Charles Favreau :: Resources

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Thinking about a PhD?

PhD or Not? Greg Mankiw

Selected Financial Research

Many of these already published articles can be downloaded for free while signed on through your university internet access.

52 week High
- The 52-Week High and Momentum Investing
- George and Hwang 2004
- The authors suggest that the 52 week high creates a barrier which investors are reluctant to trade past. When good news arrives which warrants price adjustment, the information eventually prevails and the price moves up, resulting in continuation.
- http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2004.00695.x/full

Mad Money with Jim Cramer
- Market Madness? The Case of Mad Money
- Engelberg, Sasseville, and Williams 2011
- The authors find that stock recommendations lead to large overnight returns that subsequently reverse over the next few months.
- http://pubsonline.informs.org/doi/abs/10.1287/mnsc.1100.1290

Momentum
- Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency
- Jegadeesh and Titman, 1993
- Strategies that buy stocks which have performed well in the past and sell stocks that have performed poorly in the past generate significant positive returns over 3-12 month holding periods.
- http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1993.tb04702.x/full

Momentum Crashes
- Momentum Crashes
- Daniel and Moskowitz, 2013
- Returns to momentum strategies are negatively skewed; they experience infrequent but strong and persistent strings of negative returns. These momentum crashes are partly forecastable.
- http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2371227

Value and Momentum
- Value and Momentum Everywhere
- Asness, Moskowitz and Pedersen, 2013
- Value and Momentum strategies are evident across time, countries, and asset classes. Value and Momentum strategies negatively covary.
- http://onlinelibrary.wiley.com/doi/10.1111/jofi.12021/full

Momentum and Reversal

Momentum and Reversal: Does What Goes up Always Come Down?
Conrad and Yavuz (2015)
Stocks which contribute to momentum, do not reverse. Stocks which do not contribute to momentum, subsequently reverse.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2011148

Momentum Fact and Fiction

Fact, Fiction and Momentum Investing
Asness, Frazzini, Israel, and Moskowitz (2014)
http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2435323

Value and Gross Profitability
- The Other Side of Value: The Gross Profitability Premium
- Novy-Marx, 2013
- Profitability, measured by gross profits-to-assets, has roughly the same power as book-to-market predicting the cross section of average returns. Profitable firms generate significantly higher returns than unprofitable firms, despite having significantly higher valuation ratios. Controlling for profitability also dramatically increases the performance of value strategies, especially among the largest, most liquid stocks.
- http://www.sciencedirect.com/science/article/pii/S0304405X13000044

Value and Piotroski F score
- Identifying Expectation Errors in Value/Glamour Strategies: A Fundamental Analysis Approach
- Piotroski and So, 2012
- It is well established that value stock outperform glamour stocks, yet considerable debate exists about whether the return differential reflects compensation for risk or mispricing.
- http://rfs.oxfordjournals.org/content/early/2012/04/18/rfs.hhs061.short

Post-Earnings Announcement Drift (PEAD)
- Comparing the Post–Earnings Announcement Drift for Surprises Calculated from Analyst and Time Series Forecasts
- Livnat and Mendenhall, 2006
- Post–earnings announcement drift is the tendency for a stock's cumulative abnormal returns to drift in the direction of an earnings surprise for several weeks following an earnings announcement.
- http://onlinelibrary.wiley.com/doi/10.1111/j.1475-679X.2006.00196.x/abstract

PEAD and Disposition
- The Disposition Effect and Underreaction to News
- Frazzini, 2006
- The author shows that post-announcement price drift is most severe whenever capital gains and the news event have the same sign. The magnitude of the drift depends on the capital gains (losses) experienced by the stock holders on the event date. An event-driven strategy based on this effect yields monthly alphas of over 200 basis points.
- http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2006.00896.x/full

Stocks with High Short interest
- Short Interest, Institutional Ownership, and Stock Returns
- Asquith, Pathak, and Ritter 2005
- The authors find that short constrained stocks underperform by a significant 215 basis points per month.
- http://www.sciencedirect.com/science/article/pii/S0304405X05001170

Stocks with Low Short Interest
- The Good News in Short Interest
- Boehmer, Huszar, and Jordan, 2010
- Stocks with relatively high short interest subsequently experience negative abnormal returns, but the effect can be transient and of debatable economic significance. In contrast, heavily traded stocks with low short interest experience both statistically and economically significant positive abnormal returns.
- http://www.sciencedirect.com/science/article/pii/S0304405X09002402

Short Interest

Supply and Demand Shifts in the Shorting Market
Cohen, Diether, Malloy (2007)
Identifying shifts in the demand curve, the authors find that demand for shorts is an important predictor of future stock returns. An increase in demand results in an abnormal decrease of 2.98% in the following month.
http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2007.01269.x/full

Weekly Reversal
- Evidence of predictable behavior of security returns
- Jegadeesh, 1990
- Negative first-order serial correlation in monthly stock returns is highly significant.
- http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.1990.tb05110.x/abstract

Large decrease Reversals
- The Reversal of Large Stock-Price decreases
- Bremer and Sweeney, 2012
- Extremely large negative 10-day rates of return are followed on average by larger-than-expected positive rates of return over following days. This price adjustment lasts approximately 2 days
- http://www.jstor.org/stable/2328846?seq=1#page_scan_tab_contents

Sentiment
- Investor Sentiment and the Cross-Section of Stock Returns
- Baker and Wurgler, 2006
- When beginning-of-period proxies for sentiment are low, subsequent return relatively high for small stocks, young stocks, high volatility stocks, unprofitable stocks, non-dividend-paying stocks, extreme growth stocks, and distressed stocks. When sentiment is high, these categories of stock earn relatively low subsequent returns.
- http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2006.00885.x/abstract

Sports Sentiment
- Sports Sentiment and Stock Returns
- Edmans, Garcia and Norli, 2007
- A loss in the soccer World Cup elimination stage leads to a next-day abnormal stock return of -49 basis points. This loss effect is stronger in small stocks and in more important games, and is robust to methodological changes. The authors also find a loss effect after international cricket, rugby and basketball games.
- http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2007.01262.x/full

Insider Trading
- Decoding Inside Information
- Cohen, Malloy and Pomorski, 2012
- After removing routine traders from the sample, the authors find a portfolio strategy that yields 82 basis points per month.
- http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2012.01740.x/abstrac

Fear Sentiment revealed through internet searches

The Sum of All FEARS Investor Sentiment and Asset Prices
Da, Engelberg, and Gao, 2014
We use daily Internet search volume from millions of households to reveal market-level sentiment. By aggregating the volume of queries related to household concerns (e.g., “recession," “unemployment," and “bankruptcy"), we construct a Financial and Economic Attitudes Revealed by Search (FEARS) index as a new measure of investor sentiment. Between 2004 and 2011, we find FEARS (i) predict short-term return reversals, (ii) predict temporary increases in volatility, and (iii) predict mutual fund flows out of equity funds and into bond funds.
http://rfs.oxfordjournals.org/content/early/2014/10/17/rfs.hhu072

Size and Value

The Cross-Section of Expected Stock Returns
Fama and French, 1992
Two easily measured variables, size and book-to-market equity, combine to capture the cross-sectional variation in average stock returns
https://www.jstor.org/stable/2329112?seq=1#page_scan_tab_contents

Limited attention and stock returns

Investor Inattention and Friday Earnings Announcements
Dellavigna and Pollet, 2009
Friday earnings announcements have a 15% lower immediate response and a 70% higher delayed response.
http://onlinelibrary.wiley.com/doi/10.1111/j.1540-6261.2009.01447.x/abstract

Links to R Resources

What is R?

Open source, statistical analysis program rapidly gaining popularity in Finance and among data scientists
Why R? http://r4stats.com/articles/popularity/
Alternatives: SAS, Matlab, Python