Research Insights Archives

Can ChatGPT Improve Your Stock Picks?

One use of the NLP (natural language processing) features of ChatGPT is to search out patterns in the immense amounts of news, data and other sources of information about specific stocks, and then efficiently convert them into summaries valuable for all types of investors. Can this be accomplished with useful results? The authors use the Q2_2023 period to test performance around earnings announcements. Earnings announcements and earnings surprises are informationally rich as well as challenging events for investors to analyze.

Band of Brothers Attacking Short Sellers: Game Stop for Hedge Funds

Advisors and investors should be aware that fund families that invest systematically have found ways to incorporate the research findings on the limits to arbitrage and the evolving changes we have discussed to improve returns over those of a pure index replication strategy. It seems likely this will become increasingly important, as the markets have become less liquid, increasing the limits to arbitrage and allowing for more overpricing.

Global Factor Performance: February 2024

The following factor performance modules have been updated on our Index website.

Professional Athletes and Money Skills

Until that framework is defined, an assessment of the financial acumen of professional athletes will remain unfocused. This research addresses that gap.

Trend to Passive Investing Negatively Affecting Active Funds

While the evidence makes clear that active management is a loser’s game (one that it is possible to win but so unlikely you should not try), we don’t want active managers to disappear. Hope should continue to triumph over evidence, wisdom, and experience because active managers help eliminate market anomalies and inefficiencies created by the misbehavior of investors (such as noise traders). That helps to ensure that capital is allocated efficiently.

DIY Trend-Following Allocations: February 2024

Full exposure to domestic equities. Full exposure to international equities. Partial exposure to REITs. No exposure to commodities. Partial exposure to intermediate-term bonds.

The Smart Money Can Buy Stocks, but They Can’t Sell Them

The paper aims to investigate whether experienced institutional portfolio managers (PMs) exhibit behavioral biases in their decision-making processes, specifically focusing on the selling decisions.

Moving Average Distance and Time-Series Momentum

For investors that use trend-following strategies, Avramov, Kaplanski, and Subrhmanyam provided new evidence supporting momentum strategies and showed that the distance between short- and longer-term momentum signals provides additional explanatory power in the cross-section of equity returns.

Here are the themes found in financial planning research. What’s missing?

In this academic article, the authors pull together an analysis of the types of thematic structures found most often in financial planning studies as well as the theories most often referenced.

Outperforming Cap- (Value-) Weighted and Equal-Weighted Portfolios

Antonello Cirulli and Patrick Walker, authors of the December 2023 study “Outperforming Equal Weighting,” examined whether equally weighted portfolios could be enhanced by avoiding negative exposure to some of the most prominent factor anomalies documented in asset pricing literature.

Financial Literacy in the US…Doesn’t look great!

This paper aims to analyze financial literacy in the United States, utilizing the most recent data from the National Financial Capability Study (NFCS) collected in 2021 by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation. The paper focuses on the importance of financial literacy, particularly in the context of the economic conditions in the US, such as the COVID-19 pandemic, inflation, and changes in the financial system.

Peer-Reviewed Theory and Expected Stock Returns

The risk-based explanation provided by a peer-based review is a necessary ingredient for considering investment, but it is not a sufficient ingredient.

Global Factor Performance: January 2024

Standardized Performance Factor Performance Factor Exposures Factor Premiums Factor Attribution Factor Data Downloads

Is a quantitative defensive factor strategy feasible? Yes.

We examine the research around the question of what the proper framework for building a defensive factor strategy is.

Crowded Trades Increase Crash Risks

Crowded equity positions in anomalies remain and have significant impacts in terms of risk and return dynamics.

Do racial barriers prevent Black and Hispanic households from pursuing financial advice?

This article seeks to examine what research says about the interplay between risk tolerance, financial literacy, and trust and their collective impact on the pursuit of financial advice by Black and Hispanic households.

DIY Trend-Following Allocations: January 2024

Full exposure to domestic equities. Full exposure to international equities. Full exposure to REITs. No exposure to commodities. Partial exposure to intermediate-term bonds.

Fifty Shades of Grey Swans: Timeless Risks with a Modern Twist

The world is complex and ever-changing; news travels at warp speed, events happen fast, and popular narratives can distract and mislead us. Many risks important for our portfolios are new, hidden, or nuanced in some underappreciated way—and likely to be misunderstood and mispriced in the markets. Other risks can hide in plain sight. Good risk management can be described as a balancing act that employs the first principles of investing, lessons from history, behavioral psychology, a little math, and even our imagination in service of our objective: to detect and defend against the risks we can foresee and fortify our portfolios against those we cannot. In short: we need informed creativity, not calculation.

The Financial Distress Puzzle

The empirical research findings demonstrate that the return premium generated by being long low-distress risk stocks and short high-distress risk stocks is persistent and that the capital asset pricing model (CAPM) and the Fama-French three-factor models cannot explain it. Hence, we have the distress puzzle, or anomaly.

Are stock returns predictable at different points in time?

For many benchmark predictor variables, short-horizon return predictability in the U.S. stock market is local in time as short periods with significant predictability (“pockets”) are interspersed with long periods with no return predictability.

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