Merger arbitrage, sometimes known as "risk arbitrage," is an investing strategy in which the investor bets on announced M&A deals. After a merger is announced, shares of the target tend to trade below the offered [...]
Wes asked that I contribute to the ongoing debates regarding the construction of value and momentum portfolios. There are three key research pieces on the topic, all with different viewpoints: Alpha Architect's take AQR's take [...]
It has been well-documented that value stocks have provided higher expected returns than growth stocks. However, there is a great debate about the source of that premium: Is it risk-based or is it related to [...]
There has been much discussion of the small-cap premium recently. Has its popularity cannibalized its utility? Are large firms preventing a level playing field? Will the small-cap premium exist going forward? This article does not [...]
Many investors, investment professionals, and pundits make comments regarding the relationship between stock correlations and opportunities for active stock pickers. For example, here is a recent example from the Financial Times: Correlation crash clears way [...]
The subject of asset bubbles and market crashes has fascinated me for more than 20 years. As an options market maker for Susquehanna International Group ("SIG"), extreme price movements were a daily source of concern. I [...]
Short Interest and Lottery Stocks Kelley Bergsma & Jitendra Tayal A version of this paper can be found here Want to read our short summaries of academic finance papers? Check out our Academic Research Insight category. What are [...]
One area in investing that is often overlooked by investors is trade execution, which relates primarily to commissions, bid-ask spreads, and price impact. Yet sometimes it is trade-execution alone that can make the difference between [...]
The market has recently experienced record low levels of realized volatility and the VIX™ (volatility index) has fallen to historic lows. Moreover, the incredibly popular FAAMG stocks[ref]FAAMG is an abbreviation referring to the stocks of [...]
Some things in life are naturally made for each other. Some examples include the following: Peanut Butter and Jelly Starsky & Hutch Value and Momentum So my ears perked up when the idea of combining [...]
If you are out to describe the truth, leave elegance to the tailor. — Albert Einstein Machine learning is everywhere now, from self-driving cars to Siri and Google Translate, to news recommendation systems and, of [...]
Now that the Federal Reserve has begun the process of raising interest rates, and has announced their intention to begin to unwind their policy of quantitative easing (reducing the amount of bonds in their portfolio, [...]
In our context, a technical trading indicator can be considered as a combination of a specific technical trading rule with a particular moving average of prices. In two preceding blog posts we showed that there [...]
The folks at AQR are top-notch researchers and have written a ton of great papers. Some of their more famous papers are the following: Value and Momentum Everywhere A Century of Evidence on Trend Following [...]
Like many advisors, I often find myself reviewing accounts and historical performance for clients and prospects with investments at other firms. Of course I see all the usual suspects like annuities, mutual funds with loads, [...]
In this post we aim to give an overview of some specific types of moving averages. Specifically, we cover "ordinary" moving averages and mention some examples of exotic moving averages.
Our mission is to empower investors through education. This mission is our passion and what drives us to go to work everyday. But we can't fulfill our mission alone. We need help and our two newest teammates, Elisabetta [...]
One of the basic principles of technical analysis is that ``prices move in trends". Traders firmly believe that these trends can be identified in a timely manner and used to generate profits and limit losses. Consequently, trend following is the most widespread market timing strategy; it tries to jump on a trend and ride it. Specifically, when stock prices are trending upward (downward), it's time to buy (sell) the stock. Even though trend following is very simple in concept, its practical realization is complicated. One of the major difficulties is that stock prices fluctuate wildly due to imbalances between supply and demand and due to constant arrival of new information about company fundamentals. These up-and-down fluctuations make it hard to identify turning points in a trend. Moving averages are used to ``smooth" the stock price in order to highlight the underlying trend.
Most long-term approaches to investing, like tactical asset allocation or factor investing, are designed to trade infrequently, generally once a month or once a quarter. This is a feature, not a limitation. Trading infrequently forces [...]
Title: THE VALUE OF CROWDSOURCED EARNINGS FORECASTS Authors: RUSSELL JAME, RICK JOHNSTON, STANIMIR MARKOV, AND MICHAEL C. WOLFE Publication: JOURNAL OF ACCOUNTING RESEARCH, SEPTEMBER 2016 (version here) What are the research questions? Are crowdsourced earnings forecasts from a [...]
