Index Investing and the Informational Efficiency of Stock Prices
This article studies whether index investing has implications for the informational efficiency of stock prices.
Political Beta
This example of research on political beta is an example of applying portfolio theory to problems associated with global politics.
Measuring Geopolitical Risk
Although geopolitical risk has traditionally been approached from a qualitative aspect, what makes it a novel risk is the application of innovative techniques to measure it.
The Role of the Secular Decline in Interest Rates in Asset Pricing Anomalies
Jules van Binsbergen, Liang Ma and Michael Schwert, authors of the September 2022 study “The Factor Multiverse: The Role of Interest Rates in Factor Discovery,” posed an interesting question: Are the findings of at least some of the reported anomalies the direct result of the 40-year secular decline in global interest rates and thus not really anomalies?
Is Democracy better for the stock market?
We examine the question of whether or not democracy leads to better possible outcomes for the stock market.
Do Stocks Efficiently Predict Recessions?
I find that returns are predictably negative for several months after the onset of recessions, becoming high only thereafter. I identify business cycle turning points by estimating a state-space model using macroeconomic data. Conditioning on the business cycle further reveals that returns exhibit momentum in recessions, whereas in expansions they display the mild reversals expected from discount rate changes. A strategy exploiting this pattern produces positive alphas. Using analyst forecast data, I show that my findings are consistent with investors' slow reaction to recessions. When expected returns are negative, analysts are too optimistic and their downward expectation revisions are exceptionally high.
Does Emerging Markets Investing Make Sense?
The analysis above suggests that portfolios that include or exclude emerging allocations are roughly the same. For some readers, this may be a surprise, but for many readers, this may not be "news." That said, even if the data don't strictly justify an Emerging allocation, the first principle of "stay diversified" might be enough to make an allocation.
Of course, the assumptions always matter.
Did Covid-19 Change how We Shop?
We study e-commerce across 47 economies and 26 industries during the COVID-19 pandemic using aggregated and anonymized transaction-level data from Mastercard, scaled to represent total consumer spending. The share of online transactions in total consumption increased more in economies with higher pre-pandemic e-commerce shares, exacerbating the digital divide across economies. Overall, the latest data suggest that these spikes in online spending shares are dissipating at the aggregate level, though there is variation across industries. In particular, the share of online spending in professional services and recreation has fallen below its pre-pandemic trend, but we observe a longer-lasting shift to digital in retail and restaurants.
Gaining an Edge via Textual Analysis of FOMC Meetings
How investors understand and use central bank communications, aka FEDSPEAK, is oftentimes cryptic and difficult to analyze. This study attempts to provide some clarity to this issue by applying textual analysis to both high-frequency price and communication data, to focus on episodes whereby stock price movements are identifiable and on investors’ reactions to specific sentences communicated by the Fed.
The Fed Put is Alive and Well
The question of whether or not the FED considers or responds to the stock market in its policy decisions has been studied fairly extensively, the subject of the existence of the "FED put" continues to pop up in the literature. In this particular revival of the issue, the authors are among the first to study FOMC minutes, transcripts, and other sources of information using textual analysis in order to provide an answer to the question: Does the FED respond to stock market events and if it does, what is the nature of the response?
Macro risks and the term structure of interest rates
Macro risks and the term structure of interest rates Bekaert, Engstrom, ErmolovJournal of Financial Economics, 2021A version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research [...]
Should Treasury Bills Be The Risk-Free Asset in Asset Pricing Models?
In virtually all studies on asset pricing and asset pricing models, the one-month Treasury bill is the choice as the risk-free rate. In his study “The Risk-Free Asset Implied by the Market: Medium-Term Bonds instead [...]
How Do You Think the Global Market Portfolio Has Performed from 1960-2017?
Historical Returns of the Market Portfolio Ronald Doeswijk, Trevin Lam and Laurens SwinkelsThe Review of Asset Pricing Studies, 2019A version of this paper can be found hereWant to read our summaries of academic finance papers? Check [...]
News and its Impact on Risk and Returns Around the World
How news and its context drive risk and returns around the world Charles Calomiris and Harry MamayskyJournal of Financial Economics, August 2019A version of this paper can be found here.Want to read our summaries of academic [...]
Do Treasuries Have a Place in a Modern Portfolio?
Do treasuries, most yielding well south of 1%, have a place in a modern portfolio? Currently at these levels, I conclude they don’t. Modern Portfolio Theory says that “the market” portfolio, leveraged or not, has [...]
Do Interest Rates Explain Value’s Underperformance?
From January 2017 through March 2020, the value premium, defined by HML (the return of high book-to-market stocks minus the return of low book-to-market stocks experienced a drawdown of 42 percent.[ref] The team at Buckingham [...]
Free Tool Announcement: Visualizing Unemployment Claims
Our friend Jonathan Regenstein, over at http://www.reproduciblefinance.com/, convinced me that using R would be a great way to build web applications that would help us fulfill our mission to empower investors through education. We are [...]
Estimating Pandemic Economic Costs for “Face-to-Face” Businesses
Business disruptions from social distancing Miklós Koren and Rita PetoCovid Economics, Center for Economic Policy ResearchA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic [...]
The Economic Consequences of Pandemics: A Guide from History
Pandemics: Long-Run Effects Òscar Jordà, Sanjay R. Singh, Alan M. TaylorCEPR PressA version of this paper can be found here Want to read our summaries of academic finance papers? Check out our Academic Research Insight category What are [...]
Corporate Governance, ESG, and Stock Returns around the World
Corporate Governance, ESG, and Stock Returns around the World Mozzafar KahnFinancial Analysts JournalA version of this paper can be found hereWant to read our summaries of academic finance papers? Check out our Academic Research Insight category [...]