and Payment for Order Flow: Evidence from A Randomized Controlled Trial”, Bradford Lynch compares execution quality for trading randomly selected U.S. common stocks with at… Keep Reading

Does the U.S. stock market respond predictably to Federal Open Market Committee (FOMC) announcements, typically released between 14:00 and 14:20 EST? In the August 2022 version of their paper entitled “The FOMC Announcement Reversal”, Tommaso Baglioni and Ruy Ribeiro examine the relationship between pre-FOMC announcement returns and post-FOMC announcement returns. Specifically, they test a reversal… Keep Reading

Do brokers do better for clients than the bid (ask) when executing market sell (buy) orders? Which ones do best? In their August 2022 paper entitled “The ‘Actual Retail Price’ of Equity Trades”, Christopher Schwarz, Brad Barber and Xing Huang measure stock trade execution quality in six brokerage accounts across five retail brokers offering zero-commission… Keep Reading

Below is a weekly summary of our research findings for 8/22/22 through 8/26/22. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs. Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list.

What kind of firm growth should long-term investors value most? In his August 2022 paper entitled “The Role of Net Income Growth in Explaining Long-Horizon Stock Returns”, Hendrik Bessembinder relates decade compound stock returns to same-decade growth in firm net income, sales and assets and same-decade average profitability (income-to-assets ratio). His universe consists of U.S…. Keep Reading

A subscriber asked about frequency, magnitude and duration of bear market rallies. To investigate, we employ the S&P 500 Index and consider three ways to define a bear market: From the day the index is first down over 20% from a prior peak until the day it closes no more than 20% down (< -20%… Keep Reading

Is the gap between the yield on the 10-year constant maturity U.S. Treasury note (T-note) and the 10-Year breakeven inflation rate (a measure of expected inflation over the next 10 years derived from T-note yield and 10-Year Treasury inflation-indexed constant maturity securities yield) indicative of future stock market or U.S. Treasury bond yields? To investigate,… Keep Reading

Does the sentiment expressed by major newspapers about the economy usefully predict stock market returns? To investigate, we employ the Daily News Sentiment Index, constructed from “economics-related news articles from 24 major U.S. newspapers [across] all major regions of the country…with at least 200 words… The Daily News Sentiment Index is constructed as a trailing weighted-average… Keep Reading

Below is a weekly summary of our research findings for 8/15/22 through 8/19/22. These summaries give you a quick snapshot of our content the past week so that you can quickly decide what’s relevant to your investing needs. Subscribers: To receive these weekly digests via email, click here to sign up for our mailing list.

A subscriber suggested testing SentimenTrader’s Dumb Money Confidence model “that incorporates more than a dozen indicators that have a track record of cycling to extremes, and equating with ebbs and flows in sentiment among broad categories of investors.” To investigate, we transcribe monthly values of Dumb Money Confidence from the chart at the link and… Keep Reading