Momentum has historically been a great strategy. Although counter-intuitive to many value investors, buying stocks with rising prices has been a great investment approach--arguably better than value investing. Moreover, the approach is robust between the 2 samples analyzed. The lesson is clear: Let your winners ride and cut your losers short.
Mean Reversion, Momentum and Return Predictability Huang, Jiang, Tu, Zhou A version of the paper can be found here. Want a summary of academic papers with [...]
Investors are enamored with various investment houses and personalities who claim insight into the prospects for long-term expected market returns. Some classic examples include Nouriel Roubini, John Hussman, David Rosenberg, or Jeremy Grantham. All really smart people. But have you ever asked "How" these folks came to their conclusions? In most cases, the answer is probably "No" and the reason is because there is a lack of transparency from the author(s) and/or a lack of knowledge/understanding on behalf of the reader. We also want to highlight that one can develop incredibly complex return forecasting models -- super sexy, super interesting, super compelling, etc. -- but that still doesn't mean they are any good at forecasting much of anything.
When Walmart Comes to Town: Always Low Housing Prices? Always? Devin Pope and Jaren Pope A version of the paper can be found here. Want a [...]
Filip Lacerda and Pedro Santa-Clara have an interesting paper that investigates the use of dividend growth to predict future returns. Here is the abstract: The [...]
Confirmation bias leads to the selective use of information It is easy to obtain confirmations, or verifications, for nearly every theory - if we look [...]
The traditional small-minus-big value-adjusted long/short factor (SMB) developed by Gene Fama and Ken French has arguably added NO value over time. Performance over the past 30 years [...]
We did a recent internal simulation study on the performance of cheap and expensive stocks based on a variety of valuation metrics. We looked at [...]
Fulcrum Asset Management has an interesting overview piece related to some recent research that attempts to predict bubbles: http://www.fulcrumasset.com/files/frn201401.pdf The source article is below: http://cowles.econ.yale.edu/P/cd/d19a/d1914.pdf [...]
“When my information changes, I alter my conclusions. What do you do, sir?” - John Maynard Keynes How does the Decoy Effect work? Here is [...]
Covered Calls and Their Unintended Reversal Bet Israelov and Nielsen A version of the paper can be found here. Want a summary of academic papers with [...]
'Consistent' Earnings Surprises Hwang, Liu, and Lou A version of the paper can be found here. Want a summary of academic papers with alpha? Check out [...]
Deflating Profitability Ball, Gerakos, Linnainmaa, and NikolaevA version of the paper can be found here.Want a summary of academic papers with alpha? Check out our Academic Research [...]
Hard work ≠ Value "Imagine you play in a tennis tournament at your local club. As your opponents are of the same strength as you, [...]
Wes and I have a recent paper (found here) which examines a more complete measure of shareholder yield (dividends, net stock repurchases, and debt reduction). Here [...]
Clinical intuition and test scores as a basis for diagnosis Klehr, R. Journal of Consulting Psychology, 13, 34-38 An online version of the paper can [...]
We know that valuation metrics such as the CAPE, or Shiller P/E, ratio are correlated with long-term returns (notice we didn't say "predict" long-term returns--that is [...]
Analyst Interest as an Early Indicator of Firm Fundamental Changes and Stock Returns Jung, Wong, Zhang A version of the paper can be found here. Want [...]
Sports Sentiment and Stock Returns Edmans, Garica, and Norli A version of the paper can be found here. Want a summary of academic papers with alpha? [...]
Sell Winners Too Early and Hold Losers Too Long Researchers have explored the "disposition effect" for years, which describes how investors are more likely to sell [...]
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