Do large cap stocks boost portfolio performance at year’s end?

With the approach of the holiday season, holiday-related investment advice has become increasingly fashionable. Here is the latest: a claim of a ‘less well-known fact’ that large-cap stocks outperform small-cap stocks in December versus the ‘well-known fact’ that the reverse is true in January. The article then suggested a simple strategy to boost one’s portfolio: overweight large-cap stocks in December, then switch to small-cap stocks in January.

How much advantage can one obtain using this strategy? We decided to test it.

We used the SP600 Barra Value and SP600 Barra Growth indices as proxies for small-cap stocks (historical data is

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The Mathematical Investor: A personal perspective by DHB

[Editorial note: During the next few weeks, each of the editors of the Mathematical Investor will provide, in an essay format, some personal background explaining the origins of their interest and work in this area. This is a perspective essay by David H. Bailey.]

Early interest in economics and finance

Although I only recently began to delve into the world of financial mathematics in any technical depth, I have been interested in (indeed, fascinated by) the world of economics and finance for many years. During my senior year at Brigham Young University, I very much enjoyed a course in economics

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The myth of the Halloween indicator

Holiday season is coming and so is holiday related investment advice. Right before Halloween (31 Oct 2013), the Halloween Indicator emerged in the Wall Street Journal online site suggesting that during the six months from Halloween (October 31) to May Day (May 1), the market has a higher return compared to the other six months.

Eager to find out how much edge this indicator will provide, we compared a buy-and-hold-the-DJIA strategy from 1915 to 2012 versus taking a position only during the six-month period from October 31 to May 1. The equity curve for these two strategies both starting with one

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The art of investing

Bravery or recklessness?

Investing is often referred to as an Art: The Art of Investing. True artists may object to this analogy, but, in any event, the key implication is that quantitative methods have a very limited applicability to investment problems, and mathematical (i.e., formally rigorous and logical) arguments are essentially misguided. Proponents of this philosophy often assert that investing is just too complex, with too many free variables, for mathematical methods to be of much use. But aren’t biological, chemical or nuclear systems also complex, and yet Mathematics has become the indispensable tool to understand them?

Every human activity

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